Here it is, the cherry on top, the transcript of day 4 [PDF] in the Novell v. SCO trial. That would be May 2nd. I've been waiting to make any substantive comment on any of the transcripts until I could read the closing arguments. I think you'll see why when you read them. It's in closing arguments that we find out what each side believes it has demonstrated. You get to see what the lawyers were aiming for with the questions asked of the witnesses, and you find out what they think was established by their answers. I think you will enjoy it.
While I was sleeping (for 12 hours straight), Chris Brown followed up to make sure we got the transcript, which was delayed, and Steve Martin did the HTML already for us. You'll find links to each side's closing arguments in the index, if you want to jump straight to them. And I see more donations. When I say I couldn't do Groklaw without the community's support, I truly mean it. Thanks guys!
Update: Here's the docket entry on the last day of the trial:
Filed & Entered: 05/02/2008
Bench Trial - Completed
Docket Text: Minute Entry for proceedings held before Judge Dale A. Kimball: Bench Trial completed on 5/2/2008. Court opened at 9:05 AM with all parties present. Testimony of one witness heard and evidence was rec'd. Deposition of Andrew Nagle was published. SCO rested its case. Closing arguments were presented by Mr. Acker and Mr. Singer. The Court took the matter under advisement. All exhibits were reviewed and approved by counsel. Court adjourned at 12:00 PM. Attorney for Plaintiff: Stuart Singer, Edward Normand, Mauricio Gonzalez, Jason Cyrulnik, Brent Hatch; Attorney for Defendant: Michael Jacobs, Eric Acker, David Melaugh. Court Reporter: Becky Janke. (kmj)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
THE SCO GROUP, INC., a Delaware
Plaintiff and Counterclaim-
NOVELL, INC., a Delaware
Defendant and Counterclaim-
Case No. 2:04-CV-139 dak
BEFORE THE HONORABLE DALE A. KIMBALL
DATE: MAY 2, 2008
REPORTER'S TRANSCTIPT OF PROCEEDINGS
Reporter: REBECCA JANKE, CSR, RMR
A P P E A R A N C E S
||MORRISON & FOERSTER LLP
BY: MICHAEL A. JACOBS, ESQ.
EIRC M. ACKER, ESQ.
DAVID E. MELAUGH, ESQ.
||BOIES, SCHILLER & FLEXNER LLP
BY: STUART H. SINGER, ESQ.
EDWARD J. NORMAND, ESQ.
JASON CYRULNIK, ESQ.
HATCH, JAMES & DODGE, P.C.
BY: BRENT O. HATCH, ESQ.
I N D E X
||Direct by Normand
||Cross by Melaugh
||Redirect by Normand
|* * *
|CLOSING ARGUMENTS BY MR.
|CLOSING ARGUMENTS BY MR. SINGER
|MAY 2, 2008
||SALT LAKE CITY, UTAH
P R O C E E D I N G S
* * *
THE COURT: Good morning.
ALL ATTORNEYS: Good morning.
THE COURT: You may call your next witness.
MR. NORMAND: Yes, Your Honor. James Nagle. Before that,
could I raise some evidentiary issues?
THE COURT: Sure.
MR. NORMAND: I have spoken with Ms. Jones and with
opposing counsel, Your Honor, about this. You will recall with Mr.
Broderick, yesterday, I did some handwritten markups on the pages
of the Sun and Microsoft agreements, and I wanted to admit the
markups of those pages as evidence.
MR. MELAUGH: We have no objection, Your Honor.
THE COURT: All right. They are admitted. What
MR. NORMAND: They are SCO Exhibit 185-A.
THE COURT: 185-A?
MR. NORMAND: Yes, sir.
THE COURT: So the originals stay, and then the additional
will be the markup, right?
MR. NORMAND: Just one page from the original,
Your Honor, yes.
THE COURT: All right. 185-A is received.
(SCO Exhibit 185-A received in evidence.)
And is that it?
MR. NORMAND: And SCO, 237-A.
THE COURT: Thank you.
(SCO Exhibit 237-A received in evidence.)
MR. NORMAND: Thank you.
THE COURT: Come forward and be sworn, please, right here
in front of the clerk.
the witness hereinbefore named, being first duly cautioned and
sworn or affirmed to tell the truth, the whole truth, and nothing
but the truth, was examined and testified as follows:
DIRECT EXAMINATION MR. NORMAND:
Q. Good morning, Mr. Nagle.
A. Good morning.
THE COURT: Hang on a second.
THE CLERK: Please indicate your name and spell it for the
THE WITNESS: Andrew Nagle. Last name is N-a-g-l-e.
THE COURT: Go ahead.
Q. What is your current employment, Mr. Naglel?
A. I am employed by the SCO Group. I am the Senior
Director of Product Development with the SCO Group.
Q. And what are your responsibilities in that
A. I manage the engineering staff that is responsible for
maintaining the operating system and mobility products that SCO has
on the market.
Q. And what kind of operating systems are those?
A. Unixware and OpenServer.
Q. And how much experience do you have working with
UNIX-based operating systems?
A. I joined the organization that is now the UNIX
Development Organization in 1984. I held a variety of engineering
and management and project management positions between 1984 and
2002. In 2002, I became a product manager and took a more
customer-focusing position. And then, in January of this year, I
moved back to engineering and became -- took over as senior
director of all the development at SCO.
Q. What is your educational background?
A. I have Bachelor's Degree in Electrical Engineering and
a Bachelor's in English from the
University of Delaware. I have a Master's in Electrical
Engineering and a PhD in Electrical Engineering from Carnegie
Q. Mr. Nagle, what is the relationship between the
initial releases of UnixWare and the immediately prior System V
A. The System V releases that pre-date UnixWare for what
would have been for UnixWare 1, would have been System V Release
4.2. 4. -- the existing System V Release 4.2, in order to create
UnixWare, was largely taken lock, stock and barrel to create
UnixWare 1, which was a product of a joint venture between Novell
and USL at the time. There were some Novell Netware features added
and then some user interface and cosmetic changes made, and that
resulted in the UnixWare 1 product. So it was largely the same.
Q. And that's probably on the monitor in front of you, as
A. I see it here.
Q. Do you recognize this demonstrative?
A. I do.
Q. And You helped me create this, correct?
A. I did.
Q. And what does it represent?
A. This depicts the relationship of the System V
Release 4 operating system as it evolved into UnixWare 2. I
previously spoke about UnixWare 1 and its relation to System V
Release 4.2. This shows that UnixWare V Release 4 was further then
developed by the engineering staff at USL to be capable of
multiprocessing. This became the System V Release 4.2 MP. Release
MP is short, of course, for multiprocessing. And then this 4.2 MP
Release was taken pretty much lock, stock and barrel as the 4.2
Release was for UnixWare 1. 4.2 became the foundation of UnixWare
Q. Would UnixWare operate without the code from the
earlier releases of System V?
Q. Could you describe, in general, what kind of work
Santa Cruz, and then SCO, did with UnixWare after it acquired the
UNIX business in 1995?
A. We developed the UnixWare releases beyond the
capabilities that we brought in with UnixWare 2.1. We had a staff
of over a hundred engineers for several years working on the
features of UnixWare 2 and beyond. We enhanced it with cooperation
from industry partners to harden the operating system and build in
what we called data center acceleration features. With UnixWare 7,
by the time we were then owned by the Santa Cruz operation, we
combined it with features from OpenServer to provide a
better product that would meet the Santa Cruz Operations
Generally speaking, we invested to improve it to increase its
value in the marketplace.
Q. Mr. Nagle, do you recall what system calls are?
A. I do.
Q. Could you briefly describe for us what they are.
A. When one talks about an operating system, one
distinguishes between user level and kernel level. Kernel level is
what talks most closely to the processor, and the operation at
kernel level is generally privileged. The users are not permitted
to execute kernel level code directly. When a user level program
needs to communicate with the hardware, it executes a trap or a
software interrupt in order to get attention from the kernel to
service its needs.
The system call is what is used to transfer information back and
forth between user and kernel level.
Q. That sounds simple. How do the SVR 4 system calls
compare to the system calls in UnixWare 1?
A. I'm sorry. Restate?
Q. How do the SVR 4 system calls compare to the system
calls in UnixWare 1?
A. They are one and the same.
Q. Have you heard of Streams?
A. I have.
Q. What is Streams?
A. Streams is a subsystem in System V Release 4 that is
used in processing information in the input-output area of the
operating system to communicate with hardware devices and internet
calls and other such things.
Q. Do you use Streams in SVR 4?
Q. Do you use Streams in UnixWare 1?
Q. Have you heard of ELF?
A. I have.
Q. What is ELF?
A. ELF is a file format that was defined at the time that
we introduced dynamic linking to UnixWare -- I'm sorry -- to System
V Release 4. The ELF and dynamic linking in System V Release 4 are
closely related. One is -- we need both in order to function on
System V Release 4. So, does that answer your question?
Q. It does.
Q. Is ELF in SVR 4?
Q. Is ELF in UnixWare 1?
Q. Have you heard of memory allocation?
A. I have.
Q. What is memory allocation?
A. Memory allocation is the procedure that is used by a
user level program to gain exclusive access to the memory in a --
so that it can function and record its data in memory and then, at
some point or another, it needs more or less memory. It can call to
the operating system for more. It can give back to the operating
system. The memory allocation routines in an operating system would
handle all of those functions.
Q. How does the memory allocation in SVR 4 compare to the
memory allocation in UnixWare 1?
A. It's the same.
Q. Have you heard of a file system?
Q. What is the file system in an operating system?
A. File systems in UNIX actually span a variety of
technologies because file systems are used as an interface to many
different subsystems. The primary use of a file system is to be
able to read and write from a hard drive.
Q. How does the file system in SVR 4 compare to
the file system in UnixWare 1?
A. The file system in System V Release 4.2 is the same as
the file system in UnixWare 1.
Q. Mr. Nagle, do you have any idea how the Sun Solaris
operating system was developed?
A. I know, at the time we developed System V Release 4,
Sun announced support for System V Release 4 and entered into an
agreement whereby there was some joint development between then
AT&T and Sun. There were features that came into System V
Release 4 from Sun. I know that today Sun's operating system,
called Solaris, is based on System V Release 4, as a result of that
early cooperation with AT&T.
Q. And how do you know that?
A. I know that because the engineers that report in to me
tell me that the affinity between the SCO operating system of
UnixWare and Sun is actually quite close, that the ELF technology
is similar, that moving an application between the two operating
systems is fairly straightforward.
Q. Would it be fair to say that knowledge of how Solaris
was developed, general knowledge of how Solaris was developed, has
been part of your employment for the last couple decades?
A. In the sense that I track the developments in
the industry and was aware, certainly, of the early cooperation
between Sun and AT&T. That early cooperation, I should say,
started what was then referred to as the UNIX Wars because others
took opposition positions to the AT&T/Sun cooperative agreement
with SVR 4. So, it was widely known that Sun used SVR 4.
Q. Do you recognize this demonstrative, Mr. Nagle?
A. I do.
Q. And what this is demonstrative meant to depict?
A. This shows that the Solaris operating system has a
basis with System V Release 4 and that Sun also took technology
from the BSD UNIX and other non-UNIX technology in order to create
its Solaris operating system. No doubt they also brought forward
technologies from their previous release, which was known as Sun
Q. Now, are the SVR 4 system calls in Solaris --
Q. -- to the best of your knowledge?
A. Yes, to the best of my knowledge.
Q. Is Streams from SVR 4 in Solaris?
A. To the best of my knowledge, yes.
Q. How about ELF?
MR. NORMAND: No further questions, Your Honor.
THE COURT: Thank you, Mr. Normand.
Mr. Melaugh, you may cross examine the witness.
MR. MELAUGH: Thank you, Your Honor. May I approach?
THE COURT: You may.
CROSS EXAMINATION BY MR. MELAUGH:
Q. Good morning, Mr. Nagle.
Q. I'd like to discuss one of the graphics you discussed
during your direct testimony. If you could take a look at
demonstrative number 1, please. So I want to walk through this with
you to make sure I understand this graphic. First up, I want to
understand this graphic accurately represents your understanding;
is that correct?
Q. And this is a square and two circles. And the square,
is UnixWare 2.0?
A. It's a rectangle.
Q. A rectangle. You're right. And the two circles are SVR
4.0 and SVR 4.2 MP, correct?
Q. And part of the circles are in the square, and part of
the circles are outside the square?
Q. And the part that's inside -- the part of the circles
that's inside this rectangle is meant to indicate that that SVR 4
and 4.2 code is inside UnixWare 2.0, correct?
And the part that's outside is meant to indicate that that code
is no longer in UnixWare 2.0?
Q. And if I wanted to determine what, of UnixWare, is
unique to UnixWare 2.0, which is to say it's not in SVR 4.0 or 4.2,
what I'd look at is this area of the rectangle that's outside these
Q. Now let's take a look at the second graphic. Again,
we've got roughly the same square on -- rectangle and circles on
the right side; is that right?
Q. And it represents the same things as it did in the
Q. And this time there's an arrow from SVR 4.0 to the
circle; is that right?
Q. And the circle is pointing to Solaris?
Q. Which is meant to indicate that there's SVR 4.0 code
that's moved into Solaris?
Q. And Solaris is Sun's operating system?
Q. I notice there's not an arrow from the UnixWare
rectangle to Solaris; is that right?
Q. So I take it, then, it's your understanding that there
is no code unique to UnixWare 2.0 that's in Solaris?
A. That's something I don't know. I do know that the SVR
4 code made its way into Solaris, according to its heritage and the
development relationship that I was aware of. I don't, frankly,
know what Sun did or didn't do with the UnixWare technology that
they licensed from us in 2003.
Q. We can agree, though, that that's what this graphic
Q. Let's go back to the first slide. Now, I notice you
don't have any numbers here aside from the
4.0, the 4.2 and the 2.0. How many lines of code are in this top
part of the circle, and how many lines of code are in this bottom
part of the circle?
A. I don't know.
Q. You don't know because you haven't actually gone
through every line of code in here, in this bottom slide, to make
some sort of determination as to whether it's commercially valuable
or not, have you?
A. I have not.
Q. You are just assuming that, because the code isn't in
UnixWare anymore, this SVR 4.0 and 4.2 code isn't valuable
A. It's more than an assumption. I'm aware of the
development and development practices and the requirements process
that was used to make decisions about what to retain and what to
Q. Again, though, this isn't something that you can
answer on a line-by-line basis?
Q. How many lines of code, roughly, are there in SVR
A. I don't know.
Q. Is it more than a million?
A. Almost certainly.
Q. Is it more than 2 million?
Q. More than 5 million?
A. I don't know.
Q. So, probably somewhere between 2 and 5 million, can we
agree on that?
A. No. We can't agree on that. It could be more than
Q. Okay. It could be more than five. Now, I realize that
you've just testified that you haven't gone through every line of
code, but let's just take this graphic. From my eye, it looks as
though I would say 15 or 20 percent of the circle's volume is below
the line and outside of the UNIX 2.0?
A. The size of the circles and the rectangle were not
meant to convey anything about the relative size of the technology
in those circles. It was merely meant to convey the overlap that we
talked about already.
Q. I see. As far as you know, these circles could be
positioned farther down?
A. They could be, but -- yes, I guess they could be.
Q. So --
A. If it was meant to convey the actual percentages of
code left behind, then we'd have to redesign the graphic, I
Q. Well, I think that's what SCO may have intended to
convey here, that there's a lot of code from SVR 4.0 still in 2.0
and not as much outside of 2.0. Is that what you regard this
graphic as intending to convey?
A. I'll concede that we intended that this graphic would
convey that there was a small percentage that was left out.
Q. But you don't know, in fact, what percentage was left
A. I don't.
Q. And it could be larger than this graphic suggests?
A. It could be.
Q. Based on your experience, would you -- can we estimate
what percentage has been left out? Is it more than 10 percent
that's in this bottom section?
A. Based on what I know of the development practices
between System V Release 4 and then leading to 4.2 and leading to
4.2 MP, the general trend during that period was to add features,
not to leave things out, so I'd be surprised if it was more than 5
Q. And another thing I don't understand about this
graphic, if code is changed, did you put it in this part or did you
put it in the part below?
A. If code is changed and the feature enhanced, then I
would regard that as remaining with the operating system.
Q. So, let's take a specific example, ELF.
Q. That's one of the examples you discussed?
Q. And that's something that is in both 4.0 and UnixWare
Q. And do you know whether there were any changes at all
made to the lines of code that make up ELF between 4.0 and UnixWare
A. I don't know for sure. I can speculate reasonably that
adding features for multiprocessing could have resulted in some
additions to the ELF and dynamic linking subsystem.
Q. And the same is true with the differences between 4.2
and 2.0. You don't know, one way or the other, whether every line
of code that was in ELF in 4.2 is the same in UnixWare 2.0?
Q. Is it fair to say, though, that given the total volume
of code we're talking about here, millions of lines of code, that
this lower portion here could be
hundreds of thousands of lines of code?
A. It's possible.
Q. Let's talk for a moment about OpenSolaris. You do know
what OpenSolaris is, correct?
A. Yes, I do.
Q. It's a Sun operating system?
Q. It's essentially an open-sourced version of
Q. And given that Solaris is based on SVR 4.0 and open
source -- and OpenSolaris is based on Solaris, you would expect
there to be SVR 4.0 code in OpenSolaris, correct?
Q. In fact, isn't it fair to say that you would expect
there to be a significant volume of SVR 4.0 code in
A. Yes. There could be.
Q. So you have this notion of commercial value, both in
the title of this slide and in the bottom of the slide. I'd like to
talk about that with you. Doesn't the very fact that code is in an
operating system give it commercial value?
A. Not necessarily. If there's code in an
operating system that doesn't help you to sell the operating
system, it's a feature that nobody uses, for instance, then it's
hard to assign that commercial value. If it's a feature that
somebody -- that the sales force advertises particularly or is a
deciding factor for someone to purchase an operating system, that
clearly has commercial value.
Q. When we are stumbling over the word "commercial
value," doesn't the fact that code is in the operating system imply
that it has some sort of monetary value?
A. I would just refer to my previous answer. It has
monetary value if customers will pay for it.
Q. For example, let's say I have an operating system and
it's got a million lines of code in it and there's 900,000 of them
out there actively selling, as you suggested. Those are features
that I'm actively selling. And there's another hundred thousand
that's like this bottom position of the circles, and someone comes
to me and says: You know, listen. I own those hundred-thousand
lines of code. You've got to take them out of the operating
At that point, this bottom part of the circle starts to become
pretty valuable, doesn't it?
A. Not necessary. If it's code that is not critical to
the operating -- operation of the operating
system, it might easily be removed and then no one would be the
wiser. I can think of examples where we did that.
Q. You've spent something on the order of 20 years in
computer programming and engineering; isn't that right?
A. I have.
Q. And it's your testimony that it would be a trivial
matter to take hundreds of thousands of lines of code out of an
A. That's not what I said. I said that there could be
features that have no particular commercial value that are carried
along in an operating system that customers are not willing to pay
for that, if we were approached by a third party who happened to
have a claim on those lines, and we were told those lines can no
longer be distributed with your operating system, we might be able
to remove those and still sell the operating system with the
It's not clear that every single line of code without commercial
value is vital to the function of the operating system.
Q. We can agree, though, that as a matter of man-hours
and engineering effort, it's not a trivial undertaking to take
hundreds of thousands of lines of code out of an operating system;
isn't that right?
A. It depends on the subsystem. There would be some that
would be easier than others, but there are others that would be
Q. Let's talk about OpenSolaris again. OpenSolaris is
released under a license that allows the public to see the
OpenSolaris code, isn't that right?
Q. If I wanted to, I could go to Sun's web site, download
the OpenSolaris code and look at it myself?
Q. And it's Sun's 2003 SCOsource license that gave Sun
the right to expose SVRX source code to the public; isn't that
A. It's my understanding that it gave Sun the right to
expose the UnixWare code as well.
Q. But it gave -- the answer is: Yes, it gave Sun the
right to expose to the public the SVR 4.0 code that you have
admitted is in OpenSolaris.
Isn't that right?
A. That's correct.
Q. And you and I can agree, can't we, that the right to
release code under an open source license, the right to say to the
public that you can come and download this code as you will, that's
something that has market value, doesn't it?
A. That's a debatable point, I would have to say. There
are those who would say that the ability to expose code for people
to download and review at-will does have market value, that -- and
certainly Sun hoped that it had market value. Sun hoped to garner a
better position in the marketplace by publishing their code. There
are others that would say that it has no particular market value,
that, in fact, protected code has as much market value or more than
open source code.
So, I will concede that it might have market value but, that it
absolutely does, I would probably side on the -- with those that
would say that it has less market value than others.
Q. Do you recall giving a deposition in this action, Mr.
A. I do.
Q. In fact, it was just a couple weeks ago, with me,
A. It was.
MR. MELAUGH: Your Honor, I would like to publish an
excerpt from Mr. Nagle's April 16, 2008 deposition. It's page 26,
lines 24 to 27.
THE COURT: Yes. Go ahead.
Q. So the question asked to you:
"Okay, so to be clear, though, you think the
right to release source code that was conveyed
to Sun in the 2003 license is something that has
Q. Is that your testimony, Mr. Nagle?
Q. Were you being accurate and truthful at that time?
Q. So we can agree, can't we, that the right to release
source code that was conveyed to Sun in the 2003 license is
something that has market value, can't we?
MR. MELAUGH: Thank you. I have no further questions.
THE COURT: Thank you, Mr. Melaugh.
Redirect, Mr. Normand?
MR. NORMAND: Your Honor, I'd like to publish another
portion of Mr. Nagle's deposition transcript. This is, in my my
transcript at least, at page 24, line 15, to page 25, line 8
THE COURT: Go ahead.
REDIRECT EXAMINATION BY MR. NORMAN
Mr. Nagle, is every line of code from SVR 4 in
"Question: Would you agree with me that the
right we have just discussed, the right to
release code into OpenSolaris, is a right that
has commercial value?
Objection: Vague and ambiguous. Calls for
Answer: That's a subject that gets a lot of
debate, whether providing open source has
commercial value, just the fact of posting open
source, so that it is available to be read
without payment. So, in that sense, does it
have commercial value? No. You don't pay to be
able to read it if somebody exposes it. Does it
have market value? Well, possibly, because it
allows a company to position themselves as open,
and it allows them to position themselves as
willing to cooperate with the community."
Does that constitute commercial value?
That's a debatable point. So, market value,
I'll grant. Commercial value, direct commercial
value, where you actually pay for the right to
see some of that stuff? I doubt it."
A. Every line of code from SVR 4.0 in UnixWare?
A. Most likely not.
Q. Is every line of code from SVR 4.2 MP in UnixWare,
every line of code?
A. Highly probable, yes.
Q. Is the vast majority of the code from SVR 4 in
Q. And the vast majority of the code from SVR 4.2 MP is
Q. Is this graphic meant to depict that?
A. Sir, can you be specific? Is the graphic meant to
Q. What we just discussed?
MR. NORMAND: Thank you, Your Honor.
THE COURT: Thank you.
Any recross Mr. Melaugh?
MR. MELAUGH: No, Your Honor.
THE COURT: Thank you, Mr. Nagle. You may step down.
I assume this witness may be excused?
MR. NORMAND: Yes, Your Honor.
MR. SINGER: Your Honor, that concludes our case.
THE COURT: Thank you.
We'll proceed with closing arguments. Now, according to the
MR. JACOBS: Excuse me, Your Honor. Would you prefer to
clean up on the exhibits that still need to be admitted before or
THE COURT: After.
MR. JACOBS: Okay. Mr. Acker will do the closing argument
THE COURT: According to the schedule, you've indicated
SCO goes first?
MR. SINGER: I think the schedule, at one point, discussed
SCO going first. And, in finishing, we are happy to proceed in
MR. ACKER: I prefer to go first. We have been acting as
plaintiffs, if that makes some sense.
MR. SINGER: That's fine with us.
THE COURT: Go ahead, Mr. Acker.
[Novell's Closing Statement]
MR. ACKER: Your Honor, I think it makes some sense here
to get back to basics, so I want to start with the APA. And what
we're really talking about here is Schedule 6, Exhibit 1.1 A to
Exhibit 1 in this case. And
what this is, is a listing in the APA of the code to which SCO
has to remit royalties to Novell. No doubt about that.
So there's three questions that the Court is faced with. One is:
How much of the Sun and Microsoft agreements relate to this SVRX
code which is in schedule 121-A-6 because the Court has determined,
as a matter of law, that SCO breached its fiduciary duties to
Novell by failing to account for and remit the appropriate royalty
payments to Novell for the SVRX portions of the 2003 Sun and
Microsoft agreements. So, as to those two agreements, the decision
for the Court is simply: How much of the money that SCO got from
those agreements is Novell entitled to?
The second question for the Court is: Are there others of the
other SCOsource licenses SVRX licenses. And, if so, what percentage
of those royalties is Novell entitled to under the APA?
And, finally, the third question the Court must address is: Was
the licensing of SVRX code in any of the licenses merely incidental
to the license of UnixWare? If not, then Novell is entitled to a
declaration that SCO improperly failed to seek Novell's permission
before entering into those agreements.
So, what are the facts? Well, let's go back to
2002 when Darl McBride and Chris Sontag first came to SCO. The
financial situation of SCO was horrible. How do we know that? Darl
McBride told us. This is his testimony at transcript 231, lines 3
through 232, 10:
"Q. And at that time when you joined Caldera, it was not in
great financial shape, correct?
A. That is correct.
Q. In fact, the company was in somewhat of a turnaround
situation. Would that be accurate?
Q. The company had not been profitable for the fiscal
year ending October 31, 2002, right?
Q. And, in fact, the company had suffered a net loss of
over $24 million for that year, right?
A. I don't remember exactly, but it wasn't in good shape.
I know that.
Q. And when you first came to Caldera, you met with the
top dozen or so managers of the company and asked them what they
would do if they were running the company?
Q. And during those conversations, one of the managers,
John -- I believe his name is Terpstra?
Q. Terpstra told you that he believed that the UNIX
intellectual property exists inside of Linux, right?
A. Yes. That's correct.
Q. And one of your take aways or your findings from your
meetings with managers was although the prior management or regime
had been focusing on marketing Linux. Most of the company's revenue
was coming from UNIX, correct?
A. Yes. That's correct.
Q. And you believed that the course of action had to
change in the company in order to become profitable, had to turn
its attention to protecting its UNIX assets, right?
A. That was clearly one of the key strategies that a we
That's how Mr. McBride was going to solve the problems with SCO
in late 2002 and 2003. He was going to market the UNIX assets. And
how do we know that? Again, because he told us. Here's testimony at
page 236 in the transcript, 4 through 15:
"Q. Well, isn't it true that when you arrived in Caldera in late
2002, you realized that the revenues from the branches UnixWare and
OpenServer were, in your words, marching south and dying off,
A. They were under severe competition from
primarily Linux, but also from others. But, yes, they had been
going south for a number of years.
Q. And, because the revenues from the branches UnixWare
and OpenServer were marching south and dying off, your strategy was
to focus on maximizing the value of the trunk, correct?
A. In part, that's correct."
So, what is it Darl McBride decides to do? He decides to -- I'm
losing my business in OpenServer and UnixWare, so I have to turn
back to the core technology, to the trunk, and I have to mine that
resource in some fashion. Mr. Sontag told us about what they hoped
to achieve with SCOsource. And Mr. Sontag's testimony at page 79,
lines 14 to 24?
"Q. And you and others hoped that the SCOsource campaign would
become an important revenue generator for the company, correct?
A. Of course.
Q. In fact, you thought it would generate billions,
A. We viewed the UNIX asset held by SCO to be a very
valuable asset and had potential to generate significant
Q. That included billions, right?
A. Potentially, yes".
So, 2002, the end of the fiscal year, in October, financials are
terrible. Mr. McBride decides: We better start SCOsource and save
the company. Again, Chris Sontag talking about the trunk and what
they were hoping to do with SCOsource. His testimony at page 91 in
the transcript, 18 through 23:
"Q. But you wanted to mine this entire body of intellectual
property, right? That was the plan? ?
A. That was my understanding of the intellectual property
body that we had rights to license.
Q. Going back to 1969, right?
And what was that body of intellectual property that they hoped
to mine? This is the tree that Mr. McBride spoke about and Mr.
Sontag spoke about it, and it's the centerpiece of the SCOsource
plan. Instead of focusing on the branches, which are the derivative
operating systems, OpenServer and UnixWare, they are going to mine
the trunk. They are going to mine the core UNIX IP, the trunk of
the tree, and there has been much testimony about what exists in
But Mr. McBride, again, in his own words, told us what that
trunk consists of because that is the basis of SCOsource. Again his
testimony, page 265, line 6 to 13:
"Q. Let me understand your testimony. So, when you're talking
about the UnixWare and the OpenServer licensing revenue in the Q --
Again, this quarterly statement.
"-- you're talking about the branches of the tree, correct?
Q. But when you're talking about the Sun and Microsoft
and SCOsource licensing, you're talking about the trunk, the core
UNIX IP, correct?
A. That's the way I would depict it."
Mr. McBride's own words what SCOsource was about was licensing
and mining the trunk of the tree. So, Mr. Sontag is put in charge
of the program and Mr. Petersen is his deputy. The next thing they
need, of course, is lawyers because we are not talking about a
regular sale of product here, Your Honor. This is not a regular
Hunsaker-driven sale of UnixWare OpenServer to folks who are going
to use it. This is a licensing campaign, and we need litigators to
And as Mr. Hunsaker put it, I think very nicely, that you have
to pay us so you can run Linux and you can be clean with SCO. And
here was his testimony. Mr. Hunsaker:
"Q. Are you familiar with the SCOsource program?
Q. And can you generally describe what the SCOsource
A. This program was put in place to provide a licensing
mechanism for Linux customers that were perhaps unknowingly using
our intellectual property, our UNIX technology, and it provided a
way to make them whole or clean, if you will."
Mr. Petersen, who was the deputy, second in charge of SCOsource,
echoed these comments. Here's his testimony about what SCOsource
"Q. And after you were assigned to SCOsource, you soon met with
lawyers, including Darl McBride's brother, Kevin McBride, to map
out the strategy for the SCOsource campaign, correct?
A. Yes. I was involved in that, yes.
Q. So you come on in, in October, and immediately you're
meeting with lawyers, including Mr. McBride's brother, in order to
map out how SCOsource is going to work, right?
Q. And that included working out a litigation strategy,
A. There was some discussion of litigation at that point,
I think, yeah."
If these licenses and this program is about selling operating
systems to customers, why do you need lawyers? Why do you need
litigators? You need lawyers, you need litigators because this is
about not selling product to customers to run that operating
system, it's about a licensing scheme, Your Honor, in which
litigation is going to be a focal point.
Mr. Hunsaker made this clear in his e-mail, July 31, 2003. This
is immediately after a conference call including Mr. Hunsaker, Mr.
McBride and Mr. Sontag, and they talked about this SCOsource
program. And what Mr. Hunsaker says at the bottom could not be more
telling, despite his repeated efforts yesterday to try and make the
SCOsource program into a sale of UnixWare. These are his own words,
contemporaneously, at the time, before litigation:
"There is no connection between UnixWare and OpenServer and the
SCO UNIX IPC license whatsoever."
There is no connection whatsoever. His own words.
"They are independent. Simply put, the license allows users of
Linux to run legally."
It's not about selling products. And then finally, Mr.
Hunsaker's own notes, which have been a discussion amongst the
executives at SCO, talking about
what really what SCOsource is. This is in December of 2004, a
year after the program has been in place, and it makes painfully
clear exactly what the program is:
"What is our business model for SCOsource
and SCOx? SCOsource. Take 15 thousand penguins
When they are talking about penguins there, Your Honor, they are
talking about Linux users.
THE COURT: I think it says 1500.
MR. ACKER: 1500.
"Take 1500 penguins --"
they are talking about Linux users.
"-- create a room in Lindon, line them up
and place the company brand on each one of them.
We then send out a letter within the next few
weeks which takes our code claims and
demonstrates to customers what we have found to
date. We let the end user know that, quote, if
they want to be safe, they need to remove the
offending code from Linux in order to continue
to use it legally. Once you have cleaned up
your systems, you will be clean."
And the only code they refer to is pre-APA code. This is not
about a sale of UnixWare OpenServer. It's a licensing campaign to
get money from Linux users,
the 1500 penguins. Again, the CEO's own words make this clear in
a letter that Mr. McBride wrote in May of 2003 to 1000 companies
across the United States. He tells, in the first line:
""SCO holds the rights to the UNIX operating
system software originally licensed by AT&T to
approximately 6,000 companies and institutions
worldwide, the UNIX licenses."
He doesn't say: SCO holds the right to UnixWare. Would you like
to buy an operating system? He says: We have the core IP.
And then he tells -- in the fifth paragraph, he talks about his
beliefs that UNIX developers have taken that IP in the past and put
it into Linux.
"Many Linux contributors were originally
UNIX developers who had access to UNIX source
code distributed by AT&T and were subject to
confidentiality agreements, including
confidentiality of the methods and concepts
involved in software design. We have evidence
that portions of UNIX System V software code
have been copied into Linux and that additional
other portions of UNIX System V software code
have been modified and copied into Linux."
He sends it out to a thousand companies across
the United States and says: We think our core IP is in your
operating systems if you're running Linux. And then what does he
say he's going to do? He says he's going to sue you.
"We believe that Linux infringes on our UNIX
intellectual property and other rights. We
intend to agressively protect and enforce these
rights. Consistent with this effort, on March
7, we initiated legal action against IBM."
So, what he's telling those folks is: Get in line, penguins. Get
your license or you're going to get sued. That is SCOsource. Again,
Mr. Petersen, the second in command, yesterday told the Court
clearly what SCOsource is. Here's what he said:
"Q. But the focus of the SCOsource program was to -- 1000
letters went out from Mr. McBride to Linux users all over the
A. That was one of the aspects of that program.
Q. And in that letter, Mr. McBride told those users of
Linux: Hey, we think our IP is in Linux. Correct?
A. That's correct.
Q. And he told them: You better take a license from us or
you're going to get sued. Correct?
A. I don't remember exactly how he said that, but,
yes, that was the impression.
Q. And that was the SCOsource program, right?
It's in this context that the Sun and Microsoft deals were
executed, Your Honor, and there's no question that the Sun and
Microsoft deals are SCOsource licenses. So let's take a look at
those licenses themselves. The Sun license was executed in
February, 2003. And it really, I don't believe, given the evidence
here, could be disputed that it amended or restated the earlier
1994 Sun and Novell license. And how do we know that? Well, the
contract says so in the first two lines:
"Whereas Sun and UNIX system laboratories,
Inc., Novell, are parties to a software license
and distribution agreement dated January 1,
1994; whereas Sun and SCO desire to amend and
restate the original agreement by the execution
of this agreement."
It could not be more clear that what the Sun agreement was doing
in 2003 is restating the earlier agreement, the SVRX agreement
between Sun and Novell. In fact, Mr. Sontag, in negotiating this
agreement, was pretty up front about this. When you compare the
first page of the second license, the 2003 license, it lists the
technology on the right with the earlier list of
technology that was licensed on the left in the earlier
agreement. They are identical. He had a hard time admitting it on
the stand, but when he was asked follow-up questions, he gave this
testimony about it, these two versions of software:
"Q. And you know what happened was, in the 2003 deal, for the
first page of attachment 1, you simply took the old attachment 1
from the earlier deal and made a copy of it, right?
A. I suspect that's the case."
It amended and restated the earlier agreement. And, in addition
to the -- the set of identical pages there, there's a second page
to the 2003 that lists a total of seven new pieces of software. For
five of those, Your Honor, the ones that are highlighted are listed
on the schedule in the APA to which Novell is entitled to
And there's no question, Your Honor, that Mr. McBride admitted
the 2003 Sun license allowed Sun to open source its Solaris
product, OpenSolaris. Here's the evidence. He was asked:
"Q. And SCO does not have a problem with what Sun did in open
sourcing Solaris after the execution of the 2003 Sun licensing
Q. And you would agree, wouldn't you, that what Sun has
done with its OpenSolaris products is, it has the right to package
that Sun obtained -- it has the right to package what Sun obtained
from SCO in its 2003 license?
A. That's what I said.
Q. And it's true, isn't it, that Sun's OpenSolaris is a
derivative of UNIX System V?
A. Yes, it is."
So, there's 30 pieces of software that's listed on that first
page that's identical to both contracts. Under the first contract,
they couldn't open source it. They couldn't allow it to be open
sourced, but after the second deal, they could. There's no doubt
about that. So then the question becomes, and the dispute has been:
Is there market value to that?
SCO would have you believe there's not. The problem with that is
that their own employees, four employees, tell you different. This
is John Maciaszek's testimony yesterday -- or yesterday afternoon
-- yesterday morning:
"Q. It is true that Solaris was developed before the 1995 Asset
Purchase Agreement, correct?
Q. And it would not surprise you if you found substantial
code predating the Asset Purchase Agreement
in Sun Solaris?
A. No. It wouldn't surprise me if there were code in the
prior release, no.
Q. And at any particular point in time, an OEM licensee
could stop taking additional releases of UNIX or UnixWare and
develop it on its own path?
A. That's correct.
Q. And, in fact, some OEMs did that, correct?
Q. For example, Sun Solaris, correct?
Q. They -- insofar as their code refresh, if you will,
from any of the UNIX businesses was concerned, it was frozen in
time as of the last schedule attached to their software agreement,
A. I would have assumed, yes. I think it was 4.0, but I'm
Q. And that code as to Sun, the older code, that is the
UNIX code --"
Or the trunk of the tree, Your Honor.
"-- on which then, as of that date and going forward, unless
they were to sign a new license, they were building their variance
Q. And, I would assume there would be code from
other sources as well. But, yes."
So, what Sun has done is they have taken 4.0, which is listed on
the APA, they have made that the base of their Solaris operating
system and they have stopped taking refreshers, or they have
stopped taking new code.
And Mr. Maciaszek continued:
"Q. You are right. I didn't actually ask that quite precisely
enough. In so far as the UNIX code is concerned, once they're
frozen in time as of their latest schedule, that is the UNIX code
on which they were relying, correct?
Q. And as to Sun in that case, that UNIX code has
substantial value, doesn't it?
A. Well, you'd to have ask Sun that. I mean, I can't
answer that question."
And here's the telling part, Your Honor. Mr. Jacobs asks Mr.
Maciaszek, who I submit was a very credible witness:
"Q. And if you went to them and say -- after the Asset Purchase
Agreement, went to them in 1996 and you said; you know what, we
want to strip out all of that UNIX System V Release 4 code from Sun
Solaris. What do you think their reaction would have been?"
And the answer, and he got a chuckle from the
"A. It wouldn't have been favorable."
Sun has built their operating system on that code, Your Honor.
For them to go in and rip it all out, it has huge commercial value
to them, and Mr. Maciaszek confirmed that:
"Q. Because it would have been a substantial injury to their
business, would it not, sir?
In addition, Mr. Patterson(sic), when he realized what it was
that Sun was able to do with the new license, when he saw this
article in August of 2003, he wrote an e-mail to his boss, Chris
Sontag and said:
"Hey, Chris, it looks like Sun intends to
use its broader license to protect its Linux
customers. That is fine, but I hope they don't
decide to go after the rest of the market. I
doubt they would, but I think they could
actually sell an equivalent license to ours."
So, I asked Mr. Sontag about this -- or Mr. Patterson about
"Q. And then you wrote: That's fine, but I hope they don't
decide to go after the rest of the market. Do you see that?
Q. What did you mean when you wrote that?
A. Well, I knew that Sun had broader rights and that they
could sublicense some of those rights. And I was wondering whether
they were going to -- whether that was their interpretation, what
they were talking about here was their Linux stuff, their Linux
program. And I wondered whether they would try to take that and do
anything more than that.
Q. You were worried that they were going to provide
indemnity to all of these Linux users out there, right?
A. I didn't know if they could or not, but I wondered if
whether that was an issue.
Q. And that was a concern for you as a deputy at
And here's the key, Your Honor:
"Q. And that would have been a commercial -- that would have
commercial value for Sun if they could provide indemnity to
customers that were using their OpenSolaris product, right?
A. It would.
Q. It would be valuable, extremely valuable, right?
Q. And it would seriously undermine the SCOsource
A. It could, yes."
No doubt that, in the 2003 agreement, Sun got the ability -- it
contained the ability to open source their product. Jay Petersen,
the deputy of SCOsource, tells this Court that that has substantial
commercial value to Sun because they can now indemnify their
customers. There undoubtedly is commercial value in that license,
And then there has been much testimony and argument about -- of
whether or not a grant to the latest version of UnixWare is going
to solve some problem. And that's really SCO's position. Well,
we're going to give you the grant that we gave you in the Sun
license, the latest grant, and it's going to cover all of the
problems because all of the code that's in the latest grant is also
in the earlier releases.
Well, we just heard testimony here this morning from Mr. Nagle
that they don't know. Nobody knows. No one sat down and compared
the two. There's no evidence before this Court that there is unique
code in the Sun Solaris system. If there's not unique code in the
Sun Solaris system that is not also in UnixWare, there is no
evidence before this Court that if you get a license to
UnixWare and you open source Sun Solaris, that you're going to
be protected, that you're not going to get sued, that you're not
going to be one of the penguins.
And I asked Mr. Sontag about this:
"Q. Now it's true, isn't it, that not all of this pre-APA SVRX
software is in the current version of UnixWare, correct?
A. Probably not, but I would suspect, you know, that
anything that is valuable and important would still be in the
current version of UnixWare."
And we have heard that over and over from three or four
witnesses, that they think it would be, that they suspect it would
be. Mr. Hunsaker told you that of course, it would be. But there's
no evidence that it is.
"Q. But you have never done a line-by-line comparison to
determine what portions of this software, the legacy SVRX software,
is actually in the current version of UnixWare, correct?
A. I have not.
Q. And you're not aware of anyone else having done that
A. I'm not aware of that analysis.
Q. And Sun didn't do that analysis as far as you know,
A. Not that I know.
Q. And you're not aware of any expert for SCO doing that
A. I'm not aware.
Q. And you're not aware of any technician or technical
person or engineer of SCO doing this analysis, correct?
A. No, I'm not."
John Maciaszek was also asked about this.
"Q. Now, you talked about the development practices of the UNIX
operating system. You testified that modifications were added over
time with each successive release. Do you recall that
Q. And isn't it a fact, sir, that modifications also
included deletions of code over time?
A. That is correct. Substitutions as well."
And what we're talking about is the development of Sun Solaris,
based on that pre-APA.
"Q. And I think in answer to a question from Mr. Singer that was
driving at a somewhat similar point, you said --"
And this is important, Your Honor.
"-- whatever is in UnixWare is in UnixWare. Do you recall
Q. And in order to know whether any particular code from
a prior release has been carried forward all the way to the present
day, you would actually have to look at the code and compare it,
A. To be definitive, yes.
Q. And it's quite possible the code from, say, UNIX 4.0,
pick your release, has been deleted over time and is not in the
current version of UnixWare?"
Again, this is their witness, Your Honor.
"A. That's correct. It could have been deleted or it could have
been substituted or enhanced.
Q. And the same is true, for, say, UNIX System IV, pick
your release, and, say, SCO UnixWare 2.1?
A. That's correct."
So for SCO to argue there is no value in Sun having the ability
to open source Solaris in 2003, after that agreement was signed,
simply defies logic and ignores the testimony of their own current
and former employees.
So, how does SCO respond? What have we heard the last three
days? What's the mantra? It's just about UnixWare. This is the sale
of the products that's just about UnixWare, and every time we sell
UnixWare, we give you everything in the past. That's what we've
done. That's the guts of their defense. I'll give you several
reasons, Your Honor, why it's refuted by the evidence.
One. There is no question this is not a routine software
license, neither Sun nor Microsoft or the others. This is part of
the SCOsource campaign. So you can't take that out of that context
and apply to it a sale of a regular operating system. Mr. Hunsaker
made that clear in his e-mail, and he made that clear in his
testimony. This is not a regular sale of an operating system.
Two. And this is critical here. The practice followed here is
inconsistent with what Mr. Broderick said was the current legacy
software licensing practice at SCO. Do you remember Mr. Sontag went
on and on about we always license all the prior code whenever we
license something, and then we showed him a couple licenses. And
two of them had just these two releases in them. This is Exhibit 69
and 70. We showed him two sets of those.
And he said: Well, you know, maybe I was wrong and I didn't hear
right, but as I understand it, that's the current practice now. We
changed it. We used to license -- we used to just list everything
as a matter of course, but now we're just listing the last two
And Mr. Maciaszek highlighted that and said: Yeah, that's part
of the sales technique. We just want the license to say
Mr. Sontag said that we wanted those contracts to be shorter,
but Mr. Maciaszek said it was what the sales guys wanted, which is
that we just want UnixWare on the license.
Okay. So that's the practice as of five years ago. Well, we've
seen the lists. They don't just list UnixWare. They list 30 other
prior pieces of software. Their own evidence and their own
explanation is that that's the practice now. We just list the
UnixWare. But that's not what happened in Sun, and that's not what
happened in Microsoft.
Reason 3. The standard legacy SVRX license program does not
allow a licensee to open source the legacy software. In other
words, you can look at it, but you can't build on it. You can't
make a derivative work of it, and you certainly can't open source
the source code. And how do we know that? Because their own witness
told us that. William Broderick:
"Q. Let me make sure I understand your testimony. If I wanted to
make a derivative work of UNIX System V Release 3.2, that is not
something I could do under supplement 87?"
And, again, supplement 87 was a listing. They had a list of
prior SVRX software that included Release 3.2. And he said:
"A. That's correct.
Q. And so if I wanted to use --
A. Well, let me clarify that. If you wanted to create a
derivative work of UnixWare 2.1 --"
Which is actually being licensed in that supplement.
"-- that included some of the prior product, you could do that.
But if you just looked at the prior products --"
In other words, you just looked at that list of legacy
"-- It's not the same as having a full source license for that
product, so there is no right, by virtue of the prior products,
that you can distribute a stand-alone UnixWare 3.2 derivative
So what they're telling this Court is: As a matter of course, we
list everything, and because of that, you can distribute it. You
can open source it. But that's not what their own witnesses say,
and that's not what the practice is. The evidence simply does not
hold up to it.
Reason 4. Ms. Acheson, yesterday, the CFO of
SCO made it clear that when she receives revenues from UnixWare,
she books it as UnixWare. This is what she said:
"Q. How did you book the revenues from Novell's UnixWare
A. As UnixWare and then what the release was. In this
case, it would have been booked as UnixWare 1.1 or UW 1.1."
So, if this really was a UnixWare license where you're selling
UnixWare -- that was what these licenses were -- that money, the
Sun and Microsoft money, would have been booked as UnixWare
revenue, but we know it wasn't. We know it wasn't because the
filings of the SEC expressly do not book it as UnixWare revenue.
They book it as SCOsource licensing revenue. No doubt about
And Mr. McBride said he would never make a mistake in an SEC
filing, so we asked him about it:
"Q. The products revenue in your Q includes UnixWare licensing
A. Which means it was a product. It was a branch."
The branch of the tree.
"Q. And that did not include -- that line item from products
revenue did not include the Sun and Microsoft revenue, correct?
A. No, it did not."
If this was a sale of UnixWare product, a traditional sale of
UnixWare product, which is the legacy software, it would have been
booked as UnixWare revenue.
Reason 5. Sun already had a license to all of the legacy
software. There was no reason for that to be included in the legacy
list or for them to get an additional list that included that
software but for one reason, because they wanted to expand the
confidentiality agreement, Your Honor. That's what the Sun 2003
license was about.
Reason number 6. In this very action in this Court, SCO has
claimed that it suffered hundreds of millions of dollars of damages
due to Novell's challenge to the ownership of the copyrights, the
pre-APA copyrights. And yet, what they would have you believe now
is that it's worthless. They come into Court and they say: You have
challenged our title to those copyrights. We've been damaged
hundreds of millions of dollars. You have stopped our SCOsource
That was the guts of this entire case, until now, when they have
to explain why they're licensing SVRX revenue to Sun and Microsoft
that all of a sudden -- and then they say, oh, no, no, no. No
value, none. Negligible. Incidental.
And item 7, Your Honor, and perhaps most important, is SCO's
position now is inconsistent with the position its general counsel
took in 2003 in responding to Novell's request to see the Sun and
Microsoft licenses. Mr. LaSala's testimony:
"Q. So, over the -- and then, at some point, the Sun and
Microsoft agreements are produced in discovery. That happens. I'll
just set the chronology. That happens in the winter of 2006. So, up
until that point, did SCO ever comply with your request under these
letters that it supply Novell with the Sun and Microsoft
Q. Did it ever comply with the request, pursuant to the
audit provisions of the Asset Purchase Agreement, that Novell be
allowed to audit SCO's compliance with the Asset Purchase Agreement
as it related to the Sun and Microsoft agreements?
Q. Did SCO ever tell you, in any communications outside
litigation pleadings, in the last year and a half or so, that its
theory was these agreements were not SVRX licenses as to which it
owed you a payment obligation because the SVRX was only
Back in 2003, when six different letters were
written from Novell to SCO and asked: Do you want to see the
licenses? No, no, no, no. Did they ever say it was incidental back
Well, what did they say? Well, I asked Mr. McBride: How are we
supposed to understand what your position was back in 2003? And we
"Q. So, if we wanted to understand what it was with SCO's
response to Novell's request to see the Sun and Microsoft
agreements, we have to look at what Mr. Tibbitts said in his
letters back to Novell, correct?
A. Again, that would be the place I would go."
So, let's go there. This is the letter of November 21 from Mr.
Bench to SCO, asking again for the Sun and Microsoft licenses:
"We have completed significant portions of
the audit but are still lacking critical
information and documentation necessary to
finish the audit."
And, again, he asked specifically for the Microsoft agreements.
He references Section 4.16(b) of the APA, which has the language.
And he expressly says -- uses the word "incidental," and asks about
amendment number 1 in November, 2003.
What does Mr. Tibbitts write back on February 5, 2004? Does he
say: Well, the SVRX licenses were
incidental. It was a negligible part of the contract. It had no
Did he say that in 2003, before the litigation strategies were
developed? No. Here's what he says:
"In your letter, you assert that SCO
unilaterally amended and modified SVRX licenses
with Sun Microsystems and Microsoft. You claim
this characterization is based on public
statements by SCO but do not identify where SCO
made these alleged statements. By your citation
to paragraph 4.16(b) of the APA and Section B of
amendment number 2, it appears you are concerned
about the proper flow of royalty revenues to
Novell under the APA. This is curious to us as
we are well aware, as you are well aware, Sun
Microsystems bought out its license from Novell
And here's where he gives what the plan of attack is in
"To the limited extent Novell may have some
rights under paragraph 4.16 of the APA to
protect its revenue streams from SVRX licenses
that were in existence at the time of the APA,
those rights do not extend to the new contract
with Sun. The Microsoft agreement is a new
agreement, not covered by the APA."
So, they don't say those licenses are only licensing SVRX
incidentally, they say those are new agreements. And this Court has
already determined that that defense won't fly, so we see a new
one. And I asked Mr. McBride if that really was the company's
position back in 2003.
"Q. So, was it SCO's position back in 2003 that the reason that
Novell was not entitled to these licenses is because these were
licenses that were entered into after the date of the APA,
That was then. New defense now. So, if the SVRX license grant
here truly was incidental to the grant of the most recent version
in the Sun agreement, why didn't SCO produce the license in 2003
and just explain it. Why didn't Mr. Tibbitts say so in his letter?
Why didn't SCO declare its $10,000,000 payment from Sun as UnixWare
revenue? Because the incidental argument is an after-the-fact trial
strategy, Your Honor. It's nothing more.
The Microsoft deal. We are asking for the royalty of Section 2
and Section 4 of the Microsoft deal. Section 2 is a fully paid-up
license. Microsoft, as Mr. Sontag told this Court, was concerned.
were concerned that some of the UNIX core IP had made its way
into Microsoft products and so he wanted this release and license
for all of SCO's IP and for all of Microsoft's products. And for
that they paid a million and a half dollars.
And the position now appears to be: Well, they were really just
asking about a UnixWare Release. They really weren't that concerned
about the old technology SVRX, although there is no analysis about
what exists in the Microsoft products. But, given the saber
rattling of Mr. McBride, who knows what the accusation would
And so we asked Mr. Sontag what it was that SCO was concerned
about. And he's the one that talked to Sun during the negotiations
part, to Microsoft, what they were concerned about.
"Q. And so Microsoft was concerned that there might be some of
SCO's intellectual property in their products, right?
A. Yes, potentially.
Q. And so, at Section 2, they wanted a release that
included releases for all of SCO's IP and all of Microsoft's
Q. And during negotiations, they expressed concern that
they may have inadvertently used SCO's IP in their
products, including SVRX code, right?
A. Potentially, yes.
Q. So, part of what Microsoft wanted in the negotiation
around Section 2 was the license that protected them against
potential claims relating both to UnixWare and to older SVRX
A. That was the license that we provided to them.
Q. So the license that was provided to them included both
protection against violation of UnixWare and also older UnixWare
A. Older UnixWare technology -- "
Again, Mr. Sontag, head of Scosource.
Q. And for this release in license, Microsoft paid you $1
1/2 million, right?
Q. And none of that money was provided to Novell,
A. No, it was not."
That's their witness telling you that that release and license
in Section 2 relates to SVRX, Your Honor.
Section 4. And here we're talking about the $8 million payment
in addition to the quarter-million dollar
payment up front in order to be able to exercise this right. And
what is the software that was being provided in Section 4 of the
Microsoft license? Here it is, Exhibit C. Remember in Section 3 of
the license, they got the UnixWare license? Exhibit C expanded that
UnixWare license but also provided all of this prior SVRX
Again, this is totally inconsistent with what they now tell you
is their practice to only include prior UnixWare releases in their
licenses. And here it is. And they would have this Court believe
that this Section 4 grant has nothing to do with SVRX, that it's
unrelated, that it's incidental. What Section C does is grants
expansive rights to A, B and C, including rights to sublicense the
software, rights that were never ever granted in prior legacy
grants in other licenses.
And this includes the vast majority of which is listed in
Exhibit C is older SVRX. It's the trunk of the tree. It's what
SCOsource is seeking to mine. And, again, SCO's defensive claim of
incidental licensing is the same one made here, and it should be
rejected for the same reasons. This is not a standard product
license. The license in legacy software here is inconsistent with
what they tell you their practice has been. Expansive rights were
granted here beyond what were granted before
in legacy software.
The revenue from this deal also was never reported anywhere as
UnixWare revenue in any SEC filing. SCO's position is inconsistent
with the position it took in 2003 in the damages they wanted in
this case, and it's inconsistent with Mr. Tibbitts' letter. And,
again, their claim that the granting of this software has no
commercial value is undermined again that -- by the fact that when
they came into this courtroom and they asked for hundreds of
millions of dollars, they said that this is why, because we claim
that we owned the copyrights to this software. And that damaged
them hundreds of millions of dollars. Now, when there's a grant to
it, they say it's worthless.
The other SCOsource licenses. So, what SCOsource is, is the Sun,
the Microsoft license and 23 other smaller licenses that we went
through with Mr. Sontag. And these 23 other licenses were granted
to Linux users for the privilege of avoiding becoming one of the
penguins, for the privilege of avoiding being sued by SCO. And the
total paid here is 1.156 million.
And here's an example. Everyone's Internet paid, I believe, a
half a million dollars for this license. And virtually all the
licenses were identical to this.
And Mr. Sontag was pretty up front about what they granted, the
SCO IP. What's that mean? SCO IP means SCO UNIX-based code. It's at
paragraph 1.10. It's UNIX System IV or UnixWare, UNIX System IV or
UnixWare. They are not granting UnixWare, Your Honor. They are
mining the trunk of the tree. There is no division anywhere of this
revenue between UnixWare and UNIX System V. Simply, as Mr. Hunsaker
put it, it's a chance to run Linux and be clean with SCO for all of
its IP. And this is the plan of SCOsource to save the company.
This, too, is revenue that should have been passed to Novell.
So, wrapping up, Your Honor, there's no dispute that both the
Sun and Microsoft deals, there is a grant -- there are grants of
UnixWare rights. I mean, the documents clearly show that. And we
have done our best to provide to the Court what we believe to be a
reasonable breakdown based on the terms of the agreements
themselves and the evidence this Court has heard in the last three
We have conceded the $7 million in Section 3 of the Microsoft
deal because that clearly is just a UnixWare license. But as Mr.
James made clear, and the fiduciary law side in our trial brief
also establishes, it's SCO's burden to provide an equitable
division of the SVRX and SCO UnixWare. And it shouldn't be done
now. It should have been done in 2003, when we sent them six
different letters asking for the licenses. Not now, after years of
litigation. Now, any jump balls go to Novell.
But, even now, they don't provide any apportionment. It simply
says we get nothing. And I think what's telling about that, and
telling about that attitude, is Mr. McBride's testimony in this
courtroom the other day, in the face of this Court's finding that
the Sun and Microsoft licenses are SVRX licenses, its express
finding, as a matter of law, that they are SVRX licenses.
And this is what Mr. McBride said:
"A. So, my view of those two licenses -- "
He's talking about the Sun and Microsoft licenses.
"-- was that Novell had no more standing to ask us to produce
those licenses to them than the court reporter here has the
standing to ask for those. So, it didn't make any sense that we
would send it to them."
"Q. So, it's your position that the court reporter here in this
courtroom today has the same standing to ask for those licenses as
Novell did in 2003?
A. For the UnixWare licenses with Sun and Microsoft,
Your Honor, Novell here seeks for the Sun license, $9,143,809.
That was the amount that was paid of the $10 million total.
For the Microsoft, we seek the revenues that were paid in
Section 2 and Section 4, $9,750,000.
And for the other license, we ask for all of that money because
there has been simply no breakdown between UnixWare and SVRX
licenses. And that's $1,156,110.
So, the total that we are asking for from this Court is
We believe that justice and equity would not be served if SCO's
litigation-driven characterization of these licenses were allowed
to carry the day. We believe the facts and the evidence and the law
do not allow such a result. Thank you, Your Honor.
THE COURT: Thank you, Mr. Acker.
Mr. Singer, you may proceed with your closing argument.
MR. SINGER: Your Honor, would it be possible to have two
THE COURT: Sure.
THE COURT: You may proceed, Mr. Singer.
MR. SINGER: Thank you. And, good morning,
THE COURT: Good morning.
[SCO's Closing Statement]
MR. SINGER: When Novell moved for summary judgment that
some parts of the Microsoft agreement involved an SVRX license,
they did so on the basis that there was, listed in that agreement,
certain prior products which fell within the schedule of the APA.
They made the same argument with respect to Sun, that certain of
the prior products listed in the Sun license were among those
listed in the APA.
They made no motion about SCOsource being covered with respect
to the language entitling Novell to royalties. And when this Court
ruled on their motion for summary judgment, it held that an SVRX
license was implicated by the Sun agreement and by the Microsoft
agreement because of the inclusion of those certain prior
It made no ruling with respect to SCOsource Now all we're
hearing about is the SCOsource campaign, and we submit that is
because the weight of the testimony shows that, with respect to the
Sun and Microsoft agreement, their substantial value was in
licensing of UnixWare, a license to the current products, a
licensing of OpenServer and things which SCO had every right to
license and keep, and that no valuation has been
established by Novell for those prior products.
Let's consider the weight of the testimony in general. We'll
talk about it more specifically as we go along. During this week,
SCO has presented testimony from witnesses who have spent their
professional careers working with UNIX, witnesses like John
Maciaszek, Bill Broderick and Jean Acheson, with decades of
experience in licensing and accounting for the UNIX licenses at
USL, at Novell, itself, and then later at Santa Cruz and SCO. Their
testimony has been consistent about what the value of those prior
On the other side of the ledger, Novell has called two in-house
attorneys with no involvement in UNIX licensing. Only one of them
even addresses the valuation issue and simply concludes that,
because he doesn't see any apportionment, there should be -- and
this is his term -- a forfeiture of all the benefits of those
Now, the undisputed testimony from the witnesses that SCO has
called, the witnesses who have been there for decades and licensing
these products, is that, first, historically, the prior products
were licensed without any additional fee.
Second. There were no substantial commercial sales after new
releases became available. You remember
the chart which showed that.
Third. There was no customer demand for those older products,
aside from being just included in the latest release. In fact, the
last time a customer paid for any SVRX release at all was in 1996.
And that makes sense when you think about it. When a company goes
to buy software, they want the most recent version, the up-to-date
version, and that was UnixWare.
Novell offered no contrary evidence whatsoever establishing any
value to the prior products. Instead, they have sought to confuse
the issue of the value of those prior products with the value of
the older SVRX copyrights. And those are two separate things.
The value of the older SVRX copyrights, the copyrights which we
acknowledge the Court has held belong to Novell and were not
transferred to SCO, is not an issue before this Court. We are not
valuing the copyrights. They don't have a royalty on the
copyrights. What they have is an entitlement to royalties on
certain SVRX products. And that is what they have had to value,
contracts relating to those SVRX licenses as this Court held, and
that's what they have not purported to do.
Now, in Novell's closing, they talk a lot about how SCOsource
was promised to be the salvation of SCO because it was losing
millions of dollars. And there's
no question about it. SCO was losing a lot of money and was not
profitable in 2002, largely because of what was happening with
Linux in offering a free alternative, using its technology in
competition with SCO's UNIX products.
What Novell ignores, though, is that SCO was not able to
effectively realize on its SCOsource program of dealing with that
Linux threat either by licensing because Novell contended it owned
the copyrights. And, at that point, there was very little interest
in buying SCOsource licenses, which is why we have only about a
million and a half dollars to argue about in that category of true
SCOsource licenses and because the Court has found that we did not
own the copyrights and, thus, our claim relating to that was
But that does not mean that, when SCO licensed products to Sun
and to Microsoft -- and those were UnixWare and OpenServer licenses
-- that those did not have the value established by the testimony
and did not constitute the license that the plain language in those
agreements establish, which was a license to UnixWare, a license to
OpenServer and, to the extent claims were surrendered, those were
SCO's claims which SCO had the right to surrender, and not
Now, one of the issues that has been talked
about a lot throughout this case has been UNIX technology. But
what the evidence makes clear is that this core UNIX technology,
what Novell likes to talk about as the trunk of the tree, is in
both the SVRX legacy products and the newer UnixWare products. That
continues through. And you've heard, as recently as this morning,
that that technology, the value parts of it, continue through into
The issue of royalties doesn't turn on whether SVRX is involved.
The royalties are determined by a factor of what products are being
licensed. And this Court's order dealt with contracts relating to a
specific set of SVR products. There is no order, there is no right
in the APA that any product that might contain any System V
technology means that money goes to Novell. That type of position
would include UnixWare, where it's clearly established that revenue
goes and stays with SCO.
It has been established and it's undisputed that SCO has the
right to distribute UnixWare source code. And that UnixWare source
code includes the legacy SVRX source code, without any royalty to
Now, there was a possibility of a royalty to Novell. There was a
specific provision in the APA which called for a royalty on
UnixWare, but it's never been a point of this litigation, Your
Honor, because it is
recognized that the sales of UnixWare never reached the
threshold where a UnixWare royalty would be due to Novell. And, by
its terms, that right ended in 2002, and Novell has not contended
that they are entitled to one cent under the UnixWare royalty
provision, which was part of the APA.
Now, SCO's rights to distribute UnixWare include UnixWare
versions initially developed at Novell and sold to Santa Cruz
through the APA. Novell does not contest this. At times, though,
they ask questions to suggest: Well, was this new technology in
UnixWare developed at SCO after the APA?
That, we submit, is not a relevant question. We got all the
rights to distribute UnixWare. Our licensing rights with UnixWare
were not limited to any new technological advances developed at SCO
after the APA was signed. There is nothing in the agreement that
suggests that. Rather, what Novell retained was a right to
royalties pertaining to certain legacy products.
Now, there's one other issue, before turning to the specific
claims, I'd like to briefly address. And that is Novell's effort to
shift the burden of proof. And that should be rejected. It should
be rejected legally because, in this type of situation, there is no
case that says, when you're arguing about what is
essentially a contract-based royalty, that one party versus the
other should have that burden. In fact, it's the party, generally,
who's seeking that, which would have the burden.
And a case that we cited in our papers, that we think is most on
point, is the Third Circuit's decision in the Bohler-Uddeholm vs.
Ellwood Group case, which is at 247 F.3d 79, and where, in
distinguishing between situations where fiduciaries are disputing
the fairness of self dealing, where it is appropriate to shift the
burden, and where you're talking about interpreting a contract that
has implications, and where that contract was entered into before
the parties had a fiduciary relationship to one another.
And the Court stated that, while it makes perfect sense to place
the burden on a fiduciary to explain business actions which
benefitted itself over its beneficiary, the same logic does not
hold for a breach of contract when there are dueling
interpretations of the contract entered into at arm's length by
sophisticated corporations who are not in any kind of fiduciary
relationship at the time the contract is formed.
Now, beyond the law, we think that the whole rationale for
shifting the burden of proof went out by omission of Novell because
they have not been prejudiced
in trying to argue for an apportionment of a royalty because the
Sun and Microsoft agreements were not provided in 2003. They have
had those in this litigation. They have had full rights of
discovery. They have had more rights for discovery than they would
have under the contract for an audit.
For example, if they wanted to, they could have gone out and
taken depositions from Microsoft and Sun executives. Curiously,
that they did not do. The only testimony in this trial about those
agreements, the only firsthand testimony comes from SCO witnesses,
Mr. Sontag in particular.
Now, Mr. LaSala was very candid when I asked him, in terms of
calculating the amount of the royalty received in 2003 by SCO, I
asked him: You're not prejudiced in any way now in your ability to
argue what part of that belongs to Novell.
And he said: I think that's probably correct.
And that's really also embraced in Your Honor's ruling denying
the accounting last year because the Court said that, through
discovery, the information Novell needs could be obtained.
So this is not a case where Novell can prevail on the basis of
the burden of proof. We think they have it. We think, even if we
had it, we have been the party
that has discharged it by virtue of the evidence we have
Now, there are three are substantial issues which I think both
sides have agreed upon that require the Court's resolution: What is
the value -- what components of the Microsoft and Sun agreements
are SVRX licenses and what value to attribute to them.
Second. Whether parts of the SCOsource agreements are SVRX
licenses and, if so, what value to attribute to them.
And third. Whether SCO had the authority to enter into those
I'd like to discuss each of those topics. Now, with respect to
the first, it's important to identify that there are four separate
revenue streams that are at issue. One of those is Section 2 of the
Microsoft agreement, which was the release. And that's the million
and a half dollars. The second is where a UnixWare license was
provided in Section 4, a broader UnixWare license, and where the
prior products are listed. And that is 8.25 million. At one time
Section 3 was on this list, and Novell's -- I think the way Novell
characterized it in closing is very accurate.
There was clearly no basis to argue for that because it was a
UnixWare license, and it's not an
apportionment when they gave it to us. It's not an argument that
should have been advanced in the first place.
So, we have two sections of the Microsoft agreement and then we
have Section 4 of the Sun agreement, which is the licensing
provision there, and the value there is 10 million. And then the
rest of the licenses, the so-called SCOsource licenses to protect
Linux users against SCOsource intellectual property claims, that's
about $1.15 million.
And it's important to deal with these agreements separately
because they are not all the same. Now, it's true SCO accounted for
the money in the SCOsource division, but that SCOsource division
does not mean that that revenue is an SVRX royalty that flows
through to Novell. It simply meant these were not licensed like
other UnixWare products in the ordinary course of that division.
You had a separate division that cut these deals, and it was
accounted for in a very accurate manner.
What's important is to look at the licenses because they are
radically different. The Sun and the Microsoft agreements provide
actual UnixWare licenses. It's in the plain language of the
agreements, and it's never been contested. And they did so at a
SCO had the right to license parties to make full use of that
UnixWare source code including any older SVRX code, without any
requirement of apportionment.
And then the SCOsource licenses with other parties involved
licenses of IP and releases that are not tied to providing a
UnixWare license, and we don't think they get that revenue either,
in the second category, but when they are talking about SCOsource
licenses and penguins and all that, it's really just this second
category that's at issue.
I'd like to deal with each of these four revenue streams, Your
Honor. The first is our position that only a de minimus amount of
the Section 4 Microsoft fees should be allocated to the legacy SVRX
Now, Section 4 gave Microsoft something they previously did not
enjoy. In fact, the whole agreement gave Microsoft a UnixWare
license they did not have. Section 3 gave certain basic rights,
limited to certain products. And it was Section 4 that expanded
that to allow Microsoft to use UnixWare technology, which means all
the earlier technology that's carried on and that's in UnixWare in
its prior -- in any of its products.
As Mr. Sontag testified, this was a significant expansion of
their rights for how they could utilize that UnixWare source code.
It was now all of Microsoft's
products, in millions and millions of products, and that was a
substantial expansion in how they could use that UnixWare
technology. There has been no contradictory testimony on that
Microsoft also received a unique license to OpenServer source
code, which was a product that actually accounted for two-thirds of
SCO's revenue stream. They had never had the source code license
before until this Microsoft agreement. And that has substantial
value, and there has been no contradiction on that point
Now, the one witness who dealt directly with Microsoft and Sun
who testified here was Mr. Sontag. He negotiated that transaction.
Mr. Sontag indicated, with respect to the Microsoft deal, that what
they wanted was to develop UNIX compatibility with Microsoft
Windows. And he also said it allowed Microsoft to have the ability
to have compatibility with a broad range of OpenServer
applications. This wasn't a Linux/SCOsource transaction. This was a
transaction where Microsoft wanted broader compatibility with UNIX,
and they obtained a license to do so.
And I submit to you that, if Mr. Sontag's testimony was not an
accurate view of the purpose of this transaction, that Novell would
have pursued depositions and brought in testimony from Microsoft
and Sun to
dispute that, which they did not do. Mr. Sontag also testified
that Microsoft had little interest in the prior outdated versions
of System V. He was asked directly about his view as to the
relative value of the SVRX component of the agreement, and he said
it was insignificant.
It was licensed as a matter of course, but he didn't believe
that Sun or Microsoft was valuing it at all. What they were valuing
was the UnixWare source code, the UnixWare binary distribution
rights and broad distribution rights and OpenServer source code
distribution rights. And, in fact, Mr. Petersen testified yesterday
that, when there were certain older products, they weren't even
able to give them the code because they couldn't find it, that
wasn't even an issue and no adjustment of price was made.
Now, this comports with the well-established practice involving
UNIX products where the prior products were licensed along with the
current release at no additional charge. And you've heard testimony
from a number of witnesses on that. Mr. Sontag, Mr. Maciaszek, who
said that's the standard practice going back to AT&T days, to
grant the right to use prior products as part of the new product.
And Mr. Maciaszek said -- he was asked whether they were asked
anything extra. And his answer
was, quote, "absolutely not."
Mr. Broderick's testimony is consistent with that, as is Ms.
Acheson's. There is no contradictory testimony.
There is also documentary proof on that point. We have seen
comparisons of licenses on, from one hand, UNIX and, one hand,
ALPS, which, for some reason, didn't want the prior products. And
the amount of UnixWare license was exactly the same. That was this
demonstrative which was used in opening and throughout the
Now, what has Novell sought to do with this testimony? They
certainly don't have any witnesses that have contradicted it.
Instead, they have tried to suggest that the practice was limited
to prior products purchased by the licensee. That's what was said
in the opening. Well, there is no support in the evidence for that,
that you only got the prior products if you had a prior license to
it. In fact, Mr. Maciaszek and Mr. Broderick denied that. This is
the chart that we have looked at.
And the other point that they have raised is: Well, you didn't
get the same amount of rights. And they quote Mr. Broderick's
testimony that, if you built a derivative on that, you didn't get
the full source code
rights. And what Mr. Broderick is saying, and what he made clear
in his testimony is that if you used one of the earlier versions in
the license to base a product, then you still had to, if you didn't
have that earlier license, pay the binary royalties for the current
release. And quoting from the testimony yesterday where he
"If somebody took a 2.0 license and they
accessed the prior products and they built a
derivative by accessing the prior products in
the UnixWare license, then they could distribute
the derivative, work, but they would pay off the
So, the practice was not limited to a few situations where you
had a long history of licensing prior products for value. As all
witnesses testified, it came automatically. It provided for source
And what's the other thing that Novell has said this morning?
They said: Well, that practice changed when UnixWare only listed a
couple of UnixWare prior products. But that's not quite what the
testimony said. The testimony from Mr. Maciaszek and Mr. Broderick
is that we stopped listing those, but any customer who wanted the
earlier products that went beyond, back beyond the UnixWare days,
only had to ask for them. But no one
bothered to ask because they weren't interested. There was no
extra price for those. There was simply no demand for those.
So, in addition to that practice, you also have undisputed
testimony that Novell never sought an allocation of royalties on
those prior products. They didn't do it in their prior audits of
Santa Cruz, and they never sought an allocation for other UnixWare
agreements which did include those prior products. So, why should
Sun and Microsoft be different?
Now, this is Mr. Maciaszek's testimony indicating that the
royalty was not allocated on whether technology from prior products
was included, it was always based on the current product.
I'd like to address now the Section 2 fee with respect to
Microsoft. This is the million and a half dollars that relates to
the release language. And what, exactly, does the contract say?
Section 2.1 is a release by SCO to Microsoft of any and all claims.
It is SCO's claims that are released. This is an issue that Novell
has refused to deal with from the opening, until now, throughout
the trial and to the closing.
This is not a release by definition of Novell's claims. It's a
release of SCO's claims, and thus SCO had a right to do it.
Now, Section 2.2 grants a license to all intellectual property
rights owned or licensable by SCO. So it is still limited to what
SCO has a right to do. And this, of course, didn't even involve
Linux issues. This was Microsoft's products and whether there was
any intellectual property concerns that SCO might have with how
UNIX technology was being used in its products. SCO released and
licensed its rights. That $1.5 million does not require any
Now I'd like to turn to the Sun agreement. And I would maintain
there, too, only a de minimus amount of the Sun $10 million payment
should be allocated to the older SVRX products. But it's important
with respect to Sun, we think, to put this in the perspective of
history, that the Sun agreement did not just come out of nowhere.
In 1994 Sun bought out the royalties with respect to these legacy
SVRX products. They paid $82.5 million for those and the
substantial source code rights they received in 1994. And every
dollar of that went to Novell.
And, you know, when Mr. Acker is referring to the fact that
Novell -- or, rather, Sun could develop products based on that
source code, Novell was well paid for that. It was the $82.5
million for those legacy products.
We then come to 2003. We had a period of time of nine years, but
Sun had not licensed UnixWare during that time. They wanted a
UnixWare license because it would be valuable. Again, Mr. Sontag
negotiated a deal. And he testified.
"The most important thing they --"
were asking for was the ability to quickly take
the Solaris product and make it available on an
Intel-compatible platform, which they would be
able to do with a UnixWare 7.1.3 source code
license and the software drivers for UnixWare."
Now, in addition to the source code in 2003, Sun received
UnixWare and OpenServer drivers. None of that is allocated. Of
course Novell puts not one dollar of value on the OpenServer
rights, the UnixWare rights or the drivers. They say all of this
should be allocated to them. They point out that they received
copies of the same list of legacy products that were in the '94
agreement, but under Section 1.2, SCO was entitled to sell Sun
additional source code copies for those products that were in the
'94 list and retain the fees from that.
So, the only thing which Sun has a right to is any value that is
related uniquely to these older products which were included, the
seven prior products or five prior products added by the 2003
license. Did they
have any value? Well, certainly Novell has not shown any. Mr.
Nagle testified that UnixWare does encompass all the valuable code
from those few additional System V products, including Solaris
Now, the one attempt during trial that Novell made to try to
include that was a list of open source Solaris products that they
downloaded. I think Mr. Jones testified about that. And Mr.
Petersen's trial testimony was that every one of the 21 source
files that Novell introduced into evidence from OpenSolaris also
appeared in UnixWare. There is no testimony that Sun wanted or that
it received anything in those five legacy products that it didn't
have in UnixWare.
The one further point that Novell seeks to make is that, well,
there was a relaxation of confidentiality provisions in the 2003
agreement as to what you could do with the source code. And we
submit that is not a basis for allocating any substantial value to
the SVRX component there. First of all because Sun already had
substantial rights in the 1994 agreement. That agreement allowed
them to sublicense the source code and to have those sublicensees
sublicense it to their customers.
Mr. Sontag testified that that could have a thousand, a million.
They could sublicense that source code to their customers, and by
sublicensing source code,
he means those customers get to look at the source code. They
get not just to look at it, but they can use it to make derivative
So, what did the 2003 agreement add to that? Not much. Mr.
Sontag testified that Sun believed that they had almost all they
needed or had all the rights that they needed and that, to the
extent that there was an ability under the 2003 agreement to show
that source code to others, to open-source it, it was limited by a
provision that said that was for value. So, Sun could not take the
source code and do what Linux is doing and distribute it under the
GPL and let people use that without being distributed for value at
One other point about the change in the confidentiality
provisions. Those changes related to UnixWare, and there is no
showing that there is any incremental value in the change in
confidentiality as it related to whatever technology -- none of
which Novell has been able to successfully identify -- that
appeared in the prior legacy products that was not carried forth in
So we submit there is no basis for that small piece to receive
anything but a de minimus valuation.
The fourth area are the other SCOsource agreements. And there,
we submit, those are not SVRX
licenses within the meaning of the APA which, of course, is an
issue this Court has not previously determined.
What are those agreements? They Release SCO claims, not Novell
claims, by their terms. And we quote one example, Novell Exhibit
"SCO wishes to grant and licensee wishes to
obtain certain limited rights in licenses to use
the SCO IP."
And later it provides that SCO shall not bring any legal action
alleging infringement of any SCO IP by the licensee. That's a
release of SCO's claims. It doesn't prejudice Novell. If they want
to take the copyrights that the Court has found it has owned, and
if that is maintained, and they want to go out and pursue the
people who had a release here under the SCOsource agreement, I
don't think it goes very far to say: Well, SCO released its
None of that value flows through to Novell. It's not much
because of the actions they have taken, but that $1.15 million
stays with SCO. And, in fact, the uncertainly of SCO's claims is
recognized in the agreement itself. We cite three of them, which
are in evidence, where it indicates that the customer recognizes
that you're aware that these claims are in litigation, aware that
SCO has not made representations with respect
to the outcome of that litigation. No representations or
guaranties with respect to that. You're basically getting an
insurance policy from SCO.
And that's what the people were paying for. And that is not an
SVRX license within the meaning of the APA. And, in fact, to the
extent the APA bears on this issue, it is the language in the APA
which assigned Novell's claims to the buyer, that claims arising
after the closing date against any parties related to any right,
property or asset included in the business goes to SCO.
So, even aside from the fact that by their terms these
agreements only release SCO claims, the APA gave Novell's claims
relating to the business to SCO.
And, finally, the SCOsource concerns, as the Court is aware from
the testimony in the case, are not limited to the legacy System V
technology. Sure, that's a major part of it, but it extends to
UnixWare and OpenServer libraries and rights there. And that is
true from a variety of documents in evidence going back to the
initiation of the program which talked about UnixWare and
Now, I'd like to address one more issue with respect to
apportionment. It is our firm belief that the correct apportionment
is a de minimus amount on the
components in the Sun agreement and Section 4 in the Microsoft
agreement and not at all for Section 2 or the SCOsource licenses
because those are not SVRX agreements.
There's certainly no basis in the evidence for Novell's
apportionment, which is, except for one section which had nothing
do with SVRX that they dropped their claims to, to say they want
everything else. That's not an apportionment. But we would submit
that what they have suggested in supporting that is simply counting
the number of software products up, and that is not any basis for
valuation, so a de minimus value is the appropriate valuation.
But there is a ceiling valuation which is also found in the
evidence which goes beyond a de minimus amount. And that came out
of Mr. Broderick's testimony because he testified that, even if you
go back to the time when these prior products were being licensed
for value, when they were current -- remember, Mr. Normand took him
through each of those on the screen, on the ELMO -- and he said how
much each of those products would be licensed for.
And those amounts came up to 700,000 for Sun and 1.249 million
for Microsoft, plus another 700,000 if you included in the
Microsoft column certain products which they had a right to but
never received the copies.
This was the handwriting on that exhibit, 700,000 in the Sun
column, 1.249 million in the Microsoft column.
But those, of course, are the dollar values back at the date
when those were currently being licensed, when there was market
demand for them during these respective periods. And when these new
products came out, there was no longer a demand in the market, a
market value to those products. So, this has to be considered, we
submit, a ceiling on any valuation.
Now, what does Novell say about that? They say: Well, we've got
broader disclosure rights for these legacy products in the Sun
agreement than you would have gotten back when you were paying this
Well, that's true, but you had that broader disclosure right for
the UnixWare product, so there's no incremental value shown to that
disclosure right for these prior products. And this, which is the
actual amount that these products were sold for, should be regarded
as a ceiling on any valuation.
Now, there's one other source of evidence that the Court might
look at in terms of value. And that relates to what Novell did
concede in Section 3, where Section 3 of the Microsoft agreement
was priced at $7 million, which was a UnixWare license. And there
was undisputed testimony at trial from Mr. Sontag, and
Mr. Jones agreed with it, that the SunWare/UnixWare rights are
at least as valuable as those procured by microsoft in Section 3 of
its licenses for $7 million.
So, if you take that $7 million out of the $10 million that Sun
paid, you have a total, a ceiling of $3 million in Sun licenses to
allocate among the drivers and any prior products. So that's
another place where a ceiling on allocation can be derived from the
Now I'd like to turn to the last issue which the Court must
decide, which is the issue of authority. Now, Mr. Normand argued,
as the Court will remember, that there is a fundamental
contradiction, an inconsistency by the pleadings, where Novell, on
the one hand, has rejected these agreements as being unauthorized,
and yet, on the other hand, wants the royalties from them as though
they were authorized.
But the Court doesn't even need to resolve that issue if it
accepts SCO's position, which is that these were fully authorized;
that with respect to the Microsoft and Sun provisions insofar as
they had a licensing component that touched on SVRX, that was
incidental to the UnixWare license.
And we provided two definitions of "incidental" that support
that, which are dictionary definitions and case law definitions,
one of them being whether something
depends upon or appertains to something else as primary, just as
these prior products pertain to UnixWare as primary; or a minor
value, which would also be applicable here.
But the best evidence that this was incidental actually comes
from, as we'll see in a moment, Mr. Broderick's testimony that
there was instruction provided by Novell as to this being exactly
what the term "incremental" meant in the APA. What does Novell say
The primary thing it said in closing, was that, well, you didn't
advance this argument, SCO, when we wrote Mr. Tibbitts in 2003 and
said: Give us these documents and tell us what your position
But what they ignored is that SCO's position, as articulated by
Mr. Tibbitts and defended in this litigation, was principally --
our first line position was these were not SVRX licenses at all
because the meaning of the APA on SVRX licenses meant only the old
licenses prior to the date of the APA and not new agreements like
these entered into in 2003.
When we got into litigation, we had a fall-back position. The
Court, in its summary judgment order, rejected our primary
position. That doesn't mean that second position, that these, to
the extent that they
implicate SVRX, are not incidentally licensed along with
UnixWare. And that's a fully preserved position in the pleadings
and in all of the arguments.
Now, what did Mr. Broderick say? He was asked about the time
when Novell sat down and they all talked about the licensing of
these products. And he says:
"We could license SVRX incidentally. And we
asked: What's incidentally? And they said:
Well, the major part of this, if you take a
look, if you license the source code, the
license fees when they first started being used
always included prior products of the legacy
products. You will continue to use those same
types of licenses. You'll continue to include
that legacy prior products. And that's an
example of an incidental right."
There could not be stronger evidence -- and this evidence is not
disputed -- that operationally defines a term in a contract by how
the parties understood it and discussed it when it became relevant
to do so.
As I mentioned, there was an undisputed historical practice of
licensing those prior products incidental to the current release
that no fewer than five different witnesses testified.
Now, in its opening, Mr. Jacobs for Novell said that we actually
kind of agree with SCO that these examples of incidental SVRX
licenses through UNIX licenses is what incidental licensing means.
But he suggested at that time that those were different from Sun
and Microsoft because people like NCR had paid value for each of
But the testimony this week has shown that the practice of SCO
and its predecessors consistently has been to license the prior
products, regardless of whether or not that was a licensee who had
112 supplements or just came in for the first time to license the
product, the current product, you would still get the legacy
products. For example. Mr. Maciaszek was asked.
"Did NCR's rights to make use of prior
software set forth in this license depend, in
any way, on the fact that there were 112
"His answer: Absolutely not."
Mr. Broderick gave two examples, Super Computer and LEXIS
software, where they came in, didn't have prior licenses for value,
bought a UnixWare 2.0 license and obtained the prior products with
And remember that, while these are not all listed out, there is
uncontradicted testimony now that if
anyone today, even, wanted to come in and for some reason wanted
a prior product that went back before UnixWare, that would be
provided. There's just no demand for it.
Now, there's one additional argument that Novell has made about
the Sun agreement, and I'm not going to belabor this because this
was argued to the Court on the summary judgment motion. And that's
the suggestion that amendment number 2 prevented SCO from acting
without Novell's approval because it related to a buyout. And
amendment number 2 specifically says that Novell may not prevent
SCO from exercising its rights with respect to source code in
accordance with the agreement.
In addition, there's no effect on the '94 buyout of Sun's
royalty obligation. The '94 agreement was referenced, but nothing
changed regarding that, so it should not be held to apply to
amendment number 2. In fact, there is additional evidence that came
in at trial that's very important on these issues. And that is
that, back at the time of the APA, Novell told both Sun and
Microsoft that they should deal with SCO as the assignee of UNIX
rights, which is consistent with our position.
As to the language that says you can't prevent SCO from
exercising its rights with respect to source code, the only
argument that Mr. Jacobs made the other
day was that, well, it's sort of circular, that Novell would
actually read that provision out of the agreement, would give it no
meaning at all. So, either because the 2003 agreement didn't change
the '94 buyout in any substantial fashion or because of this
exclusion, there was no need for -- with respect to the Sun
agreement, for Novell's approval to be obtained.
With respect to the SCOsource agreements, that's also the case
because they only released SCO claims and licensed SCO IP and,
therefore, no Novell authority is required.
In addition, with respect to the SCOsource agreements, Novell,
we maintain, should be estopped from contending that their approval
is required. And this goes back to what the testimony showed was
the whole dialogue that occurred in late 2002 and early 2003
between Mr. McBride and Mr. Jones and people at Novell. And Mr.
Jones tried to suggest they really didn't understand what was being
involved in SCOsource licensing.
And we think think their e-mails show that's not really the
case. The November 15, 2002 e-mail, SCO Exhibit 398 indicates that
the purpose for the IP tracking is to help SCO understand its IP
rights; that this relates to a conversation with Darl a few weeks
in which he expressed his interest in pursuing Linux users who
may be using misappropriated UNIX code.
Also in 2002, you had Exhibits 399 and 400 which show that
Novell knew SCOsource involved pursuit of of UNIX claims.
And, in response to that, did Novell ever say: SCO, we own those
rights. You can't do this.
Did it ever say: If you go forward with the SCOsource licenses,
we get the revenue.
That is a sufficient basis in the evidence for estoppel.
Now, Your Honor, in this case you have had the opportunity to
listen principally to witnesses who have spent a large part of
their professional career on the development of UNIX technology,
either from a technology side or from a marketing side or from a
licensing side. Their testimony is consistent. These are
individuals whose legacy has been the development of UNIX software.
To suggest, as Novell has, that UnixWare doesn't mean anything;
that these prior products, because of code, had some value and the
SCOsource claim is what this value should be given is flatly
contradicted by the testimony of these witnesses.
And, on the other side of the ledger, you have Novell's in-house
counsel, a gentleman who had no involvement in the events in
question, who admits in testimony that what he has done in claiming
all of it is not an objective assessment of value, does not reflect
any type of economic value or analysis or anything of that nature,
but is, in reality, a forfeiture.
We don't think a forfeiture is what this Court is in the
business of awarding. Thank you, Your Honor.
THE COURT: Thank you, Mr. Singer.
Did you want to say something, Mr. Jacobs?
MR. JACOBS: At your pleasure, Your Honor. I'm all into
getting those documents submitted.
THE COURT: Thank you. We'll take care of these exhibit
matters in a minute, and I'll try to get a decision out without
undue delay, reasonably, as quickly as I can. I know that there are
many important reasons for that.
Now, where are we on the exhibits? We need somebody on each side
to compare with Kim's list on what's in and what isn't and then
clean up anything that needs to come in that isn't
MR. JACOBS: On the first point, I think our legal
assistants will be doing that, Your Honor.
THE COURT: All right. Well, let's have them.
You have got your list, Kim?
THE CLERK: Yes.
MR. JACOBS: Your Honor, we would like to move the
following exhibits into evidence, and we can flash them on the
screen or hand them out, whatever would be most efficient.
MR. SINGER: These documents are not previously moved?
MR. JACOBS: Correct.
THE COURT: Are they on the list?
MR. JACOBS: They are on the list, Your Honor.
THE COURT: But they weren't admitted by stipulation?
MR. JACOBS: That's correct.
THE COURT: Let's see where we are on them.
MR. JACOBS: Novell Exhibit 33.
THE COURT: Thirty-three?
MR. JACOBS: Yes.
MR. NORMAND: Your Honor, shall we do these one-by-one? Do
you want me to speak into the record?
THE COURT: Well, I need to know if there is any
MR. NORMAND: No objection to this exhibit, Your
THE COURT: Thirty-three? Novell 33 is in.
(Novell Exhibit 33 received in evidence.)
MR. JACOBS: Novell Exhibit 48.
THE COURT: Any objection?
MR. NORMAND: No objection.
THE COURT: Novell 48 is in.
(Novell Exhibit 48 received in evidence.)
MR. JACOBS: Novell Exhibit 172.
MR. NORMAND: We object to the admission of this document,
THE COURT: Nobody testified about this, did they?
MR. JACOBS: That's correct, Your Honor.
THE COURT: Okay. I'm not admitting that one. 172 is not
MR. JACOBS: And the same with proposed Novell Exhibit
176, Your Honor.
THE COURT: 176?
MR. NORMAND: Same objection, Your Honor.
THE COURT: Let me see it so I don't have to go blind
looking at the screen. This is 176?
MR. JACOBS: Correct, Your Honor.
THE COURT: Same ruling. It's not admitted.
MR. JACOBS: Novell Exhibit 186.
THE COURT: 186?
MR. JACOBS: Yes. This is a press release from Sun
announcing the OpenSolaris program -- I'm sorry, announcing the
agreement with SCO.
MR. NORMAND: We don't have an objection, Your Honor.
THE COURT: 186 is received.
(Novell Exhibit 186 received in evidence.)
MR. JACOBS: Novell Exhibit 327 is one that was the
subject of testimony, Your Honor.
THE COURT: Which one is it?
MR. JACOBS: 327. And I just forgot to move it in at the
MR. NORMAND: No objection, Your Honor.
THE COURT: 327 is received.
(Novell Exhibit 327 received in evidence.)
MR. JACOBS: Your Honor, we'd like to move in a series of
expert reports from SCO's experts in this litigation and the IBM
litigation for the limited purpose of showing that SCO attributed,
through its experts, substantial value to System V Release 4
copyright rights and System V Release 4 code. That would be Novell
Exhibits 350, 356, 380, 437 and 438. All of those are expert
reports from SCO experts in this and the IBM litigation.
MR. NORMAND: Your Honor, no objection on the
basis of the representation regarding the limited purpose. And,
I apologize, I don't think counsel has discussed this. These are
all confidential. And although we were able to reach agreement as
to the other documents that have been admitted to date, these are
MR. JACOBS: We have no problem with submitting them under
seal, Your Honor, and making those arrangements.
THE COURT: All right. Tell me what they are, again.
MR. JACOBS: These are all Novell.
THE COURT: 350?
MR. JACOBS: 356 -- excuse me. Let me start over. 350,
356, 380, 437 and 438.
THE COURT: All right. Those are admitted under seal, for
the limited purpose you described, Mr. Jacobs.
(Novell Exhibits 350, 356, 380, 437 and 438
received in evidence.)
MR. JACOBS: And that's it, Your Honor.
THE COURT: Thank you.
MR. NORMAND: We don't have anything, Your Honor.
THE COURT: All right.
MR. NORMAND: I'm sorry. I did mention, as I mentioned
this morning, the two A exhibits, but I think that's been taken
THE COURT: Yes. That has been taken care of.
MR. SINGER: We have -- I didn't hand this out before, but
these are the slides shown in the closing.
THE COURT: All right. Thank you.
Now, do we have agreement on what's in and what isn't?
MR. JACOBS: We have no disagreement. Let's put it that
way, Your Honor.
MR. NORMAND: We understand we should go through with Ms.
Jones and check, and if anything comes up --
THE COURT: All right. Check with her, then, and we'll
generally be in recess.
MR. JACOBS: Thank you.
MR. NORMAND: Thank you, Your Honor.
THE COURT: Go ahead.
MR. MELAUGH: Your Honor, we are going to move into
evidence two exhibits from Novell and one from SCO, as I understand
it. Novell moves into evidence Novell Exhibit 279 and Novell
THE COURT: Any objection?
MR. GONZALEZ: No, Your Honor.
THE COURT: They are admitted. (Novell Exhibits 279 and
428 received in evidence.)
MR. GONZALEZ: And SCO moves into evidence SCO Exhibit 0050.
THE COURT: Any objection?
MR. MELAUGH: No, Your Honor.
THE COURT: It's admitted.
(SCO Exhibit 0050 received in evidence.)
MR. GONZALEZ: Thank you, Your Honor.
MR. MELAUGH: Thank you, Your Honor.
THE COURT: Thank you
(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 MAY 2, 2008, 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 105 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 2nd day of May, 2008.
REBECCA JANKE, CSR, RPR, RMR