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2000 Caldera-Microsoft Settlement Surfaces in Novell v. Microsoft Antitrust Lawsuit
Saturday, September 06 2008 @ 08:22 AM EDT

The Novell/Canopy/Caldera/DR DOS story continues, and Novell and Microsoft are in the middle of it all, battling in discovery in the Novell v. Microsoft antitrust litigation -- that is the litigation over WordPerfect currently before the US District Court in Maryland in pretrial discovery.

Microsoft politely asked for [PDF] all documents "relating to Novell's sale of PC operating systems claims to Caldera and Novell's involvement with Caldera's case against Microsoft", as well as "all documents produced by parties and third parties" in the Novell v. Canopy case.

Why? Because it is its theory, which it wants to do discovery to demonstrate, that Novell sold all its antitrust claims to Caldera, and that would kill off the two remaining claims Novell has brought against Microsoft in the antitrust case. Microsoft, not satisfied with what Novell produced or its reasons for refusing to produce some documents, brought a Motion to Compel Discovery [PDF] [Memorandum in Support (PDF)], and it has just been granted [PDF].

In Novell's opposition [PDF] to the motion, it attached some exhibits, one of which is the settlement agreement [PDF] in the Caldera v. Microsoft litigation, as Exhibit K.

Finally, we get to read it, all except the exact figure that Microsoft paid to Caldera. But Microsoft does say, in the memorandum in support, on page 9, that Novell got "tens of millions of dollars" from the settlement, and a transcript [PDF] of a hearing in the Caldera litigation hints strongly, on page 9, that Novell contracted to get 20% of any recovery, so you can get an idea of how large the settlement figure was that Canopy received. I know some of you have wondered if that success inspired Caldera to sue IBM to try to get lightning to strike twice. The exhibits are where all the history comes out.

For example, we get to see Microsoft's 1997 subpoena [PDF] to Novell in the Caldera case. And we find pieces of the APA between Caldera and Novell quoted here and there, although the document itself is under seal, I gather.

Novell argued against Microsoft's motion to compel, saying that the documents that Microsoft is asking for, it already got in the prior litigation (see also its Novell's Response [PDF] to Microsoft's Local Rule 104.7 Certificate [PDF], where it outlines its position regarding discovery requests and this letter [PDF] dated June 16, 2008.) Either Microsoft had the documents already, it argues, or it misrepresents what was already produced here, or it is asking for materials that are irrelevant and which will increase Novell's costs of discovery a great deal. Not only Novell's. In a footnote, Novell says Microsoft has also subpoenaed four third parties. And you can see in an order [PDF] regarding a Novell Motion to Intervene in Caldera v. Microsoft, the judge ruled that Novell had no litigation interest. As for the Canopy litigation, Novell says in responding to discovery requests [PDF] in In re Microsoft Corp. Antitrust Litigation on page 11 that the court in the Canopy case already ruled that Novell didn't transfer its claims.

You can read how Microsoft answered Novell's arguments in its reply memorandum [PDF]. There was a conference call on August 27 [PDF], and then the judge denied [PDF] Novell's motion for summary judgment on Microsoft's affirmative defenses, but said Novell will be free to renew its motion after the discovery is complete.

We find out from the 1998 hearing transcript not only how much Canopy, as Caldera's successor in interest, apparently had contracted to pay Novell if it won, but also we confirm that it was Microsoft that paid money in the settlement, something that the press release announcing the settlement didn't reveal, and we also learn that the settlement required confidentiality from Caldera/Canopy regarding how much Microsoft paid, and we get a clearer picture of the famous destruction of the sealed court documents that were turned into toilet paper in 2003. Remember? Destruction of sealed documents was part of the settlement, although one copy of all the filings could be retained by the outside law firm. The toilet paper destruction came later, in 2003, and that means we are still in the dark about how that came to be.

This is what is so great about litigation, though: eventually you find out pretty much everything. And now, thanks to Microsoft prevailing on a motion to compel, we are probably going to find out even more.

Judge J. Frederick Motz's ruling is found in a letter to the parties, but it's an official ruling, and here's the meat of the decision:

Dear Counsel:

I have reviewed the memoranda submitted in connection with Microsoft's motion to compel production of documents. Counts I and VI assert claims for harm allegedly caused by Microsoft to Novell's application software products for the purposed of obtaining and maintaining Microsoft's monopoly power in the Intel-compatible operating systems market. DOS was a competitor in that market, and it too may thus also have been harmed by Microsoft's alleged anti-competitive conduct against Novell's application software products. Therefore, depending upon how the term "indirectly" in the assignment from Novell to Caldera is construed, it may be that the claims asserted by Novell in Counts I and VI are "associated directly or indirectly with any of the DOS products or Related Technology." Asset Purchase Agreement paragraph 3.1 (July 23, 1996).

For these reasons I conclude that Microsoft is entitled to the discovery that it is seeking, and that its motion to compel should be granted.

In short, he accepted Microsoft's argument. The settlement agreement references that APA. The very opening words, in the WHEREAS section, tells us that under the APA, Caldera acquired from Novell all of Novell's "right, title and interest in and to any and all claims or causes of action held by Novell" as of July 23, 1996 "associated directly or indirectly with any of the DOS-Products or Related Technology", including "all such claims formerly held by Digital Research, Inc."

So, what the judge appears to be saying is that if Novell's claims I and VI are associated directly or indirectly to that APA, it may be curtains for those claims. Novell's complaint is here, if you want to refresh your memory about the two surviving claims. The APA, we find out in a footnote on page 7 of Microsoft's Memorandum in Support of its Motion to Compel, was attached to Microsoft's motion to dismiss, back when the case was still in Utah at the beginning, but unfortunately, it was filed under seal, so we can't read it all.

But here's the oddest part. The settlement agreement between Caldera and Microsoft said it settled "all the Novell Claims and all claims asserted in the Action, or which could have been asserted in the Action, or based on the facts asserted in the Action." Caldera was to file a stipulation dismissing the action (p. 3) after which the agreement would "constitute full satisfaction of the Novell Claims and all claims asserted, or that could have been asserted, in the Action by Caldera and each of its parents, subsidiaries and affiliates."

Caldera was supposed to destroy "all Confidential Discovery Materials (as defined in the Protective Order entered in the Action on March 27, 1997, as thereafter amended)" within 30 days of the payment by Microsoft. And Caldera had to promise not to support any effort to get the court to unseal any documents.

Then in paragraph 6, we find the operative paragraph that the judge is likely thinking about:

6. Caldera hereby releases and discharges Microsoft and its subsidiaries and affiliates, and the present or former officers, directors, employees, representatives, agents, trustees or other legal representatives, successors and assigns of each of them, of and from any and all claims, counterclaims, actions, causes of action, suits, rights, debts, obligations, damages, liabilities, and demands that each of them ever had or has, in law or in equity, known or unknown, as of the date of this Agreement, including without limitation any that have been asserted in the Action or that are based on, arise from or otherwise relate directly or indirectly to the facts alleged in the Action, including without limitation the Novell Claims."

Caldera, on page 6, represented that it had all rights, title and interest in and to the claims being settled, that it didn't have to ask for the consent or approval of Novell to do so, and further that "without any limitation whatsoever" Caldera indemnified Microsoft "against any and all liability, costs and expenses, including, without limitation, Microsoft's attorneys' fees, arising out of any claims pursued by Novell, or any assignee of Novell (whether actual or alleged), raising any of the Novell Claims or any claim asserted in the Action or that could have been asserted in the Action."

Thorough. You can see Microsoft wished to have this brought to a full stop, with nothing to rise from the dead in the future. The very muted press release announcing the settlement, but giving absolutely no details about it, is on page 12.

I think from all this you can discern why Microsoft would want to know precisely how involved Novell was in that litigation. It is Microsoft's theory, as it explains in its Memorandum in Support of its Motion to Compel, that "Novell participated in Caldera's lawsuit against Microsoft to an extent that Novell and Caldera were in privity, thereby precluding Counts I and VI on the separate ground of res judicata." I'll translate. That means that the claims were already litigated and settled, if they were in privity, meaning so closely associated, with Novell so actively involved even if not a party formally to the litigation, that it doesn't matter who owns the claims, Caldera or Novell, since a resolution of the claims back then, including all available claims either could have brought on the same issues, would settle them all and close the door completely.

All the alleged acts Novell complains of in the current antitrust litigation happened prior to 1996, Microsoft points out, the date of the Novell sale of WordPerfect and Quatro Pro to Corel. Four months later, Novell sold to Caldera its antitrust claims. That very day, Caldera filed suit against Microsoft. Microsoft's version of the history of the Caldera litigation can be found in this memo. Its theory is that because the claims Caldera brought assert the same things, that Microsoft caused the same competitive harm that Novell now is alleging in this antitrust litigation, namely harm to "competition in the manufacture, sale and distribution of operating system software" by monopolizing the market in violation of 15 U.S. C. Section 2 and by entering into "exclusive dealing arrangements" with others, Novell's claims were already handled in the Caldera settlement.

Here's where Microsoft gets a bit icky, by my lights. It told the court the following about the dustup between Canopy and Novell:

Novell and Caldera's successor, The Canopy Group ("Canopy"), later battled in the Utah courts over the spoils of Microsoft's settlement of the case. At issue was whether Novell's share of Microsoft's settlement payment should be calculated as a percentage of (i) the payment minus Caldera's attorneys' fees (as Canopy contended), or (ii) the payment before any deductions (as Novell contended). The parties engaged in extensive discovery, which revealed that Novell and Caldera "had entered into contemporaneous oral agreements not embodied in the final written contracts," i.e., not embodied in the Asset Purchase Agreement, License Agreement, or Reservation of Rights. Novell, Inc. v. Canopy Group, 92 P. 3d at 771. Under one of those oral agreements, Novell bound Caldera to sue Microsoft. Id. The Utah Court of Appeals even determined that in the written contracts, Novell deliberately "obfuscate[d] its role in the Microsoft litigation by using 'unclear and general terms.'" 92 P.3d at 774.

We have that ruling as text here. It's almost like Microsoft says, but not precisely:

12 Canopy produced a great deal of evidence to establish that the written agreements do not contain all the terms to which the parties agreed, such as Canopy's obligation to sue Microsoft. It argues further that the agreements themselves purposely obfuscated Novell's entitlement to a recovery from Microsoft by dealing with Novell's entitlement in very broad, general terms.

13 Canopy's evidence and arguments, however, do not negate Canopy's concession that it entered into written agreements that provide for the payment of royalties by Canopy to Novell. Canopy's evidence clearly shows the parties participated in prolonged negotiations to settle their disagreements regarding the deductions and Novell's overall percentage. Canopy's evidence may or may not establish the existence of a prior agreement.

The Court of Appeals did say this, however:

3 Accordingly, Novell entered into negotiations with Caldera, Inc., the predecessor in interest to Canopy, to sell DR DOS to Canopy.(1) The main purposes of this sale were to obligate Canopy to bring suit against Microsoft, to allow Novell to share in the recovery, and at the same time to obfuscate Novell's role in the action against Microsoft. Novell insisted that its role be completely undetectable to avoid retaliation from Microsoft.

And Microsoft wants to do discovery about that paragraph, as you can see on page 10, although I couldn't help but notice that it left out the sentence about why Novell didn't want Microsoft to know about its role, namely its fear of retaliation by Microsoft.

Microsoft quotes Novell as refusing to turn over those and other documents on the grounds that the Court already ruled that Novell didn't convey its claims in ruling on Microsoft's Rule 12(b)(6) motion, something Microsoft disputes. It wants to do discovery about any and all verbal agreements associated with the Canopy deal.

Of course, back when Novell tried to avoid turning over attorney work product in the Caldera litigation, Microsoft opposed on the grounds that Novell had sold everything and walked away, other than a financial royalty interest, just another little irony. You can read about that in the hearing transcript. In fairness, back then it didn't know about the Canopy-Novell deal. It was only when the Court of Appeal ruling was published that we all learned the role that Caldera played for Novell.

I never would have noticed the exhibits, had it not been for three Groklaw members. Steve Martin noticed that there were new documents in the Novell v. Microsoft case that we didn't have in our permanent timeline page on that litigation, and Erwan volunteered to update the page, which he has done, and then fortuitously another longtime member donated what I needed to get all the documents. Thank you all. When I saw what there was, such an historical goldmine, I couldn't believe it, and I couldn't wait to share it with you. Thank you to everyone that helps Groklaw do what it does, because now we get to know the rest of the story.

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