Appeal No. 08-4217
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
THE SCO GROUP, INC.,
On Appeal from the United States District
for the District of Utah
The Honorable Dale A. Kimball, Judge Presiding
(Case No. 2:04-CV-00139-DAK)
APPELLEE NOVELL, INC.'S BRIEF
ORAL ARGUMENT REQUESTED
|ANDERSON & KARRENBERG
Thomas R. Karrenberg
Heather M. Sneddon
|MORRISON & FOERSTER LLP
Michael A. Jacobs
George C. Harris
Grant L. Kim
David E. Melaugh
Attorneys for Defendant-Appellee NOVELL, INC.
CORPORATE DISCLOSURE STATEMENT
Appellee Novell, Inc. has no parent corporation. No publicly
held corporation owns 10% or more of Novell's stock.
TABLE OF CONTENTS
|CORPORATE DISCLOSURE STATEMENT
|TABLE OF AUTHORITIES
|STATEMENT OF RELATED CASES
|TABLE OF ABBREVIATIONS AND SPECIAL
|STATEMENT OF ISSUES
|STATEMENT OF CASE
|STATEMENT OF FACTS
||APA BACKGROUND AND STRUCTURE
||EXCLUSION OF COPYRIGHTS
||The APA, Executed in September 1995, Excluded
||Novell Deliberately Retained Copyrights to Protect
SVRX Royalty Stream
||Amendment No. 1 and the Bill of Sale, Executed
December 1995, Did Not Transfer Copyrights
||Technology License Agreement
||Amendment No. 2 Amended the APA as of October
||SCO Offered Post-Hoc Testimony from Witnesses
Unfamiliar with Negotiation of APA Language
||APA IMPLEMENTATION AND SCO'S ANTI-LINUX
||Santa Cruz's APA Implementation
||SCO's Purchase of Santa Cruz's UNIX Business
Change in Business Strategy
||Santa Cruz Warned SCO About "Chain of Title"
||SCO's Decision to Attack Linux
||NOVELL'S SVRX LICENSE WAIVER RIGHTS
||The APA Entitled Novell to Waive Any Rights
Any SVRX License
||AT&T Licensed SVRX Using a Combination of
"Software Agreement," "Sublicensing Agreement," and
||The IBM and Sequent SVRX Licenses
||IBM's Buy-Out of Its SVRX License Rights
||SCO's Refusal to Waive Claims Based on IBM and
Sequent SVRX Licenses
||SCO'S FIDUCIARY OBLIGATION TO REMIT SVRX
|SUMMARY OF ARGUMENT
||THE DISTRICT COURT CORRECTLY HELD AS A
MATTER OF LAW THAT THE APA AND BILL OF SALE
DID NOT TRANSFER COPYRIGHT OWNERSHIP.
||Applicable Federal and State Law
||The Copyright Act Requires a Clear and Definite
"Instrument of Conveyance"
||California Law Prohibits Using Extrinsic
to Support a Contract Interpretation to Which the
Plain Language Is Not Reasonably Susceptible
||The APA and Bill of Sale When Executed in 1995
Not Transfer Copyright Ownership
||The APA and Bill of Sale Did Not Constitute an
Instrument of Conveyance
||The TLA Did Not Override the APA's Exclusion
of "All Copyrights"
||Extrinsic Evidence of the Parties' Intent Is
Inadmissible Under the Parol Evidence Rule
||The APA as Amended by Amendment No. 2 Did Not
Transfer Ownership of the UNIX and UnixWare
||Amendment No. 2 Did Not Meet the Copyright
Act Requirements for Transfer of Ownership
||Amendment No. 2 did not transfer copyright
ownership or retroactively amend the Bill of
||Amendment No. 2 did not identify which
copyrights, if any, should be transferred.
||SCO Presented No Extrinsic Evidence that
Amendment No. 2 Was Intended to Transfer
Ownership of Copyrights
||SCO Presented No Evidence that Ownership of
UNIX and UnixWare Copyrights Was Required to
Exercise Its Rights Under the APA
||THE DISTRICT COURT CORRECTLY HELD AS A
MATTER OF LAW THAT THE APA DOES NOT ENTITLE
SCO TO TRANSFER OF THE UNIX AND UNIXWARE
||THE DISTRICT COURT CORRECTLY HELD THAT
NOVELL HAD THE RIGHT TO WAIVE SCO'S RIGHTS
UNDER THE IBM AND SEQUENT SVRX LICENSES
||"Any SVRX License" Includes All Licenses to
and Cannot Reasonably Be Limited to "Supplements"
that Do Not Confer Any Right to Use SVRX.
||The plain-language meaning of "any SVRX
License" is any contract that licenses SVRX
||"SVRX License" is not ambiguous
||Item III.L does not exclude Software and
Sublicensing Agreements from "any SVRX
||The District Court's Interpretation of Article
Does Not Destroy the Value of the Purchased Assets
||SCO's Extrinsic Evidence Does Not Make "Any
License" Reasonably Susceptible To SCO's
||Article 4.16(b)'s intent
||"The set" of agreements used to license SVRX
||The IBM buy-out and related agreements
||Novell's transfer of product ownership
||THE DISTRICT COURT CORRECTLY HELD THAT THE
IMPLIED COVENANT OF GOOD FAITH DID NOT
PROHIBIT NOVELL FROM EXERCISING ITS EXPRESS
RIGHT TO WAIVE "ANY RIGHT" UNDER "ANY SVRX
||NOVELL IS ENTITLED TO ROYALTIES FROM POST-
APA CONTRACTS RELATING TO SVRX
||SCO's Definition of "SVRX License" Is Contrary to
APA's Plain Language
||Even Under SCO's Mistaken Interpretation of
License," SCO Had No Authority to Amend Sun's
|ORAL ARGUMENT STATEMENT
|CERTIFICATE OF COMPLIANCE
|CERTIFICATE OF SERVICE
|CERTIFICATE OF DIGITAL SUBMISSION
TABLE OF AUTHORITIES
|A. Brod, Inc. v. SK&I Co.,
998 F. Supp. 314 (S.D.N.Y. 1998)
|Apple Computer, Inc. v. Microsoft Corp.,
35 F.3d 1435 (9th Cir. 1994)
|Arthur Rutenberg Homes, Inc. v. Drew Homes, Inc.
29 F.3d 1529 (11th Cir. 1994)
|Bay Cities Paving & Grading, Inc. v. Lawyers' Mut. Ins.
5 Cal. 4th 854 (1993)
|Big Creek Lumber Co. v. County of Santa Cruz,
38 Cal. 4th 1139 (2006)
|Blumenfeld v. R.H. Macy & Co.,
92 Cal. App. 3d 38 (1979)
|27, 28, 33
|Boghos v. Certain Underwriters,
36 Cal. 4th 495 (2005)
|Carma Developers (Cal.), Inc. v. Marathon Dev. Cal.,
2 Cal. 4th 342 (1992)
|Community for Creative Non-Violence v. Reid,
490 U.S. 730 (1989)
|Crow Irvine #2 v. Winthrop Cal. Investors Ltd.
104 Cal. App. 4th 996 (2002) (unpublished)
|Dore v. Arnold Worldwide, Inc.
39 Cal.4th 384 (2006)
|26, 33, 65
|Effects Assocs., Inc. v. Cohen,
908 F.2d 555 (9th Cir. 1990)
|25, 26, 44, 48
|Employers Reins. Co. v. Superior Court,
161 Cal. App. 4th 906 (2008)
|EPA Real Estate P'ship v. Kang,
12 Cal. App. 4th 171 (1992)
|Foad Consulting Group, Inc. v. Musil Govan Azzalino,
270 F.3d 821 (9th Cir. 2001)
|Foraste v. Brown Univ.,
290 F. Supp. 2d 234 (D.R.I. 2003)
|Franks v. Nimmo,
796 F.2d 1230 (10th Cir. 1986)
|FrontRange Solutions USA, Inc. v. NewRoad Software,
No. 04-cv-01969-WDM-MJ, 2007 U.S. Dist. LEXIS 64757 (D. Colo. Aug.
31, 2007) (unpublished)
|Gerdlund v. Elec. Dispensers Int'l,
190 Cal. App. 3d 263 (1987)
|27, 28, 33
|Halicki Films, LLC v. Sanderson Sales & Mktg.,
547 F.3d 1213 (9th Cir. 2008)
|I.A.E., Inc. v. Shaver,
74 F.3d 768 (7th Cir. 1996)
|Imperial Residential Design, Inc. v. Palms Dev. Group,
70 F.3d 96 (11th Cir. 1995)
|In re B. J. B.,
185 Cal. App. 3d 1201 (1986)
|In Re Napster, Inc. Copyright Litig.,
191 F. Supp. 2d 1087 (N.D. Cal. 2002)
|ITOFCA, Inc. v. MegaTrans Logistics, Inc.,
322 F.3d 928 (7th Cir. 2003)
|Jones v. Denver Post Corp.,
203 F.3d 748 (10th Cir. 2000)
|Keane Dealer Servs., Inc. v. Harts,
968 F. Supp. 944 (S.D.N.Y. 1997)
|Kenbrooke Fabrics, Inc. v. Soho Fashions, Inc.,
690 F. Supp. 298 (S.D.N.Y. 1988)
|Kingsrow Enters., Inc. v. Metromedia, Inc.,
397 F. Supp. 879 (S.D.N.Y. 1975)
|Konigsberg Int'l Inc. v. Rice,
16 F.3d 355 (9th Cir. 1994)
|25, 34, 36
|Locke v. Warner Bros.,
57 Cal. App.4th 354 (1997)
|Lyrick Studios, Inc. v. Big Idea Prods., Inc.,
420 F.3d 388 (2005)
|Mellencamp v. Riva Music, Ltd.,
698 F. Supp. 1154 (S.D.N.Y. 1988)
|Morey v. Vannucci,
64 Cal. App. 4th 904 (1998)
|Pamfiloff v. Giant Records, Inc.,
794 F. Supp. 933 (N.D. Cal. 1992)
|Playboy Enters., Inc. v. Dumas,
53 F.3d 549 (2d Cir. 1995)
|Radio Television Espanola S.A. v. New World Entm't,
183 F.3d 922 (9th Cir. 1999)
|Shugrue v. Cont'l Airlines, Inc.,
977 F. Supp. 280 (S.D.N.Y. 1997)
|SmithKline Beecham Consumer Healthcare L.P. v. Watson
211 F.3d 21 (2d Cir. 2000)
|Storek & Storek, Inc. v. Citicorp Real Estate,
100 Cal. App. 4th 44 (2002)
|Third Story Music, Inc. v. Waits,
41 Cal. App. 4th 798 (1995)
|54, 62, 63-64
|United States v. Gonzalez-Garcia,
85 F.App'x 160 (10th Cir. 2004) (unpublished)
|Universal Sales Corp. v. Cal. Press Mfg., Co.,
20 Cal. 2d 751 (1942)
|Valente-Kritzer Video v. Pinckney,
881 F.2d 772 (9th Cir. 1989)
|Wolf v. Walt Disney Pictures & Television,
162 Cal. App. 4th 1107 (2008)
|17 U.S.C. § 204(a)
|Cal. Civ. Code
|Cal. Civ. Proc. Code
|2 M. Nimmer & D. Nimmer, Nimmer on Copyright
§ 7.12[C] (2008)
|3 M. Nimmer & D. Nimmer, Nimmer on Copyright
§ 10.03[A] (2008)
STATEMENT OF RELATED CASES
SCO Group v. Novell, Inc., Case No. 08-4154, filed August
1, 2008, by Movant-Appellant Jonathan Lee Riches, dismissed on
October 6, 2008, for failure to prosecute.
TABLE OF ABBREVIATIONS AND SPECIAL
||Five-digit numbers refer to SCO's Appendix. Novell's
Addendum uses the same numbers, but is limited to relevant
of key documents and substitutes better copies of certain
|Amendment No. 1 to the APA, executed at the Closing on
December 6, 1995
|Amendment No. 2 to the APA, executed on October 16, 1996
||Amendment to IBM's SVRX License executed by Novell, Santa
Cruz, and IBM on October 16, 1996
||Asset Purchase Agreement, executed September 19, 1995
|Bill of Sale
||Document executed at the Closing on December 6, 1995, which
transferred assets pursuant to the APA
||Former name of Appellant SCO
|Agreements that licensed SVRX to IBM
||The Linux operating system
||Appellee Novell, Inc.
||The Santa Cruz Operation, Inc. (also known as "SCO"),
predecessor-in-interest to Appellant SCO
||Appellant The SCO Group, Inc., formerly known as Caldera
||Sequent Computer Systems
|Agreements that licensed SVRX to Sequent
||Software Agreement Supplement (called "Product Supplement"
or "Product Schedule License" by SCO)
||UNIX System V Releases, as defined in the APA
||Technology License Agreement
||The UNIX operating system
||Novell's version of UNIX, later enhanced by Santa Cruz
STATEMENT OF ISSUES
1. Did the district court correctly hold, as a matter of law,
that the APA and Bill of Sale executed in 1995 did not transfer
ownership of UNIX and UnixWare copyrights because the APA
explicitly excluded "all copyrights" from the transferred
2. Did the district court correctly hold, as a matter of law,
that the APA as amended by Amendment No. 2 effective "as of"
October 1996 did not transfer ownership of the UNIX and UnixWare
copyrights because it did not qualify as an "instrument of
conveyance" under the Copyright Act, and SCO failed to present
admissible evidence sufficient to create triable issues of fact
that the amended APA was intended to transfer copyrights?
3. Did the district court correctly hold for the same reasons
that the APA as amended by Amendment No. 2 did not transfer
copyright ownership, it also did not obligate Novell to transfer
ownership in the future?
4. Did the district court correctly hold, as a matter of law,
that Novell's authority to waive "any rights" under "any SVRX
License" included all agreements licensing SVRX to IBM and
5. Did the district court correctly hold that Novell did not
violate the implied covenant of good faith by exercising its
express contractual authority to waive SCO's claimed rights under
the IBM and Sequent SVRX Licenses?
6. Did the district court correctly hold, as a matter of law,
that Novell's right to receive 95% of "SVRX Royalties" under "all
SVRX Licenses" included SVRX licenses that were signed after the
APA, including SCO's amended SVRX license with Sun?
STATEMENT OF CASE
A. Nature of Case
This appeal concerns SCO's attempt to rewrite the plain language
of the Asset Purchase Agreement ("APA"), a contract to which SCO
was not a signatory, to support a new litigation-oriented business
model that SCO adopted long after the APA was executed.
In 1995, under the APA, Novell sold certain assets related to
the UNIX System V operating system ("SVRX") to Santa Cruz, but
retained significant assets and rights, including ownership of "all
copyrights" and 95% of SVRX license royalties. In 2001, SCO (then
Caldera) purchased Santa Cruz's UNIX business. SCO, an ardent
supporter of the Linux operating system, announced that it would
use its new UNIX assets to promote Linux. However, in 2003, SCO
decided to attack Linux instead. SCO threatened and sued IBM and
other Linux users, claiming that Linux infringed SCO's alleged UNIX
copyrights. When Novell reminded SCO that Novell had retained
ownership of these copyrights,
SCO brought this action against Novell for "slandering" SCO's
alleged title in the copyrights.
B. PROCEEDINGS AND DISPOSITION BELOW
Novell moved to dismiss SCO's complaint because SCO did not own
the UNIX copyrights. The district court agreed that "the APA did
not transfer any copyrights," and that APA Amendment No. 2
contained "no transfer language" and did not identify specific
copyrights to be transferred. (16706-07.) However, the court
concluded that dismissal was premature and Novell's arguments
"would more properly be before the court on motions for summary
judgment or trial." (16713.)
After extensive discovery, both parties filed summary judgment
motions. In August 2007, the district court denied SCO's motions
and issued three summary judgment rulings for Novell.
(11983-12084.) First, the district court granted summary judgment
that the APA and related documents did not transfer ownership of
the UNIX copyrights, and that SCO had no right to obtain ownership.
The court held that the APA's plain language excluded "all
copyrights" from the transferred assets; the "Bill of Sale" that
implemented the APA did not transfer copyrights; and Amendment No.
2 did not transfer copyrights or require them to be transferred.
Second, the district court granted summary judgment that the APA
authorized Novell to waive "any rights" under "any SVRX License,"
including claims based on IBM's and Sequent's alleged breach of
Software and Sublicensing Agreements that were part of the
"combination of agreements" licensing SVRX. (12058-68;12082.)
Third, the district court granted summary judgment that the APA
required SCO, as Novell's agent and fiduciary, to provide Novell
with royalties paid under "all SVRX Licenses," including payments
that SCO had received from Sun and Microsoft, to the extent they
related to SVRX. (12077-78;12080.) After a fourday bench trial, the
court awarded Novell $2,547,817 of Sun's $9.1 million payment.
SCO has appealed these summary judgment rulings.
STATEMENT OF FACTS
I. APA BACKGROUND AND STRUCTURE
In the 1980s, AT&T developed and licensed UNIX System V
("SVRX") to various companies, who developed their own UNIX
"flavors." (03524(#19-20); AB7.) In 1993, Novell paid over $300
million to purchase UNIX System Laboratories, the AT&T spin-off
that owned the UNIX copyrights and licenses.
(02181;06100(¶4).) Novell developed its own UNIX version,
"UnixWare," which supported Novell's "NetWare" networking software.
In 1995, Novell decided to sell its UNIX business to Santa Cruz,
another UNIX vendor. Because Santa Cruz did not have sufficient
cash to buy all of Novell's UNIX assets, the APA was structured so
that Novell retained certain UNIX-related rights and received other
Santa Cruz paid no cash. It transferred shares of its stock
worth approximately $50 million and promised a portion of future
UnixWare revenue exceeding certain targets (which were not met).
(00265-66(Art.1.2(a)-(c));06087; 06101.)1 Novell retained significant
rights, including 95% of SVRX License royalties, which totaled $50
million in 1995 alone. (00265(Art.1.2(b));
00287(Art.4.16);06087;06104(¶14).) To protect this revenue
stream, Novell retained the UNIX copyrights on which the revenue
was based. (00318(Schedule
II. EXCLUSION OF COPYRIGHTS
A. The APA, Executed in September 1995, Excluded
The APA, as executed on September 19, 1995, defined the "Assets"
to be transferred by reference to schedules of included and
excluded assets. Article 1.1(a) stated that on the Closing
Seller will...transfer...the assets and properties of
Seller relating to the Business (collectively the "Assets")
identified on Schedule 1.1(a) hereto. Notwithstanding the
foregoing, the Assets to be so purchased shall not include those
assets (the "Excluded Assets") set forth on Schedule
Schedule 1.1(a)'s description of "Intellectual Property" to be
transferred did not include copyrights:
V. Intellectual Property Trademarks UNIX
and UnixWare as and to the extent held by Seller (excluding any
compensation Seller receives with respect of the license granted to
X/Open regarding the UNIX trademark).
Schedule 1.1(b) identified the following "Intellectual Property" as
- All copyrights and trademarks, except for the
trademarks UNIX and UnixWare.
- All Patents.
The APA included an integration clause stating that "[t]his
Agreement, and the Schedules and Exhibits hereto," constitute the
parties' "entire agreement," "supersed[ing] all prior agreements
and understandings, both written and oral...."
B. Novell Deliberately Retained Copyrights to Protect Its
SVRX Royalty Stream
An early draft of Schedule 1.1(a) included "all...copyrights."
(06104(¶15); 06338.) Novell then deleted "all
copyrights" from the Schedule 1.1(a) transferred assets, and
added "all copyrights" to the Schedule 1.1(b) "Excluded
Assets." (06104(¶15);06378;06381;06385;06392.) Novell and
Santa Cruz exchanged draft schedules that excluded copyrights, and
the final APA preserved this exclusion.
(06104-06(¶¶15-17);06269-76;00318.) Novell excluded
copyrights from the transfer to protect its retained SVRX License
(06104(¶14);06075(¶9);06096(¶12(a),(d))), which was
critical to bridging the gap between what Novell wanted and what
Santa Cruz could afford
believed that retaining copyright ownership would help ensure its
receipt of royalties even if
Santa Cruz went bankrupt, and protect Novell's right to execute
"buy-outs" in which a UNIX licensee made a lump-sum payment to
obtain a paid-up license.
Novell's Board resolution approving the APA on September 18,
1995, stated that "Novell will retain all of its patents,
copyrights and trademarks (except for the trademarks UNIX and
C. Amendment No. 1 and the Bill of Sale, Executed in December
1995, Did Not Transfer Copyrights
At closing on December 6, 1995, the parties signed Amendment No.
1, which modified the included and excluded asset Schedules, but
left the exclusion of "all copyrights." (00361-63.)
Also on December 6, Novell executed a "Bill of Sale"
transferring assets, as required by the APA.
(05602;00268(Art.1.7(b)(iii)).) The Bill of Sale stated that Novell
"does hereby transfer...all of the Assets," as defined in the APA.
(05602.) Because the APA defined "Assets" as those included in
Schedule 1.1(a) and not excluded by Schedule 1.1(b), the Bill of
Sale did not transfer any copyrights. (00264-65(Art.1.1(a)).)
D. Technology License Agreement
APA Article 1.6 entitled Novell to use "Licensed Technology,"
defined as technology included in the Assets and "derivatives" of
such technology. (00268.) This clause was implemented by a
Technology License Agreement stating that
Novell "retains" a license to Licensed Technology.
(00268;03690.) Novell negotiated this license to enable it to use
future enhancements that Santa Cruz developed as derivative works
and other technology (such as trade secrets) transferred to Santa
E. Amendment No. 2 Amended the APA as of October 16,
Ten months after Closing, the parties executed Amendment No. 2,
which amended the APA "as of the 16th Day of October 1996."
(00374.) Santa Cruz proposed a first draft of Amendment No. 2 that
would have added the following, italicized language to Schedule
1.1(b) "Excluded Assets":
All copyrights and trademarks, except for the
copyrights and trademarks owned by Novell as of the date of this
Amendment, which pertain to the UNIX and UnixWare technologies and
which SCO has acquired hereunder....
(06070(italics added);06064(¶8).) Novell rejected this
proposal, stating that Novell would confirm Santa Cruz's right to
use Novell's copyrighted UNIX and UnixWare products, but "was not
going to transfer ownership of any copyrights to Santa Cruz through
Amendment No. 2." (06064(¶10).)
The parties removed the reference to copyrights that Santa Cruz
"has acquired," and to "copyrights...which pertain to the UNIX and
UnixWare technologies." (06065(¶11).) The final Amendment No.
2 revised Schedule 1.1(b) to include:
All copyrights and trademarks, except for the
copyrights and trademarks owned by Novell as of the date of the
Agreement required for SCO to exercise its rights with respect to
the acquisition of the UNIX and UnixWare technologies.
(00374.) It did not call for a bill of sale, and Novell did not
execute a bill of sale on signing Amendment No. 2 or thereafter.
F. SCO Offered Post-Hoc Testimony from Witnesses Unfamiliar
with Negotiation of APA Language
SCO offered testimony from various witnesses that, despite the
explicit exclusion of "all copyrights" from the APA, the parties
intended to transfer UNIX and UnixWare copyrights to Santa Cruz.
None of these witnesses was familiar with the drafting of the
actual APA language, and none had any familiarity with Amendment
No. 2. (12000-05; 07738,07709,07706(Chatlos); 07720,
07723(Frankenberg); 07745,8778(Levine)3; 07842-43,07846(Madsen); 0772729,07733(Mattingly); 07801-02,07805(Michels); 07792,07789-90,0779697(Mohan); 07667-69,07664-65,07730-31(Thompson); 07817-18,07741,
It is undisputed that the APA language was negotiated and
drafted by Novell's inside and outside counsel (David Bradford, Tor
Braham, Aaron Alter, and Shannon Whisenant); and SCO's inside and
outside counsel (Steven Sabbath, Edward Leonard, Scott Lester, and
Jeffrey Higgins). (06100-01(¶¶5-6); 06260;06269;10718.)
It is also undisputed that Amendment No. 2 was negotiated and
drafted by Allison Amadia and James Tolonen, Novell's in-house
counsel and CFO, respectively; and by Steven Sabbath, Santa Cruz's
in-house counsel. (06063(¶5);06097(¶¶13-16).)
Novell presented testimony from three persons responsible for
drafting the APA that copyrights were deliberately excluded from
the transfer to protect Novell's SVRX royalty stream and other
06106(¶18)(Braham);07677-81(Alter).) Two persons responsible
for Amendment No. 2 testified that it was not intended to and did
not transfer copyright ownership.
SCO offered only Sabbath's testimony (AB14) that the APA was
intended to transfer copyright ownership. But Sabbath admitted that
he did not recall negotiating Amendment No. 2 (10721), and he had
sworn in a prior declaration that (1) SCO's claim that it had
acquired ownership of the UNIX copyrights was "incorrect"; and (2)
"neither Santa Cruz nor Novell ever identified the specific
copyrights...for which a transfer of ownership was 'required.'"
The district court concluded that "SCO has not provided evidence
from witnesses on the Santa Cruz side of the transaction with
respect to their review of the asset schedules. In fact, there is
no evidence from any of Santa Cruz's outside counsel and very
little evidence from Santa Cruz's in-house legal department
regarding the drafting of the APA." (11994.)
III. APA IMPLEMENTATION AND SCO'S ANTI-LINUX CAMPAIGN
A. Santa Cruz's APA Implementation
The APA was forward-looking. The goal was for Santa Cruz to
develop and sell a "Merged Product" based on Novell's UnixWare that
would provide a platform for Novell's NetWare.
(06102(¶8);00288(Art.4.18);01425-26;01438.) After the APA
closed, Santa Cruz devoted substantial resources "to upgrade
UnixWare for high-performance computing on Intel processors."
Santa Cruz changed the copyright notices on UnixWare products to
Copyright 1996 The Santa Cruz Operation, Inc. All
Copyright 1984-1995 Novell, Inc. All rights reserved.
(10310.) SCO continues to use that form of copyright notice, even
on recent products. (07408.) These notices reflect that (1) Novell
owns the copyrights for
code developed 1984-1995, having bought those rights from
AT&T and withheld them from the sale to Santa Cruz; and (2)
Santa Cruz owns the copyrights on code added from 1996. See 2
Nimmer on Copyright §7.12[C](noting "practice of many
publishers to include earlier copyright notices as well as a notice
for the newly published derivative or collective work").
B. SCO's Purchase of Santa Cruz's UNIX Business and Change in
1. Santa Cruz Warned SCO About "Chain of Title"
In May 2001, SCO purchased Santa Cruz's UNIX business. (06658.)
Santa Cruz purported to transfer its interest in UNIX and UnixWare
copyrights to SCO (07422-23;07443), but warned that it "may not be
able to establish a chain of title from Novell."
2. SCO's Decision to Attack Linux
SCO announced that its acquisition of Santa Cruz's UNIX business
made SCO "the largest Linux company in the world," and that the
deal would enable SCO to "broaden and validate both the Linux and
UNIX industries and communities, by providing open access to its
unified Linux and UNIX technologies." (06658;06650.) However, after
hiring a new CEO in 2002, SCO embarked on a new business model
called "SCOsource": license, and if that failed, sue Linux users
for using UNIX code allegedly contained in Linux.
SCO's new "SCOsource" campaign required SCO to establish title
to UNIX copyrights, despite Santa Cruz's warning. Michael Anderer,
a SCO consultant, concluded that Santa Cruz's "asset purchase" from
Novell "excludes all patents, copyrights, and just about everything
else." Anderer warned, "We need to be really clear about what we
can license. It may be a lot less than we think."
SCO repeatedly contacted Novell seeking a transfer of copyrights
so SCO could pursue its new business model.
07543);07557-58;07570;07592-94;07598-602.) Novell rejected SCO's
Despite this rejection, SCO launched a highly public campaign,
claiming that Linux infringed SCO's alleged UNIX rights. SCO sued
IBM and others, and sent threatening letters to Novell and more
than 1,000 other Linux users. (0580812;00871-72;01908-09;06955.)
Novell responded that SCO had failed to provide "meaningful notice
of any allegedly infringing Linux code," and that UNIX copyrights
were owned by Novell, not SCO.4 (05874-75.) Other Linux users
complained about SCO's vague claims.
(07148;07150;07152;07154;0716366;07168.) Merrill Lynch noted that
"nearly all the articles and papers published in connection with
this very public dispute categorically reject SCO's allegations of
intellectual property ownership and infringement," and "SCO was
even fined last year by a German Court for continuing to claim that
Linux violated SCO's intellectual property." (07158.) Industry
analysts also reacted skeptically. (06976(SCO's claims "are
uniformly without merit");06968(Linux users should avoid paying
SCO's "arbitrarily high" license fees).)
IV. NOVELL'S SVRX LICENSE WAIVER RIGHTS
A. The APA Entitled Novell to Waive Any Rights under Any SVRX
The APA entitled Novell to receive 95% of royalties due under
SVRX Licenses. (00265(Art.1.2(b));00287(Art.4.16).) Novell also
retained "sole discretion" to require SCO to "amend, supplement,
modify or waive any right" under "any SVRX License" in "any manner
or respect," and to waive such rights on SCO's behalf if SCO failed
to do so. (00287(Art.4.16(b)).)
The APA defined "SVRX Licenses" by referring to Item VI of
Schedule 1.1(a). (00287(Art.4.16(a)).) Item VI listed multiple UNIX
System V releases. (00315-16.) "SVRX" is an abbreviation for
"System V Release __." (03524(#19);AB8.)
B. AT&T Licensed SVRX Using a Combination of "Software
Agreement," "Sublicensing Agreement," and "Supplements"
As SCO has acknowledged, AT&T "used a combination of agreements
in licensing its SVRX technology, including the Software Agreement,
Sublicensing Agreement, and the various Product Supplements."
(03451(¶38).) The Software and Sublicensing Agreements are
umbrella agreements that "set forth the rights and obligations for
the licensee's use of a software product it might choose to
license." (03454(¶44).) The Software Agreement included a
"Grant of Rights" that conferred the "right to modify" and "to
prepare derivative works based on" the "SOFTWARE PRODUCT," which
was defined to include both source code and object code (called
"binary code" by SCO). (01472(§§2.01,1.02,1.04).) The
Sublicensing Agreement granted the right to distribute copies of
"SUBLICENSED PRODUCTS," defined as binary code.
The Supplements "only identif[y] the product the licensee had a
right to use and the CPUs on which it had that right, and the fees
the licensor had a right to receive in exchange."
(03454(¶44).) The Supplement refers to the related
Software Agreement, stating that the Supplement is "made a part
of the referenced [Software] Agreement." (01479;01471.) It also
refers to "Sublicensing fees" that apply to "SUBLICENSED PRODUCT
under a Sublicensing Agreement." (01480(§1(c)).)
The Software and Sublicensing Agreements refer to the
Supplements in their integration clauses, and define the licensed
products and CPUs by referring to Supplements and related
01492(¶¶1,4);01493(§1.04).) The Software and
Sublicensing Agreements thus form an integrated agreement with the
C. The IBM and Sequent SVRX Licenses
From 1985 to 1989, AT&T entered into a series of agreements
licensing SVRX to IBM ("IBM SVRX License"), including a Software
Agreement, Sublicensing Agreement, various Supplements, and other
(01471-90;01492-500;01502;01504-14;01516;01523;01543;01577.) In the
same time period, AT&T executed similar agreements licensing
SVRX to Sequent ("Sequent SVRX License").
Novell succeeded to AT&T's rights under the IBM and Sequent
SVRX Licenses upon purchasing UNIX System Laboratories in 1993.
03534(#41).) IBM assumed Sequent's rights and obligations under
the Sequent SVRX License upon acquiring Sequent in 1999.
D. IBM's Buy-Out of Its SVRX License Rights
The IBM SVRX License included one-time source code
"right-to-use" fees and ongoing "sublicensing fees" for
distributing sublicensed, binary code products. (01480.) In October
1996, IBM executed Amendment X, granting IBM an "irrevocable,
fully-paid-up, perpetual right to exercise all of it rights" under
the SVRX license agreements in exchange for payment of $10,125,000
in two installments. (03904(§1);03908(§4).) Amendment X
also modified the Software and Sublicensing Agreements by granting
IBM the right to license SVRX source code to customers under
certain circumstances. (03905-08(§§2,3,7).)
Both Novell and Santa Cruz signed Amendment X. (03911-13.)
Novell and Santa Cruz agreed, in a separate "General Release," that
Santa Cruz would retain $1.5 million of IBM's $10.125 million
payment to settle Santa Cruz's claims against Novell regarding the
IBM buy-out. (03915(§§1,2).) They also agreed in APA
Amendment No. 2 that "notwithstanding the provisions of Article
4.16, Sections (b) and (c)," special procedures would apply to "any
potential transaction with an SVRX licensee which concerns a
buy-out of any such licensee's royalty obligations...." (00374.)
For example, any future SVRX buy-out required both parties'
SCO forwarded IBM's $10.125 million payment to Novell after
deducting (1) the $1.5 million settlement payment and (2) an
"Administrative Fee for IBM" of $243,000 in November 1996 and
$263,250 in January 1997 exactly 5% of $10.125 million.
E. SCO's Refusal to Waive Claims Based on IBM and Sequent
As part of its "SCOsource" campaign, SCO claimed that IBM had
violated the AT&T/IBM Software and Sublicensing Agreements.
(01911-13.) In June 2003, Novell disputed SCO's claim and directed
SCO "to waive any purported right SCO may claim to terminate IBM's
SVRX Licenses enumerated in Amendment X or to revoke any rights
thereunder...." (01920.) SCO rejected this demand, but did not deny
that the Software and Sublicensing Agreements constituted an "SVRX
License." (01924.) On the contrary, SCO stated that Novell sought
"to assert claims on behalf of IBM with respect to its SVRX License
with SCO." (01922(emphasis added).)
Novell notified SCO that, pursuant to Article 4.16(b), Novell
was waiving "any purported right SCO may claim to terminate IBM's
SVRX Licenses enumerated in Amendment X or to revoke any rights
thereunder...." (01937.) SCO nevertheless purported to terminate
these licenses, and refused to waive
related claims against IBM. (01939;01942-47.) Novell then waived
those claims. (01949-50.)
Similarly, when SCO purported to terminate the Sequent SVRX
License and refused to waive claims against Sequent, Novell waived
those claims on SCO's behalf.
V. SCO'S FIDUCIARY OBLIGATION TO REMIT SVRX ROYALTIES
Santa Cruz agreed in the APA to "collect and pass through to
[Novell] one hundred percent (100%) of the SVRX Royalties," subject
to a 5% "administrative fee." (00265(Art.1.2(b)).) As the district
court noted, this requirement indisputably imposed a fiduciary
obligation on SCO, as Novell's agent, to collect and remit SVRX
The APA defined "SVRX Royalties" as "all royalties, fees and
other amounts due under all SVRX Licenses." (00287(Art.4.16(a).)
The APA stated that Santa Cruz "shall not, and shall not have the
authority to, amend, modify or waive any right under or assign any
SVRX License...[or to] enter into future licenses or amendments of
the SVRX Licenses, except as may be incidentally involved through
its rights to sell and license the Assets." (00287(Art.4.16(b)).)
Amendment No. 1 confirmed that SCO "shall not, and shall have no
right to, enter into new SVRX Licenses." (00361(§J).)
Amendment No. 2 prohibited SCO from
entering into any "transaction with an SVRX licensee which
concerns a buy-out of any such licensee's royalty obligations"
without Novell's consent. (00374(§B).)
In 1994, Sun executed an SVRX License with Novell that bought
out its ongoing SVRX royalty obligations. (00889-911.) Sun agreed
to keep the licensed source code confidential. (00898(§10.1).)
In 2003, SCO purported to amend that SVRX License and buy-out
agreement, removing the confidentiality restrictions.
(00877-78(§8.1).) SCO executed this license without Novell's
consent and refused to remit to Novell any of the royalties SCO
obtained from Sun.
SUMMARY OF ARGUMENT
1. The district court correctly held that the unambiguous
language of the APA, as executed in September 1995 and amended as
of the December 1995 closing, did not meet the requirements of the
Copyright Act for transferring copyright ownership to SCO's
predecessor, Santa Cruz. The APA asset schedules unequivocally
excluded "[a]ll copyrights." The Bill of Sale executed in December
1995 transferred only those assets included in the APA. Extrinsic
evidence purporting to show that the parties intended to transfer
copyright ownership is irrelevant and inadmissible under
California's parol evidence rule because the APA is an integrated
agreement, and its clear and explicit language is not susceptible
to that interpretation.
2. The district court correctly held that the APA as amended by
Amendment No. 2, which amended the APA's schedule of excluded
assets "as of October 16, 1996," did not transfer copyright
ownership for several independent reasons.
First, Amendment No. 2 failed as a matter of law to meet the
Copyright Act's requirements for conveyance of copyright ownership
because it had no transfer language, did not retroactively amend
the December 1995 Bill of Sale, and did not identify with
reasonable certainty which copyrights, if any, were to be
Second, SCO presented no competent evidence that Amendment No. 2
was intended to transfer copyright ownership. Indeed, Novell had
indisputably rejected Santa Cruz's proposed amendment
transferring copyright ownership.
Third, SCO presented no evidence that Santa Cruz "required"
copyright ownership to exercise its APA rights. SCO argues
circularly that Santa Cruz required copyright ownership to sue for
copyright infringement because the APA transferred "claims" related
to the acquired assets. But this would follow only if those assets
included copyright ownership, which the APA specifically excluded.
Moreover, Santa Cruz and SCO operated the acquired business for
seven years without asserting a copyright ownership claim, until
SCO changed its business model and sued IBM in 2003.
3. SCO's claim for specific performance suffers from the same
deficiencies and circularity as its claim for copyright ownership.
The district court correctly denied that claim as a matter of law
for the same reasons it denied SCO's copyright ownership claim.
4. The district court correctly concluded that Novell's
contractual authority to waive "any rights" under "any SVRX
License" entitled Novell to waive SCO's rights under any of the
agreements that licensed SVRX to IBM and Sequent, including the
Software and Sublicensing Agreements. SCO's attempt to rewrite "any
SVRX License" as "Supplements only" is unreasonable as a matter of
law. The Supplements do not, by themselves, confer any right to use
the licensed products. Rather, the Supplements confer a license
only when combined with the Software and Sublicensing
5. The district court correctly rejected SCO's claim that Novell
breached the implied covenant of good faith by exercising its
contractual authority to waive "any rights" under "any SVRX
License." Under controlling California Supreme Court precedent, the
implied covenant does not "prohibit a party from doing that which
is expressly permitted by an agreement."
6. The district court correctly held that Novell's right to
royalties under "all SVRX Licenses" included all licenses to the
UNIX System V Releases identified in the APA, not just
"pre-existing" licenses. Therefore, SCO's challenge
to the damages award related to the Sun SVRX License fails. The
Sun damages award is also supported by other rulings that SCO has
I. THE DISTRICT COURT CORRECTLY HELD AS A MATTER OF LAW THAT
THE APA AND BILL OF SALE DID NOT TRANSFER COPYRIGHT
SCO argues that the APA should be interpreted only as amended by
Amendment No. 2, which was executed in October 1996, 13 months
after the APA and 10 months after the Bill of Sale. SCO ignores
that Amendment No. 2 amended the APA "[a]s of the 16th day of
October 1996." Amendment No. 2 was not in effect when the Bill of
Sale transferring assets was executed in December 1995. It is,
therefore, necessary to consider separately (1) whether the APA and
Bill of Sale transferred copyright ownership in 1995; and (2)
whether Amendment No. 2 transferred ownership upon taking effect in
October 1996. The district court correctly held that none of these
documents transferred copyright ownership.
A. Applicable Federal and State Law
Two sets of legal principles govern copyright ownership. First,
Section 204(a) of the Copyright Act requires a signed, written
"instrument of conveyance" to transfer copyright ownership. 17
U.S.C. § 204(a). Second, California law governs contract
interpretation, and its parol evidence rule prohibits
use of extrinsic evidence to support an interpretation to which
the plain language is not "reasonably susceptible."
1. The Copyright Act Requires a Clear and Definite
"Instrument of Conveyance"
The Copyright Act's "instrument of conveyance" requirement
"enhances predictability and certainty of copyright ownership
Congress' paramount goal" when it amended the Copyright Act
in 1976. Effects Assocs. v. Cohen, 908 F.2d 555, 557 (9th
Cir. 1990), citing Community for Creative Non-Violence v.
Reid, 490 U.S. 730, 749-50 (1989). Section 204(a) has been
strictly applied consistent with this purpose. See Konigsberg
Int'l v. Rice, 16 F.3d 355, 357 (9th Cir. 1994); Radio
Television Espanola S.A. v. New World Entm't, 183 F.3d 922, 926
(9th Cir. 1999). It is a substantive prerequisite, not merely an
evidentiary rule; a copyright transfer is "not valid" without the
required written instrument. Konigsberg, 16 F.3d at 357.
Unlike a statute of frauds, Section 204(a) is not subject to
equitable defenses, which would "undermine the goal of uniformity
and predictability in the field of copyright ownership and
transfer." Pamfiloff v. Giant Records, 794 F.Supp. 933, 937
(N.D. Cal. 1992).
Section 204(a) requires a written instrument sufficiently "clear
and definite" that "such property will be readily marketable" and
the "parties need only look to the writing that sets out their
respective rights." Konigsberg, 16 F.3d at 357. This
prevents misunderstandings by "spelling out the terms of a deal
in black and white," and "forc[ing] a party who wants to use the
copyrighted work to negotiate with the creator to determine
precisely what rights are being transferred."
Effects, 908 F.2d at 557 (emphasis added).
2. California Law Prohibits Using Extrinsic Evidence to
Support a Contract Interpretation to Which the Plain Language Is
Not Reasonably Susceptible
California law governs the APA pursuant to its choice-of-law
clause. (00310(Art.9.8).) Under California law, "[t]he language of
a contract is to govern its interpretation, if the language is
clear and explicit, and does not involve an absurdity."
Cal.Civ.Code § 1638. Extrinsic evidence cannot be used to
support an interpretation to which the contract language is not
"reasonably susceptible." Dore v. Arnold Worldwide, 39
Cal.4th 384, 391 (2006). "When a dispute arises over the meaning of
contract language, the first question to be decided is whether the
language is 'reasonably susceptible' to the interpretation urged by
the party. If it is not, the case is over." Id. at 393.
Under California's parol evidence rule, "Terms set forth in a
writing intended by the parties as a final expression of their
agreement with respect to such terms as are included therein may
not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement." Cal.Civ.Proc.Code § 1856(a).
"[W]hen the parties intend a written agreement to be the final
complete expression of their understanding, that writing becomes
the final contract between the parties, which may not be
contradicted by even the most persuasive evidence of collateral
agreements. Such evidence is legally irrelevant." EPA
Real Estate P'ship v. Kang, 12 Cal.App.4th 171, 175
(1992)(emphasis added); Gerdlund v. Elec. Dispensers Int'l,
190 Cal.App.3d 263, 270 (1987)("The parol evidence rule generally
prohibits the introduction of any extrinsic evidence to vary or
contradict the terms of an integrated written instrument.").
The court may "provisionally receive, without actually
admitting," extrinsic evidence to determine "whether or not the
written agreement is reasonably susceptible to the interpretation
offered by a party." Blumenfeld v. R.H. Macy & Co., 92
Cal.App.3d 38, 45 (1979). However, "if the court decides in light
of this extrinsic evidence that the contract is not reasonably
susceptible to the offered interpretation, then the evidence is
irrelevant and inadmissible to interpret the contract."
Blumenfeld, 92 Cal.App.3d at 45.
California courts have strictly applied the parol evidence rule.
In Gerdlund, plaintiffs relied on "[t]estimony by all
parties at the in limine hearing  that all
had the same general intent regarding the length of
employment, namely that [plaintiffs] would not be terminated as
long as they were doing a good job," to argue that a contract
allowing termination for "any reason" should be interpreted
as "any good reason." 190 Cal.App.3d at 273 (bold emphasis
added). The court
rejected this evidence as inadmissible because "any reason" is
"plainly all-inclusive, encompassing all reasons 'of whatever
kind,' good, bad, or indifferent." Id. at 273, 278;
see also Blumenfeld, 92 Cal.App.3d at 46 (rejecting
extrinsic evidence that transfer of "all claims against third
parties" did not include plaintiff's claim against defendant,
because "all-inclusive language" was not "reasonably susceptible"
to this interpretation, so plaintiff "was simply mistaken in its
belief that it had retained [that] claim").
SCO cites cases that considered extrinsic evidence (AB39), but
those cases confirm that extrinsic evidence should not be
admitted unless the contract is "reasonably susceptible" to the
proposed interpretation. Wolf v. Walt Disney Pictures &
Television, 162 Cal.App.4th 1107, 1126 (2008); Employers
Reins. Co. v. Superior Court, 161 Cal.App.4th 906, 920 (2008);
Morey v. Vannucci, 64 Cal.App.4th 904, 912 (1998);
Halicki Films v. Sanderson Sales & Mktg., 547 F.3d 1213,
1223 (9th Cir. 2008); see Universal Sales Corp. v. Cal. Press
Mfg., 20 Cal.2d 751, 761, 776 (1942)(considering extrinsic
evidence after finding "ambiguity").
B. The APA and Bill of Sale When Executed in 1995 Did Not
Transfer Copyright Ownership
1. The APA and Bill of Sale Did Not Constitute an Instrument
As executed in 1995, the APA and Bill of Sale did not constitute
an "instrument of conveyance" sufficient to transfer copyrights
under the Copyright Act because they explicitly excluded "all
copyrights" from the transfer.
The APA did not transfer any assets, but rather defined the
"Assets" to be transferred at the Closing pursuant to a "Bill of
Sale." (00264(Art.1.1(a)); 00268(Art.1.7(b)(3)).) Article 1.1(a)
stated that the Assets to be transferred were "identified on
Schedule 1.1(a) hereto," but that "notwithstanding
the foregoing, the Assets to be so purchased shall not include
those assets ('the Excluded Assets') set forth on Schedule
As "Intellectual property" transferred, Schedule 1.1(a)
identified only "Trademarks UNIX and UnixWare as and to the extent
held by Seller." (00315.) Schedule 1.1(b) excluded, under its
"Intellectual Property" heading, "All copyrights and trademarks,
except for the trademarks UNIX and UnixWare," as well as "All
Patents." (00318.) The "notwithstanding" clause in Article 1.1(a)
makes it clear that the transferred Assets "shall not include" the
"Excluded Assets," even if such assets are part of Schedule
1.1(a). The APA's "clear and explicit" language thus excluded "all
copyrights" from the transfer.5
The Bill of Sale, executed on December 6, 1995, stated that it
"does hereby transfer" the "Assets," as defined in the APA, and
thus did not include copyrights. (05602.)
2. The TLA Did Not Override the APA's Exclusion of "All
SCO contends that the Technology License Agreement ("TLA")
executed at the Closing pursuant to APA Article 1.6 supports
interpreting the APA as transferring UNIX and UnixWare copyrights
because Novell did not need a "license-back" to technology that it
owned. (AB35.) The district court correctly rejected this argument
because (1) "Licensed Technology" is defined as "all of the
technology included in the Assets and all derivatives of the
technology included in the assets"; and (2) the definition
therefore included "rights distinct from Novell's UNIX and UnixWare
copyrights," such as "other aspects of the technology sold to
Santa Cruz and derivatives of the transferred technology," for
which Novell did need a license.
As the court also noted, SCO's argument would imply that the APA
transferred patents because Novell would otherwise not need a
license-back of patents; yet SCO admitted that the APA did
not transfer patents. (12032.) Moreover, the TLA did not
purport to override Schedule 1.1(b)'s explicit exclusion of "all
copyrights" from the transferred assets.
3. Extrinsic Evidence of the Parties' Intent Is Inadmissible
Under the Parol Evidence Rule
SCO argues that extrinsic evidence creates a triable issue
regarding whether the APA transferred copyrights. As discussed
above, California law allows extrinsic evidence to be
"provisionally received," but requires its exclusion if the
contract is not "reasonably susceptible" to the proffered
interpretation, even if all parties have testified to that
interpretation. (Supra, 26.)
The APA explicitly excluded "all copyrights" when the Bill of
Sale transferring assets was executed in 1995. That language is not
susceptible to the interpretation that it transferred copyrights.
The extrinsic evidence cited by SCO is, therefore,
As required by California law, the district court provisionally
received extrinsic evidence to determine whether such evidence made
the APA reasonably
susceptible to SCO's interpretation. Novell presented evidence
that the parties deliberately excluded copyrights from the
transfer. (Supra, 7-8.) SCO presented conclusory testimony
that the parties intended when they executed the APA in 1995 to
transfer the UNIX and UnixWare copyrights. These witnesses
admitted, however, that they were not responsible for negotiating
and drafting the actual APA language. (Supra, 10-12.) Nor
did these witnesses explain why the APA excluded "all
copyrights," if the intent was to include the UNIX and
UnixWare copyrights in the transfer. As noted by the district
court, SCO "provide[d] no extrinsic evidence regarding the final
negotiations of the deal that would contradict Novell's evidence."
SCO argues that the district court "improperly weighed the
evidence." (AB40-47,62.) On the contrary, after carefully
considering extrinsic evidence regarding the parties' intent and
subsequent conduct6 (11985-12013;12024-45), the
court correctly concluded that "[t]he parol evidence rule
precludes SCO from relying on extrinsic evidence to try to rewrite
the exclusion of 'all copyrights' from APA because the language is
unambiguous and not reasonably susceptible to SCO's
interpretation." (12035.) "Reasonably susceptible" is an issue of
law that the court properly decided on summary judgment. See
Dore, 39 Cal.4th at 387, 394 (affirming summary judgment);
Gerdlund, 190 Cal.App.3d at 267 (reversing jury verdict);
Blumenfeld, 92 Cal.App.3d at 41, 46 (reversing bench trial
C. The APA as Amended by Amendment No. 2 Did Not Transfer
Ownership of the UNIX and UnixWare Copyrights
The district court correctly held that the APA as amended
effective October 16, 1996, by Amendment No. 2 did not transfer
ownership of UNIX and UnixWare copyrights for three separate
reasons: (1) it did not meet Copyright Act requirements for
transferring copyright ownership; (2) no admissible extrinsic
evidence shows that Amendment No. 2 was intended to transfer
copyright ownership; and (3) SCO presented no evidence that
copyright ownership was required to exercise its APA rights.
1. Amendment No. 2 Did Not Meet the Copyright Act
Requirements for Transfer of Ownership
As discussed in Part I.A.1, Copyright Act Section 204(a) requires a
clear and definite "instrument of conveyance" that enables the
parties to resolve disputes by
examining "the writing that sets out their respective rights."
Konigsberg, 16 F.3d at 357. This instrument must "(1)
reasonably identify the subject matter of the agreement, (2) be
sufficient to indicate the parties have come to an agreement, and
(3) state with reasonable certainty the essential terms of the
agreement." Pamfiloff, 794 F.Supp. at 936. Amendment No. 2
did not satisfy these requirements because it did not purport to
transfer copyright ownership or retroactively amend the Bill of
Sale, and did not identify which copyrights, if any, were
a. Amendment No. 2 did not transfer copyright ownership or
retroactively amend the Bill of Sale
As the district court found, "Amendment No. 2 does not include
any provision that purports to transfer ownership of copyrights."
(12041.) It does not state that copyrights "are hereby
transferred," "have been transferred," or even "will be
transferred." Rather, it merely revises the "Intellectual Property"
category of "Excluded Assets" under Schedule 1.1(b).
SCO attempts to overcome this problem by arguing that "[t]he
APA, as amended by Amendment No. 2, and the Bill of
Sale, easily satisfy the Copyright Act's requirements."
(AB49(emphasis added);AB50("The Bill of Sale unambiguously
effectuated this transfer and complied with the Copyright Act.").)
As the district court found, however, "Amendment No. 2 was not
accompanied by a separate 'Bill of Sale' transferring any assets"
and did not "purport to
retroactively change the scope of assets transferred by the Bill
of Sale that was executed in connection with the APA in December
1995." (12041.) Amendment No. 2 stated that it "amended" the APA
"[a]s of the 16th day of October, 1996," ten months
after the December 1995 Bill of Sale.
SCO attempts to imply retroactivity in Amendment No. 2's
reference to "the copyrights and trademarks owned by Novell as
of the date of the Agreement." (AB34.) This reference relates
plainly, however, to which copyrights are at issue, not to the
amendment's effective date. Amendment No. 2 explicitly states that
it applies prospectively "[a]s of the 16th
day of October, 1996," its signing date. That language is not
reasonably susceptible to SCO's retroactive interpretation. The APA
as amended by Amendment No. 2 is, therefore, not "sufficient to
indicate the parties have come to an agreement" to transfer
copyrights. Pamfiloff, 794 F.Supp. at 936.
b. Amendment No. 2 did not identify which copyrights, if any,
should be transferred.
Amendment No. 2's reference to copyrights "required for SCO to
exercise its rights with respect to the acquisition of UNIX and
UnixWare technologies" did not "reasonably identify the subject
matter of the agreement." Id. SCO now contends that Santa
Cruz "required" outright ownership of, not just a license to,
all of Novell's copyrights for the many versions and
releases of UNIX and UnixWare
to exercise rights acquired under the APA. But Amendment No. 2
says nothing of the kind, and SCO has not demonstrated that it
required ownership of any copyrights. (Infra, 42-48.)
At a minimum, because there was no "meeting of the minds,"
Amendment No. 2 was not a sufficient "instrument of conveyance."
See Foraste v. Brown Univ., 290 F.Supp.2d 234, 239-40
(D.R.I. 2003)(no valid Section 204(a) transfer because of "utter
absence of precision regarding the rights to be transferred" and
"no evidence of...'meeting of the minds'"); Pamfiloff, 794
F.Supp. at 936 (conveyance instrument must show agreement
concerning "essential terms of the agreement"); Konigsberg,
16 F.3d at 357 (instrument must "determine precisely what rights
are being transferred"); Playboy Enters. v. Dumas, 53 F.3d
549, 564 (2d Cir. 1995)(instrument not sufficient because of
"ambiguity of the agreement").
Quoting APA Article 1.1(a) only in part, SCO argues that "[t]he
amended APA unambiguously provided for the transfer to Santa Cruz
of all of Novell's 'right, title, and interest' and 'all rights and
ownership of UNIX and UnixWare'" and that Amendment No. 2
"confirms...the written agreement in the APA." (AB50-51.)7 SCO ignores the
remainder of Article 1.1(a), which limits such rights
and interest to assets "identified on Schedule 1.1(a)
hereto" and "not includ[ing] those assets ('the
Excluded Assets') set forth on Schedule 1.1(b)." Amendment
No. 2 did not change Schedule 1.1(a), which still limited the
transferred "[i]ntellectual property" to "[t]rademarks UNIX and
UnixWare as and to the extent held by [Novell]" and still
identified no copyrights. Schedule 1.1(b), as amended, still
excluded "[a]ll copyrights" except those "required for SCO to
exercise its rights" under the APA. SCO cannot escape Amendment No.
2's failure to identify any copyrights with the specificity
required by the Copyright Act by resorting to the APA's general
Nor do the cases SCO relies on contradict the principle that the
written instrument of conveyance must be specific and unambiguous
to be enforceable. SCO cites Radio Television Espanola S.A.
for the proposition that "[n]o particular language or 'magic words'
are required" (AB49-50), but that case affirmed summary judgment
based on failure to comply with Section 204(a) because the
documents lacked sufficient specificity. 183 F.3d at 927, 931.
Kenbrooke Fabrics v. Soho Fashions, 690 F.Supp. 298, 301
(S.D.N.Y. 1988), held only that a
"letter of authorization" stating that it was "transfer[ring]
ownership of all screens" might be sufficient to meet the
requirements of the Act if signed by a properly authorized agent.
And ITOFCA v. MegaTrans Logistics, 322 F.3d 928 (7th Cir.
2003), did not resolve whether the agreement transferred copyright
ownership, relying instead on the preclusive effect of an order
allowing the defendant to make and sell copies of the software.
Id. at 931 ("even if the agreement did not transfer the
copyright...it transferred a right to sell a modified version,
which is all that matters so far as this appeal is concerned");
see id. at 938 (concurrence noting that finding transfer
would "conflict with the purposes of section 204").
None of these cases supports transfer of copyright ownership
where, as here, the document relied on as an instrument of
conveyance fails to specify its subject matter and terms.
Playboy, supra, is instructive. The Second Circuit held that
an agreement to assign "all right, title and interest in and to the
following items" was insufficient to satisfy Section 204(a),
because "the evidence [was] conflicting as to whether the parties
intended a one-time transfer of reproduction rights or a transfer
that included copyright." 53 F.3d at 564. Here, as in
Playboy, "the ambiguity of the agreement and the
accompanying circumstances" render Amendment No. 2 "insufficient to
meet the writing requirement of § 204(a)." Id.
2. SCO Presented No Extrinsic Evidence that Amendment No. 2
Was Intended to Transfer Ownership of Copyrights
Because Amendment No. 2 does not meet the Copyright Act
requirements to transfer ownership, extrinsic evidence need not be
considered. Indeed, extrinsic evidence is not admissible to show
that Amendment No. 2 was intended to transfer copyrights by
retroactively amending the Bill of Sale, because Amendment No. 2
indisputably does not contain any language of transfer and
explicitly applies prospectively, "as of" its signing date, so the
plain language is not reasonably susceptible to this
Moreover, the district court correctly found that "[e]ven if the
Amendment met the requirements of Section 204, the extrinsic
evidence demonstrates that the parties intended only to affirm the
implied license granted under the APA." (12044.) Amendment No. 2
was negotiated by two in-house lawyers, Novell's Allison Amadia and
Santa Cruz's Steven Sabbath.
(06063(¶¶5,6);06097(¶¶1316).) Amadia gave
unrebutted testimony that Sabbath said that the APA excluded
copyrights from the asset sale and requested that Novell "amend the
Original APA to explicitly give Santa Cruz rights to copyrights in
UNIX and UnixWare." (Id.) Sabbath then proposed revising the
"Excluded Assets" schedule, through Paragraph A of Amendment No. 2,
All copyrights and trademarks, except for the
copyrights and trademarks owned by Novell as of the date of this
Amendment, which pertain to the UNIX and UnixWare technologies and
which SCO has acquired hereunder....
(06064(¶8);06070.) Santa Cruz thus acknowledged that "as of
the date of this Amendment," Novell owned copyrights "pertain[ing]
to the UNIX and UnixWare technologies" and sought to obtain
ownership of those copyrights by stating that "SCO has acquired
[them] hereunder." (Id.
Novell rejected this proposal. Amadia told Sabbath that "while
Novell was willing to affirm that Santa Cruz had a license under
the Original APA to use Novell's UNIX and UnixWare copyrighted
works in its business, Novell was not going to transfer ownership
of any copyrights to Santa Cruz through Amendment No. 2."
The final version of Amendment No. 2 did not refer to copyrights
"which SCO has acquired hereunder."
(06065(¶11);00374(¶A).) Moreover, instead of a blanket
exception for copyrights that "pertain to the UNIX and UnixWare
technologies," it referred only to copyrights "required for SCO to
exercise its rights with respect to the acquisition of the UNIX and
UnixWare technologies." (Id.) Jim Tolonen, the Novell
executive who signed Amendment No. 2, confirmed that it was not
intended to transfer copyright ownership.
It is undisputed that Novell rejected Santa Cruz's proposal to
obtain the interpretation that SCO now urges for Amendment No. 2
transfer of all UNIX and UnixWare copyrights. SCO's attempt
to get back what Santa Cruz already gave up is untenable as a
matter of law.8 See Apple Computer v. Microsoft
Corp., 35 F.3d 1435, 1440-41 (9th Cir. 1994)(under California
law, where Microsoft rejected Apple's proposal "to limit
Microsoft's license to Windows 1.0," there was "no basis for
construing the Agreement to grant the narrow license Apple
bargained for but gave up").
SCO offered no competent contrary evidence. With the exception
of Sabbath, none of the witnesses SCO cites was involved in
negotiating Amendment No. 2. And Sabbath admitted that
he had no recollection of negotiating the relevant part of
Amendment No. 2:
Q. Is paragraph A a part of Amendment Number 2 that you
recall negotiating to any extent?
A. I don't recall that. But I don't know.
Q. And to the best of your recollection, who at Santa
Cruz would have been involved in negotiating the language of
paragraph A to Amendment Number 2[?]
A. I don't know.
(10721.) Moreover, Sabbath declared that "Novell had retained its
UNIX copyrights" under the APA (05183(¶25)) and that SCO's
claim to own "all right, title and interest in and to UNIX System
V...together with copyrights" was "incorrect." (05185(¶29).)
Sabbath is, therefore, not competent to testify about the parties'
intent in negotiating Amendment No. 2, and his conclusory assertion
that Amendment No. 2 was intended to confirm that Santa Cruz owned
the UNIX copyrights does not create a triable issue of fact. See
Franks v. Nimmo
, 796 F.2d 1230, 1237 (10th Cir.
1986)(conclusory affidavit that contradicts prior testimony does
not defeat summary judgment); FrontRange Solutions USA v.
, 2007 U.S. Dist. LEXIS 64757, at **2-12
(D.Colo. Aug. 31, 2007)(unpublished)(same).
3. SCO Presented No Evidence that Ownership of UNIX and
UnixWare Copyrights Was Required to Exercise Its Rights Under the
Even if Amendment No. 2 met the requirements of the Copyright
Act, and even if SCO had presented competent extrinsic evidence
regarding Amendment No. 2, SCO would have the burden of
establishing a triable issue that transfer of
copyright ownership was "required for SCO to exercise its rights
with respect to the acquisition of UNIX and UnixWare technologies."
SCO failed to meet that burden. As the district court correctly
held, "SCO has not provided evidence that it required ownership of
the copyrights to exercise its rights under the APA." (12044.)
SCO had the burden to show that copyright ownership was
"required," which means "necessary" or "essential," and not merely
"useful" or "helpful." SCO also had the burden to show (1) which of
the numerous copyrights for UNIX releases were "required for" the
exercise of Santa Cruz's APA rights, and (2) which specific rights
within the bundle of copyright ownership rights (e.g., use, modify,
copy, distribute, etc.) were "required." SCO made no showing as to
SCO presented no evidence that Santa Cruz needed to own UNIX and
UnixWare copyrights to exercise its rights regarding acquired UNIX
and UnixWare technology. As the district court found, "Santa Cruz
had been able to pursue its UNIX business from December 6, 1995
until October 16, 1996, without any problems due to its lack of
ownership of the copyrights. Santa Cruz indisputably did not own
the copyrights during those ten months." (12043.) Moreover, Santa
Cruz continued to operate its UNIX business without any problems,
promoting enhanced versions of Novell's "UnixWare" as "the standard
UNIX System for volume enterprise servers." (02507.) SCO continued
UnixWare after taking over Santa Cruz's product line in 2001,
releasing UnixWare 7.1.3 in December 2002. (00457.)
Santa Cruz did not need to own the UNIX and UnixWare copyrights
because the APA necessarily conferred a license on Santa Cruz to
use those copyrights as needed to implement the APA. A contract
involving copyrighted works confers a license to use the copyrights
as needed to implement the transaction, even if the contract does
not expressly refer to a license. Foad Consulting Group v. Musil
Govan Azzalino, 270 F.3d 821, 828 (9th Cir. 2001)(finding
license where required for "[t]he central purpose of the
contract"); see also Effects, 908 F.2d at 558.
A "central purpose" of the APA was to enable Santa Cruz to
develop and distribute an improved version of Novell's "UnixWare"
product. (Supra, 12.) This required Santa Cruz to modify and
distribute the copyrighted code in Novell's UnixWare. Thus, the APA
necessarily conferred a license to use the related copyrights to
effectuate this purpose. (06107(¶20);08752.) Burt Levine, a
former SCO litigation consultant and in-house attorney at
AT&T/Novell/Santa Cruz, gave uncontradicted testimony that if
the copyrights were not transferred, Santa Cruz "absolutely,
absolutely" would have had a license to use the copyrights, and
that there would be an "inherent" license to do "anything necessary
to practice the copyright in the transferred asset."
The conclusion that Santa Cruz did not require ownership of the
UNIX copyrights is reinforced by Santa Cruz's admitted lack of
ownership of Novell's UNIX-related patents.
(05638(¶9);08767;08776.) Santa Cruz needed to use these
patents to distribute and modify UNIX products, so Novell's sale of
its UNIX products to Santa Cruz necessarily conveyed "enough of a
patent license under Novell's patents that would be necessary for
SCO to conduct its business," as Levine confirmed. (08767.)9
SCO did not dispute that companies routinely operate software
businesses without owning the underlying rights. (07577-78;07590.)
Indeed, SCO's complaint against IBM noted that IBM sells a variant
of UNIX, even though IBM does not own the underlying UNIX
Contrary to SCO's assertion (AB36), courts have not limited the
implied license doctrine to works created for the licensee.10 Keane
Dealer Servs. v. Harts,
968 F.Supp. 944 (S.D.N.Y. 1997), for example, found a license on
parallel facts. Lehman Brothers sold its retail branch assets to
Smith Barney, including a retail order management system, but did
not transfer the software's copyrights. Id. at 946. Lehman
subsequently sold its rights to the software's developer, who sued
Smith Barney for copyright infringement. Id. at 946-47. The
court granted summary judgment for Smith Barney based on an implied
license to use the software program arising from Lehman's knowledge
of, and acquiescence in, the use of the software. Id. at
947; see Pamfiloff, 794 F.Supp. at 938-39 (transfer of all
rights in compositions in exchange for royalty payments did not
fulfill Copyright Act requirements to transfer copyright ownership
but created implied license to use compositions).
Moreover, SCO's argument implies that Santa Cruz did not have
any license to carry out the UNIX-related business
contemplated by the APA for the ten months between the Bill of Sale
and Amendment No. 2, during which time it indisputably did not own
the copyrights. Unless SCO believes that Santa Cruz was acting
illegally during that period, Santa Cruz must have had an inherent
SCO contends that Santa Cruz "required" copyright ownership to
exercise its APA rights because Schedule 1.1(a) included "[a]ll of
Seller's claims arising after the Closing Date against any parties
relating to any right, property or asset included in the Business."
(00314;AB37.) This argument is circular. It requires one to assume
what SCO seeks to prove that the assets transferred
included Novell's UNIX and UnixWare copyrights. Schedule 1.1(a)
included only those "claims" that related to assets "included in
the Business." But copyrights were explicitly excluded
from the sale of the business when the APA was executed and closed
Moreover, SCO offered no evidence that suing Linux companies was
"required" to exercise rights contemplated by the APA. SCO has
submitted no evidence that, in the seven years between the
execution of the APA and its suit against IBM, it was necessary to
sue or threaten to sue any party concerning the original,
unmodified UNIX or UnixWare code subject to the APA.
What actually happened is that SCO decided to adopt a new
business model that was not contemplated by the APA: suing Linux
users for alleged infringement, instead of developing and selling
its own products. SCO has presented no evidence that such lawsuits
were "required" to pursue the UnixWare business that Santa Cruz and
Novell contemplated upon executing the APA in 1995. Indeed, the
undisputed evidence shows that the APA's purpose was to enable
Santa Cruz to
develop and promote an enhanced version of UnixWare.
Other than the APA's reference to "claims," the only evidence
that SCO presented was conclusory statements that "you need all of
the copyrights." Such "generic and conclusory testimony," "wholly
devoid of any specific instances" in which ownership of the
copyrights was in fact required to exercise Santa Cruz's APA
rights, is insufficient to create a disputed issue of material
fact. See Jones v. Denver Post Corp., 203 F.3d 748, 756
(10th Cir. 2000).
II. THE DISTRICT COURT CORRECTLY HELD AS A MATTER OF LAW THAT
THE APA DOES NOT ENTITLE SCO TO TRANSFER OF THE UNIX AND UNIXWARE
SCO argues, in the alternative, that even if the APA as amended
by Amendment No. 2 did not transfer Novell's UNIX and UnixWare
copyrights, SCO is entitled to "specific performance" requiring the
transfer of those copyrights now. (AB51-52.) This claim suffers
from the same deficiencies and circularity as SCO's claim for
As demonstrated above, the APA, even as amended by Amendment No.
2 "as of October 16, 1996," does not meet the Copyright Act
requirements. Its vague reference to "copyrights...required to
exercise [SCO's] rights" does not identify "precisely what rights
are being transferred," Effects, 908 F.2d at 557, or
"reasonably identify the subject matter of the agreement" or "state
certainty the essential terms of the agreement,"
Pamfiloff, 794 F.Supp. at 936. Treating Amendment No. 2 as
an agreement for future transfer subject to specific enforcement
does not cure these deficiencies. The Copyright Act applies equally
to promises of future transfer. Valente-Kritzer Video v.
Pinckney, 881 F.2d 772, 774 (9th Cir. 1989)(promise to transfer
copyright ownership unenforceable for failure to comply with
Copyright Act); Mellencamp v. Riva Music, 698 F.Supp. 1154,
1161-62 (S.D.N.Y. 1988)("there is no merit to plaintiff's
contention that a contract to transfer a copyright can be enforced
without a writing [complying with the Copyright Act]"); A. Brod,
Inc. v. SK&I Co., 998 F.Supp. 314, 323-24 (S.D.N.Y.
1998)("Section 204 applies...to oral agreements to
(re)transfer copyright ownership in the future.").
SCO repeats its circular argument that SCO "requires" copyright
ownership to "exercise its rights" to bring "claims" for copyright
infringement, i.e., SCO requires ownership of the copyrights
because otherwise it cannot sue as a copyright owner. But if
copyrights were not assets transferred, suing as an owner cannot be
required to exercise rights relating to those assets. SCO argues,
in particular, that it "requires" copyright ownership to sue IBM
for infringement of UNIX copyrights with respect to IBM's Linux
product. But SCO has made no showing that it or Santa Cruz was
unable to operate the acquired business without suing IBM. Indeed,
SCO did not sue IBM until 2003, seven years
after the closing of the APA and long after Linux was first
distributed in the 1990s. Moreover, SCO's claims against IBM are
based on alleged misuse of SVRX code that IBM licensed from
AT&T in the 1980s and for which Novell retained 95% of the
00287(Art.4.16(a).) Those claims have nothing to do with post-APA
code and products developed by Santa Cruz and SCO, which were the
focus of the APA and for which SCO holds its own copyrights.
For the same reasons that Amendment No. 2 failed to transfer
ownership of UNIX and UnixWare copyrights to Santa Cruz, it created
no obligation by Novell to transfer ownership of those copyrights
in the future.
III. THE DISTRICT COURT CORRECTLY HELD THAT NOVELL HAD THE
RIGHT TO WAIVE SCO'S RIGHTS UNDER THE IBM AND SEQUENT SVRX
APA Article 4.16(b) gave Novell "sole discretion" to "waive any
rights" under "any SVRX License." (00287.) SCO contends that this
authority is limited to "binary royalty rights" under
"Supplements," and does not include the IBM and Sequent Software
and Sublicensing Agreements. (AB53-63.) This argument fails because
the contract is not reasonably susceptible to SCO's
A. "Any SVRX License" Includes All Licenses to SVRX, and
Cannot Reasonably Be Limited to "Supplements" that Do Not Confer
Any Right to Use SVRX.
1. The plain-language meaning of "any SVRX License" is any
contract that licenses SVRX technology
The only term in "any SVRX License" that is not clear on its face
is "SVRX." SCO has admitted, however, that "SVRX" refers to UNIX
System V releases. (03524(#19);AB8.) This is consistent with the
APA, which defines "SVRX License" by referring to UNIX System V
The ordinary meaning of "any SVRX License" is any agreement that
licenses SVRX. SCO has admitted that AT&T "used a combination
of agreements in licensing its SVRX technology, including the
Software Agreement, Sublicensing Agreement, and various Product
Supplements." (03451(¶38).) Nevertheless, SCO contends that
"any SVRX License" is limited to Supplements only.
SCO's interpretation is unreasonable as a matter of law. The
Supplements did not grant any right to use SVRX. Rather, as
conceded by SCO and noted by the district court, the Supplements
"only identified the product the licensee had a right to use and
the CPUs on which it had that right, and the fees the licensor had
a right to receive in exchange."
The Supplements are one portion of an "SVRX License," but
confer a license only when combined with the "Grant of Rights" in
the Software and Sublicensing Agreements. (01472-73;01493-96.) The
Supplements refer to the
Software and Sublicensing Agreements, which in turn refer to the
Supplements as part of the same integrated agreement.
The district court correctly interpreted "any SVRX License"
as including both the Software and Sublicensing Agreements
(which define "general rights and obligations for the licensee's
use of any software product") and the Supplements (which
"give content" to those Agreements by identifying the "software
2. "SVRX License" is not ambiguous
SCO contends that "SVRX License" is ambiguous because the Item
VI list of "SVRX Licenses" consists of UNIX System V releases, not
specific licenses. (AB53-54.) As the district court noted, the only
reasonable interpretation is that "SVRX License" refers to all
licenses related to the UNIX System V releases in Item VI.
(12060-61.) Indeed, SCO has admitted that "SVRX" refers to UNIX
System V releases. (03524(#19).)
The APA does not define "License," but this is an ordinary word
that needs no definition. SCO asserts that "[t]he absence of any
definition supports a finding of ambiguity" (AB54), but its cited
authority "rejected the view that the lack of [an insurance] policy
definition necessarily creates ambiguity," since any such rule
"would be illogical and unworkable." Bay Cities Paving &
Grading v. Lawyers' Mut. Ins. Co., 5 Cal.4th 854, 866 (1993).
Ambiguity might exist "when the term in
question has no generally accepted meaning" (id. at 867), but
"license" has a generally accepted meaning, as confirmed by SCO's
admission that AT&T used a combination of agreements in
"licensing its SVRX technology." (03451(¶38).)
SCO cites the district court's reference to "some ambiguity in
the APA's attempt to define SVRX Licenses" (AB54), but ignores the
court's explanation that "an ambiguity only exists if the language
is reasonably susceptible to more than one meaning." (12060.) The
district court correctly concluded that "any SVRX License" cannot
be limited to Supplements because (1) such a limitation would be
contrary to "the integrated nature of the licensing agreements" and
the APA's broad references to "any" and "all" SVRX Licenses; and
(2) the licensee's rights and obligations are defined by the
Software and Sublicensing Agreements, not by the Supplements.
3. Item III.L does not exclude Software and Sublicensing
Agreements from "any SVRX License"
SCO asserts that interpreting "SVRX License" in Item VI as
including Software and Sublicensing Agreements would be "redundant"
because Item III.L also identifies these Agreements. (AB56-57.)
However, redundancy does not justify interpreting a contract "as
meaning something other than what it clearly does....Superfluity
happens, even in the best of agreements. That is why, as explained
in every lawyer's favorite maxim of jurisprudence, 'superfluity
vitiate.' (Civ. Code, § 3537.)" Crow Irvine #2 v.
Winthrop Cal. Investors Ltd. P'ship, 104 Cal.App.4th 996, 1008
(2002)(unpublished); see Big Creek Lumber Co. v. County of Santa
Cruz, 38 Cal.4th 1139, 1170 (2006)(applying "superfluity does
not vitiate" to statutory interpretation); In re B.J.B., 185
Cal.App.3d 1201, 1215-16 (1986)(same).
SCO's cited cases involved a possible contradiction
between two provisions, rather than redundancy. Boghos v.
Certain Underwriters, 36 Cal.4th 495, 500-04 (2005)(conflict
between arbitration clause and court jurisdiction clause);
United States v. Gonzalez-Garcia, 85 F.App'x 160, 164 (10th
Cir. 2004)(unpublished) (conflict between one plea bargain clause
and defendant's interpretation of another). Here, there is no
conflict. Interpreting "SVRX License" in Item VI as including
Software and Sublicensing Agreements is consistent with Item III,
which first refers to "software development contracts, licenses,
and other contracts," and then identifies Software and Sublicensing
Agreements as one type of license. (00314-15(emphasis added).)
B. The District Court's Interpretation of Article 4.16(b)
Does Not Destroy the Value of the Purchased Assets
SCO contends that interpreting Article 4.16(b) to allow Novell
to waive "any right" under "any SVRX License" would "destroy" the
value of the UNIX assets purchased by Santa Cruz. (AB57-59.) But
Santa Cruz purchased Novell's
assets subject to Novell's "sole discretion" to waive such
rights. SCO has no basis to complain about Novell exercising this
SCO apparently contends that Novell's waiver authority should be
narrowly construed to prevent the APA from becoming invalid due to
lack of consideration. But California courts will not review the
fairness of agreed consideration unless it is "so one-sided as to
create an issue of unconscionability...." Third Story Music v.
Waits, 41 Cal.App.4th 798, 808 n.5 (1995).
SCO has never argued that the APA is unconscionable. Moreover,
the APA provided consideration to Santa Cruz independent of UNIX
System V, including:
Rights related to Novell's "UnixWare" operating system and
contracts, including the right to develop new products based on
UnixWare (00313-15(Items I,III,IV);00288(Art.4.18);
Novell's customer lists and assistance in transferring customers
and orders to Santa Cruz (00266(Art.1.3));
Novell's assistance in transferring employees to Santa Cruz, as
well as related office furniture (00286(Art.4.13); 00316(Item
SCO asserts that waiving SVRX rights would "destroy the value of
UnixWare" because UnixWare is based on UNIX System V. (AB58.) But
UnixWare clearly has independent value, as confirmed by the
district court's ruling that Novell is not entitled to any of
Microsoft's $8.5 million payment to SCO because it was merely
"incidental to a UnixWare license"; and is entitled to only
$2.5 million of Sun's $9.1 million payment to SCO, as the
remainder concerned UnixWare and associated drivers.
SCO contends that including Software and Sublicensing Agreements
in "any SVRX License" would lead to the "absurd" result that Novell
could waive SCO's rights regarding Novell's retained license under
APA Article 1.6 and the related TLA. (AB59.) This is a non
sequitur. The TLA is not a separate "SVRX License"; it is an
integral part of the APA, as confirmed by APA Article 1.6 and TLA
Article VIII. (00268;03693.) In contrast, the Software and
Sublicensing Agreements are indisputably part of "the combination
of agreements" licensing SVRX. Novell has never argued that Article
4.16(b) overrides SCO's explicit rights under Article 1.6 and the
SCO asserts that including Software and Sublicensing Agreements
in "any SVRX License" would mean that Novell could waive Santa
Cruz's own rights, as a licensee, to SVRX. (AB59.) But
Article 4.16 concerns Santa Cruz's rights and obligations as a
licensor, not as a licensee, as confirmed by the reference
to Santa Cruz's administration of SVRX Licenses.
Amendment No. 1 entitled Santa Cruz to retain all royalties due
under its SVRX License. (00357(¶E(e)(iv)).) Article 4.16(b)
did not nullify Santa Cruz's rights under this paid-up license.
C. SCO's Extrinsic Evidence Does Not Make "Any SVRX License"
Reasonably Susceptible To SCO's Interpretation
SCO contends that extrinsic evidence shows that Novell's right
to waive "any right" under "any SVRX License" is limited to binary
code royalty rights under Supplements, and excludes rights in the
Software and Sublicensing Agreements. (AB59-63.) SCO's argument
fails because the APA language is not reasonably susceptible to
1. Article 4.16(b)'s intent
SCO asserts that various witnesses testified that Article
4.16(b) was intended to allow Novell to waive rights related to
collection of SVRX royalties for binary code only and did not allow
waiver of source code rights under the Software and Sublicensing
Agreements. (AB59-60;05653(¶13).) This testimony fails to show
that 4.16(b)'s explicit authority to waive "any right" under "any
SVRX License" is reasonably susceptible to SCO's proposed
interpretation of "only some rights"
under the "Supplement portion" of the SVRX Licenses.
SCO's cited witnesses do not explain why 4.16(b) was drafted as
all-inclusive, if the intent was much narrower. Nor do they explain
how "any SVRX License" can reasonably be limited to the Supplements
only, given that the Supplements do not grant a license unless
combined with Software and Sublicensing Agreements.
Additionally, no witness explains how waiving the right to
collect binary product royalties would "protect" Novell's interest
in collecting such royalties. Moreover, as the district
court noted, Amendment No. 1's multiple references to source
code-related royalties under SVRX Licenses refute SCO's attempt to
limit SVRX Licenses to binary code royalties. (12066-67, citing
SCO cites testimony that waiving source code rights was
not discussed during the contract negotiations, but has
presented no evidence that the parties affirmatively
discussed and agreed to limit waivers to binary royalties only.
(03553(¶ 7);03937(¶ 13).) The absence of such discussion
does not justify overriding the broad authority conferred by
4.16(b)'s plain language.
2. "The set" of agreements used to license SVRX
SCO cites the testimony of John Maciaszek and William Broderick
that they "understood an SVRX license to be an SVRX product
supplement." (04625(¶ 12); 04610(¶ 15), cited at
AB21;AB60(citing the same declarations with different appendix
numbers).) However, Maciaszek and Broderick do not assert that
SVRX License" refers exclusively to the Supplements,
without the underlying Software and Sublicensing Agreements. On the
contrary, they confirm that (1) UNIX and UnixWare were licensed
through a "set of agreements" that included Software Agreements,
Sublicensing Agreements, and Supplements; and (2) the Software and
Sublicensing Agreements "described general rights and obligations
that would apply if a licensee licensed a product."
testimony does not make it reasonable to interpret "any SVRX
License" as Supplements only.
3. The IBM buy-out and related agreements
SCO contends that agreements related to IBM's "buy-out" of its
SVRX License rights show that Novell had no authority to waive
Software and Sublicensing Agreement rights. (AB60-61.) SCO asserts
that Novell agreed in Amendment No. 2 that Novell "may not prevent
SCO from exercising its rights with respect to SVRX source code in
accordance" with the APA. (AB60-61.) However, as the district court
noted, Paragraph B of Amendment No. 2 makes it clear that this
clause applies solely to a "potential transaction with an SVRX
licensee which concerns a buy-out of any such licensee's royalty
Novell's waiver of SCO's claims against IBM and Sequent did not
involve a buy-out. Therefore, as the district court noted,
"[b]ecause the Amendment's
language regarding Novell's rights with respect to source code
rights is limited by the plain language of Amendment No. 2 to
buy-out transactions, it provides no insight into the source code
rights SCO had or did not have under Article 4.16(b) of the
original APA." (12067-68.)
SCO contends that extrinsic evidence shows that Amendment No. 2
"clarified" that Novell had no right to waive SCO's rights related
to SVRX source code. (AB61.) However, this evidence does not make
it reasonable to ignore paragraph B's plain language limiting the
following subparagraphs to buy-outs.
SCO argues that Novell "capitulat[ed] to Santa Cruz's claim that
it had acquired 'ownership and exclusive rights to license the UNIX
source code,'" by allowing SCO to retain $1.5 million of IBM's
buy-out payment to settle SCO's claim. (AB61.) But IBM paid $10.125
million. (03904-08(¶¶1,4).) Allowing Santa Cruz to retain
a fraction of this amount hardly constitutes "capitulation."
Moreover, Novell and Santa Cruz agreed that $1.5 million was a
"settlement payment" that did not admit the validity of any claims.
In fact, SCO's conduct confirms that "SVRX License" includes
SVRX source code rights. Santa Cruz retained a 5% "administrative
fee" for all of IBM's $10.125 million payment (supra,
18-19), which was proper only if IBM's entire payment constituted
"SVRX License" royalties. (00287(Art.4.16(a).) Some portion of
IBM's payment was for additional source code rights (03905-
08(¶¶2,3,7);AB62), so Santa Cruz's conduct shows that
it considered the source code payment to involve an "SVRX
4. Novell's transfer of product ownership
SCO cites without any explanation "course of
performance" documents that supposedly show that Novell's Article
4.16(b) rights did not include the Software and Sublicensing
Agreements. (AB61.) These documents do not support SCO's
interpretation. They simply confirm that Novell had transferred
ownership of "UNIX System-based offerings and products," and hence
customers should send royalty payments and other communications to
Santa Cruz. (10645;10652;10657;
10710;03838;03843;03845;02384-86;02970;02972;02974.)13 The APA
required Santa Cruz to "administer" SVRX Licenses as
Novell's agent (00287(Art.4.16(a)), so Novell naturally told
customers to send royalties to Santa Cruz. Novell had no reason to
inform customers about Novell's retained rights (95% of royalties,
authority to waive SVRX License rights, ownership of the underlying
copyrights) as this did not change the fact that customers should
communicate with Santa Cruz.
IV. THE DISTRICT COURT CORRECTLY HELD THAT THE IMPLIED
COVENANT OF GOOD FAITH DID NOT PROHIBIT NOVELL FROM EXERCISING ITS
EXPRESS RIGHT TO WAIVE "ANY RIGHT" UNDER "ANY SVRX LICENSE"
Alternatively, SCO contends that even if the APA authorized
Novell to waive SCO's rights under the IBM and Sequent SVRX
Licenses, Novell breached the implied covenant of good faith by
exercising this authority. (AB63.) The district court rejected this
argument because "California law precludes application of the
covenant of good faith and fair dealing where a party is acting
within an explicit grant of contractual authority," citing Carma
Developers v. Marathon Dev. Cal., 2 Cal.4th 342, 374 (1992).
SCO cites Carma's reference to "discretionary power"
(AB63), but ignores Carma's key holding: "doing that which
is expressly permitted by an agreement" cannot violate the implied
covenant. 2 Cal.4th at 374. Later California cases confirm that the
implied covenant does not apply to an express grant of
discretionary authority. "[A]lthough it has been said the implied
covenant finds 'particular application in situations where one
party is invested with a discretionary power affecting the rights
of another'..., if the express purpose of the contract is to grant
unfettered discretion, and the contract is otherwise supported by
adequate consideration, then the conduct is, by definition, within
the reasonable expectation of the parties and 'can never violate an
implied covenant of good faith and fair
dealing.'" Wolf, 162 Cal.App.4th at 1121-22 (quoting
Carma, 2 Cal.4th at 372, 376); see Third Story, 41
Cal.App.4th at 808 ("courts are not at liberty to imply a covenant
directly at odds with a contract's express grant of discretionary
power except in those relatively rare instances when reading the
provision literally would, contrary to the parties' clear
intention, result in an unenforceable, illusory agreement");
accord Storek & Storek v. Citicorp Real Estate, 100
Cal.App.4th 44, 57 (2002).
SCO asserts that Locke v. Warner Bros., 57 Cal.App.4th
354, 367 (1997), held that "provisions granting a party
'discretion' (even 'sole discretion') differ from express
contractual rights," and "thus must be exercised in accordance with
the implied covenant of good faith and fair dealing." (AB63-64.)
However, the contract in Locke did not confer "sole"
discretion regarding the challenged conduct. The contract conferred
discretion regarding whether to develop Locke's proposed movies,
but did not "give Warner the express right to refrain from
working with Locke." 57 Cal.App.4th at 367. The court distinguished
the Third Story contract, which "expressly provided"
the defendant with "the right to refrain" from marketing the
plaintiff's recordings. Id. at 366 (emphasis in
Here, Article 4.16(b) gave Novell "sole discretion" to waive
"any rights" under "any SVRX License" in "any manner or respect."
(00287.) This is an explicit grant of unfettered discretion
a conclusion that is reinforced by SCO's
role as Novell's agent for administering SVRX Licenses. (12072.)
Because the APA "expressly permitted" Novell to waive any rights
under SVRX Licenses, including the IBM and Sequent licenses, the
implied covenant does not apply.
SCO contends that Third Story requires Novell's waiver
authority to be limited by the implied covenant because a "literal"
reading would "result in an unenforceable, illusory agreement."
(AB64.) However, Third Story held that the implied covenant
did not apply because other consideration supported the
contract, so an obligation to act in good faith need not be implied
to preserve the binding nature of the contract. 41 Cal.App.4th at
801, 808.14 The APA provided Santa Cruz with
substantial consideration that would not be eliminated even if
Novell waived all rights under all SVRX Licenses
(which Novell did not do). (Supra, 55.) Thus, Novell's "sole
discretion" need not be limited to prevent the APA from becoming an
V. NOVELL IS ENTITLED TO ROYALTIES FROM POST-APA CONTRACTS
RELATING TO SVRX
A. SCO's Definition of "SVRX License" Is Contrary to the
APA's Plain Language
SCO claims that its obligation to provide Novell with 95% of
"all royalties, fees and other amounts due under all
SVRX Licenses" (00287(Art.4.16(a)) (emphasis added)) is limited to
SVRX Licenses executed before the APA (AB66) i.e.,
"all" means "some." The district court correctly rejected SCO's
argument as "contrary to the express terms of the agreement...."
SCO points to APA clauses that supposedly treat SVRX Licenses as
existing assets. (AB66-69.) However, those clauses do not preclude
"SVRX Licenses" from referring to both existing and future
licenses. Indeed, the APA and its amendments explicitly address
future SVRX Licenses. As executed, Article 4.16(b) prohibited SCO
from entering into "future licenses." (00287.) Amendment No. 1
revised Article 4.16 to confirm that SCO "shall not, and shall have
no right to, enter into new SVRX Licenses," without Novell's
consent except under limited conditions not present here. (00361.)
These provisions confirm the APA drafters knew how to distinguish
between existing and new licenses, and that interpreting "SVRX
Licenses" to mean only "pre-APA" licenses is nonsense: What would
it mean for Amendment No. 1 to bar SCO from executing "new
SVRX Licenses" (00361) if, as SCO proposes, the definition of
"SVRX Licenses" excludes new licenses?15
B. Even Under SCO's Mistaken Interpretation of "SVRX
License," SCO Had No Authority to Amend Sun's SVRX License.
SCO appears to challenge the district court's award of $2.5
million in "SVRX Royalties" under the 2003 SCO-Sun agreement on the
ground that this post-APA agreement did not constitute an "SVRX
License." (AB67-68.) This argument fails because "SVRX License" is
not limited to pre-existing licenses, as discussed above.
SCO's argument also fails because the 2003 SCO-Sun agreement is
not a "new" license but an amendment to a 1994 Novell-Sun
license. (00874.) In the 1994 license, Sun agreed to keep licensed
SVRX source code confidential. (00898(§10.1).) The 2003
SCO-Sun agreement "amend[s] and restate[s]" the 1994 license in
various respects, including by purporting to lift Sun's
confidentiality obligation. (00874(Recitals);00877-78(§8.1).)
Even under SCO's definition, the 1994 Novell-Sun agreement is an
"SVRX License," as it pre-dates the APA. Article 4.16(b) prohibited
SCO from amending SVRX Licenses, except in limited
situations not applicable here. (00287.) Therefore, as the
district court concluded in its bench trial judgment, the 2003
agreement was an unauthorized amendment of the 1994 license, and
Novell was entitled to a portion of the license proceeds to prevent
unjust enrichment. (12123-28.)
SCO has not challenged the district court's finding that
the 2003 agreement was an unauthorized amendment, which provides an
independent basis for affirming the Sun damages award. SCO
nevertheless asserts that Novell is not entitled to any portion of
Sun's $9.1 million payment to SCO, because Sun already bought out
its SVRX royalty obligations in 1994. (AB67-68.) After conducting a
four-day bench trial, the district court concluded that $2.5
million of the $9.1 million payment was attributable to SCO's
removal of Sun's confidentiality restrictions on SVRX source code
and therefore qualified as SVRX Royalties. (12124.) This is a
finding of fact that can be reversed only if "clearly erroneous."
SCO does not even mention the bench trial or any of the evidence or
factual findings in support of this apportionment. SCO has not
shown that the district court's findings were clearly
For all of the above reasons, the district court judgment should
Respectfully submitted on this 9th day of April, 2009.
ANDERSON & KARRENBERG
Thomas R. Karrenberg
Heather M. Sneddon
MORRISON & FOERSTER LLP
Michael A. Jacobs
George C. Harris
Grant L. Kim
David E. Melaugh
s/ Michael A. Jacobs
Attorneys for Defendant-Appellee
ORAL ARGUMENT STATEMENT
Novell requests oral argument in this matter. The procedural
background of the claims in this litigation is complex, and the
appeal presents legal issues that turn on detailed analysis of the
CERTIFICATE OF COMPLIANCE
I, Michael A. Jacobs, certify that this brief complies with the
type-volume limitation of Fed. R. App. P. 32(a)(7)(B), the typeface
requirement of Fed. R. App. P. 32(a)(5), and the typestyle
requirements of Fed. R. App. P. 32(a)(6). This brief contains
13,999 words, excluding the parts of the brief exempted by Fed. R.
App. P. 32(a)(7)(B)(iii), and is prepared in a proportionally
spaced typeface (14-point Times New Roman).
Dated: April 9, 2009
s/ Michael A. Jacobs
MORRISON & FOERSTER LLP
CERTIFICATE OF SERVICE
I, Michael A. Jacobs, certify that on this 9th day of April,
2009, a true and correct copy of the foregoing APPELLEE NOVELL,
INC.'S BRIEF and the accompanying APPELLEE NOVELL, INC.'S ADDENDUM
OF APPENDIX EXCERPTS was served by hand delivery in accordance with
Fed. R. App. P. 25(c)(1)(A) to the following recipient:
Brent O. Hatch
HATCH, JAMES & DODGE, PC
Counsel for Plaintiff-Appellant The SCO Group, Inc.
In addition, a true and correct copy of APPELLEE NOVELL, INC.'S
BRIEF was served via electronic mail to the following
BOIES, SCHILLER & FLEXNER LLP
BOIES, SCHILLER & FLEXNER LLP
Brent O. Hatch
Mark F. James
HATCH, JAMES & DODGE, PC
Devan V. Padmanabhan
DORSEY & WHITNEY LLP
Counsel for Plaintiff-Appellant The SCO Group, Inc.
Dated: April 9, 2009
s/ Michael A. Jacobs
MORRISON & FOERSTER LLP
CERTIFICATE OF DIGITAL SUBMISSION
I, Michael A. Jacobs, certify that no privacy redactions were
necessary for this filing. This APPELLEE NOVELL, INC.'S BRIEF
submitted in digital form is an exact copy of the written document
filed with the Clerk. This digital submission has been scanned for
viruses with the most recent version of a commercial virus-scanning
program (using Symantec AntiVirus v.10.1.4.4, last updated April 4,
2009) and, according to the program, is free of viruses.
Dated: April 9, 2009
s/ Michael A. Jacobs
MORRISON & FOERSTER LLP
||SCO inflates the purchase price to "$250 million," by
improperly adding the uncontested stock value to the value of the
SVRX royalty stream that Novell retained. (AB3(adding figures at
06101 to those at 04637).)
||This was not unusual for Novell. Several months after the APA,
Novell also retained copyrights when it sold its "TUXEDO" software
business to BEA Systems. (06080(¶18); see
07589-90(software executive testifying that it is common to
license, instead of transfer, copyrights).)
||Burt Levine testified that he reviewed some drafts, but
admitted that (1) he did not specifically recall what intellectual
property the APA transferred (07745); and (2) he reviewed and
revised the asset schedules without changing the exclusion
of copyrights (06417-22;08748-53).
||SCO makes the unfounded and irrelevant accusation that Novell
deliberately announced that it owns the UNIX copyrights on the day
of SCO's earnings report to harm SCO's stock price. (AB12.) Chris
Stone, the alleged source of this information, testified that he
did not even know that SCO was announcing its earnings on that
date. (07584-88.) SCO also cites Novell's comment that it had just
become aware of Amendment No. 2, which "appears to support" SCO's
ownership claim. (AB11.) But Novell concluded, upon further review,
that Amendment No. 2 did not transfer copyrights because SCO had
not demonstrated that it "required" the copyrights. (07902.)
||Relying on Shugrue v. Cont'l Airlines, Inc., 977 F.Supp.
280 (S.D.N.Y. 1997), SCO argues that Schedule 1.1(a)'s reference to
"all rights and ownership of UNIX and UnixWare'" (0313) includes
copyrights. (AB32.) But Shugrue found copyright transfer
because "[n]o exception was carved out for
copyrights" and "no rights, titles, or interests were
retained." 977 F.Supp. at 285 (emphasis added). Here, there was an
explicit carve-out for "[a]ll copyrights." See also
Cal.Civ.Proc.Code § 1859 ("when a general and particular
provision are inconsistent, the latter is paramount to the
||SCO claims its possession of AT&T's UNIX copyright
registrations constitutes "prima facie" evidence of ownership.
(AB47;05731-44.) But possession of a copyright registration
certificate is "immaterial" to ownership. Kingsrow Enters. v.
Metromedia, 397 F.Supp. 879, 881 (S.D.N.Y. 1975). Nor does
SCO's possession show that Novell affirmatively transferred
ownership; the certificates were stored in an office taken over by
Santa Cruz pursuant to the APA. (07636-38;08735.) Novell and SCO
filed competing registrations after this dispute arose in 2003
(see, e.g., 15911-12), but no "prima facie" assumption
attaches because those registrations were more than five years
after publication of the copyrighted works. See 17 U.S.C.
||SCO asserts that later ratification may satisfy the Copyright
Act, citing cases where transfer of ownership was not
disputed. See Arthur Rutenberg Homes v. Drew Homes, 29 F.3d
1529 (11th Cir. 1994); Imperial Residential Design v. Palms Dev.
Group, 70 F.3d 96 (11th Cir. 1995). This line of cases is
irrelevant when, as here, transfer is disputed. See Lyrick
Studios v. Big Idea Prods., 420 F.3d 388, 394 (2005); In re
Napster, 191 F.Supp.2d 1087, 1099 (N.D.Cal. 2002); 3 Nimmer on
Copyrights §10.03[A] (2008).
||SCO argues that Amendment No. 2 was unnecessary if it merely
affirmed Santa Cruz's inherent license. (AB38.) The amendment
provided written assurance that Santa Cruz was entitled to use
whatever copyrights were "required" to exercise its rights
regarding the UNIX and UnixWare acquisition. That assurance is what
Novell was willing to give and what Santa Cruz accepted, after
Novell rejected Santa Cruz's proposal to transfer copyrights.
||SCO argues for the first time on appeal that "the evidence
showed that patents that may have implicated UNIX in some way did
not transfer because Novell did not own any such patents." (AB45.)
That assertion is refuted by APA Attachment D, entitled "Seller's
Patents and Patent Applications Affecting the Business," which
lists 37 U.S. and international patents. (00340-41.)
||I.A.E. v. Shaver, 74 F.3d 768, 776 (7th Cir. 1996),
cited by SCO for this proposition, only notes that the doctrine of
implied license has been applied in those circumstances.
SmithKline Beecham Consumer Healthcare v. Watson Pharms.,
211 F.3d 21, 25 (2d Cir. 2000), held only that an infringer that
never had an agreement of any kind with the copyright owner did not
have an implied license.
||As the district court noted, the TLA also did not constitute an
SVRX License because the "Licensed Technology" did not include SVRX
copyrights (which Novell owned), but was instead limited to other
technology, such as derivative works created by Santa Cruz.
||SCO also argues that the district court improperly weighed
evidence, citing comments that are qualified by, "If the
contract language was susceptible to SCO's interpretation...."
(AB60-62;12068-69 n.6.) Those comments are irrelevant because
4.16(b) is not susceptible to SCO's interpretation.
||SCO also cites the Operating Agreement (01432), which merely
states that Novell should transfer contracts to Santa Cruz, and
does not nullify Novell's Article 4.16(b) waiver
||Third Story explained that the cases in SCO's footnote 9
required a limit on discretionary authority to avoid an "illusory
promise" that would invalidate the contract. Id. at 804-06.
In contrast, in Carma and several other cases, courts
declined to imply a limit when "one of the parties was expressly
given a discretionary power but regardless of how such power was
exercised, the agreement would have been supported by adequate
consideration." Id. at 808.
||SCO offers testimony from "witnesses" who admit they had little
or no involvement in APA drafting and negotiations. (AB68-69;
supra, 10-12.) Because these witnesses advocate an
interpretation to which the APA is not "reasonably susceptible,"
their testimony is inadmissible. Dore, 39 Cal.4th at