Here at long last is the transcript [PDF] of the May 25, 2005 hearing in SCO v. Novell [note: if you rely on screen readers, there is a version without line numbers here], and while it is dated, and even quaint in some respects, some of it is very timely because the arguments include some of the same or similar arguments heard in this week's hearing on the appeal, specifically what was Amendment 2 to the SCO-Novell Asset Purchase Agreement for? What did it achieve? Was it a copyright transfer?
The transcript is part of the record in the appeal, as you can see on our
Novell Timeline page, which is why it is finally made public. It was a hearing on a Novell motion to dismiss [Memorandum in Support] SCO's Amended Complaint. I decided now is a good time to trace the arguments SCO and Novell have made through the years about Amendment 2, so you will know what the appeals court is currently thinking about.
What the dispute is built on:
So you can follow along meaningfully, here is the APA, the section with Schedule 1.1(b), which was revised by Amendment 2:
here's the language in question in Amendment 2 that they argued about at the hearing:
1.1 Purchase of Assets
(a) Purchase and Sale of Assets. On the terms and subject to the
conditions set forth in this Agreement, Seller will sell, convey,
transfer, assign and deliver to Buyer and Buyer will purchase and
acquire from Seller on the Closing Date (as defined in Section 1.7), all
of Seller's right, title and interest in and to 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 1.1 (b)...
Schedule 1.1(b) Excluded Assets
V. Intellectual Property:
A. All copyrights and trademarks, except for the trademarks UNIX and
B. All Patents
With respect to Schedule 1.1(b) of the Agreement, titled "Excluded Assets", Section V, Subsection A shall be revised to read:
SCO also references this Novell press release which it issued when SCO first discovered Amendment 2:
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 UNIX and UnixWare technologies. However, in no event shall Novell be liable to SCO for any claim brought by any third party pertaining to said copyrights and trademarks.
In a May 28th letter to SCO, Novell challenged SCO's claims to UNIX patent and copyright ownership and demanded that SCO substantiate its allegations that Linux infringes SCO's intellectual property rights. Amendment #2 to the 1995 SCO-Novell Asset Purchase Agreement was sent to Novell last night by SCO. To Novell's knowledge, this amendment is not present in Novell's files. The amendment appears to support SCO's claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996. The amendment does not address ownership of patents, however, which clearly remain with Novell. SCO insists that it represents an acknowledgement that Amendment 2 transferred the copyrights. But if you read the complete correspondence between SCO and Novell during that same time period, you can see how little Novell believed SCO's claims had a valid basis. Novell's position was that even if some "required" copyrights could transfer in some way, no list of any such required copyrights has even shown up, so nothing ever transferred. I've always thought it issued the initial press release because SCO was threatening them with litigation. Amendment 2 was something they considered and thought might indicate some unknown copyrights might transfer under the specified conditions, but they never thought all copyrights transferred, even on the day of the press release.
Novell reiterates its request to SCO to address the fundamental issue Novell raised in its May 28 letter: SCO's still unsubstantiated claims against the Linux community.
The press release is dated June 6, 2003. THAT SAME DAY, Joseph LaSala, then General Counsel for Novell, sent a letter to SCO CEO Darl McBride, including this pertinent paragraph:
For your information, Novell has today issued a press release with respect to Amendment No. 2. A copy is attached for your ease of reference.
Your letter contains absurd and unfounded accusations against Novell and others, coupled with a veiled threat to publicly state those allegations in a SCO press call to be held today at 11:00 am EST. Novell continues to demand that SCO cease and desist its practice of making unsubstantiated allegations, including the allegations contained in your letter of June 6, 2003.
At first reading it appeared like SCO might have rights to some unspecified copyrights, and Novell had been threatened, as you'll see as we continue. But on fuller analysis -- including recalling that SCO
had been coming to Novell and asking for the copyrights, which Novell had declined to do, Novell concluded that it had ownership, and that SCO knew it. Novell pointed to another letter it sent to SCO that same month, on June 26th, in its Memorandum in Support of its 2004 Motion to Dismiss:
SCO's statements [claiming to own "the patents, copyrights, and core technology associated with the UNIX system"] are simply wrong. We acknowledge, as noted in our June 6 public statement, that Amendment No. 2 to the Asset Purchase Agreement appears to support a claim that Santa Cruz Operation had the right to acquire some copyrights from Novell. Upon closer scrutiny, however, Amendment No. 2 raises as many questions as it answers. Indeed, what is most certainly not the case is that "any question of whether UNIX copyrights were transferred to SCO as part of the Asset Purchase Agreement was clarified in Amendment No. 2" (as SCO stated in its June 6 press release). And there is no indication whatsoever that SCO owns all the patents associated with UNIX or UnixWare.
SCO's response was to state again that the press release was an admission:
We are still reviewing the Asset Purchase Agreement and other materials to determine the actual scope of rights transferred to SCO. In the meantime, we wish to make clear that we do not agree with SCO's public statement on this matter.
This press release (however Novell tries to downplay it) is directly relevant to SCO's claim in all of the following respects: (1) it is an admission that Novell does not own the copyrights at issue; (2) it is an admission regarding the relevance of Amendment No. 2 on the question of copyright ownership; and (3) it shows that, even assuming (improperly on a motion to dismiss) that Novell was telling the truth when it said it did not have Amendment No. 2 in its files, Novell acted recklessly - sufficient to show malice - by claiming ownership of the copyrights without even having reviewed the relevant contract documents. Novell, in its April 2006 Answer to SCO's 2nd Amended Complaint, referenced yet another letter to SCO, Joseph LaSala's letter to Darl McBride on August 4, 2003, which contained the following text:
We dispute SCO's claim to ownership of these copyrights. The Asset Purchase Agreement, in Schedule 1.1(b), contains a general exclusion of copyrights from the assets transferred to Santa Cruz Operation. Amendment No. 2 provides an exception to that exclusion, but only for "copyrights...required for [Santa Cruz Operation] to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."
Yet, in an interview with Dan Farber and Charles Cooper in July of 2003, Darl McBride said this about Novell:
In other words, under the Asset Purchase Agreement and Amendment No. 2, copyrights were not transferred to Santa Cruz Operation unless SCO could demonstrate that such a right was "required for [Santa Cruz Operation]" to exercise the rights granted to it in the APA. Santa Cruz Operation has never made such a demonstration, and we certainly see no reason why Santa Cruz Operation would have needed ownership of copyrights in UNIX System V in order to exercise the limited rights granted SCO under the APA. Nor is there any reason to think that a transfer of the copyrights required for SCO to exercise its APA rights necessarily entails transfer of the entire set of exclusive rights associated with a particular copyrighted computer program.
Unless and until SCO is able to establish that some particular copyright right is "required" for SCO to exercise its rights under the APA, SCO's claim to ownership of any copyrights in UNIX technologies must be rejected, and ownership of such rights instead remains with Novell.
DF: Well, Novell would say you don't actually own those copyrights fully. Was that factually accurate?
McBride: Yeah well, the Novell thing. They came out and made a claim that held up for maybe four days and then we put that to bed. If you go back and talk to Novell I guarantee what they'll say, which is they don't have a claim on those copyrights anymore.
Novell added a counterclaim ultimately, based on what turned up in Amendment 2, which read like this:
122. Under § B of Amendment No. 2 to the APA, SCO is obligated to consult Novell and obtain Novell's approval before concluding any potential buy-out transaction with an SVRX licensee. SCO did not perform its corresponding duties under § B of Amendment No. 2 and substantially and materially breached § 4.16(b) by entering into the 2003 Agreement with Sun without consulting Novell or securing Novell's prior approval. Novell won that counterclaim, and that too is up on appeal. So Amendment 2 vitally matters to SCO. In a
December 2003 teleconference, Darl McBride said this about Amendment 2 and copyrights:
Let me be real clear with anybody that has any questions about some of the legal rights that SCO acquired in its transaction with Novell. In the contract that we received from them, on the included assets it says "We have all rights and ownership of Unix and UnixWare". That was later amended with Amendment 2 to include all copyrights for Unix and UnixWare. So according to that statement, Amendment 2 was the necessary transfer document, not the APA.
That's what the parties said to each other and to the media. What did they tell the court? SCO's theories varied from year to year and document to document. One would hope the appeals court would notice that. Let's take a look by year, starting with 2004.
The Legal Arguments About Amendment 2 in 2004
SCO in the May 2005 hearing claimed it never asked Novell for the copyrights. And it continued to use the initial Novell statement as "evidence" that Amendment 2 was a copyright conveyance document. I gather from our eyewitness account of the hearing that something similar was argued there. SCO has been saying that from the beginning, but its arguments about how the APA plus the Amendment 2, and later plus a bill of sale, transferred copyrights has not been consistent throughout this litigation.
For example, in March of 2004, when opposing Novell's first motion to dismiss the slander of title claim, SCO argued this way:
Subsequent to the Asset Purchase Agreement, on October 16, 1996, the parties executed Amendment No. 2 to the Asset Purchase Agreement which clarified that SCO owned all "copyrights and trademarks owned by Novell as of the date of the [Asset Purchase Agreement] required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."...
So, SCO's original position was that the APA alone was a copyright conveyance, and Amendment 2 merely clarified that this was so. Yet, note that SCO CEO Darl McBride argued differently as to when the copyrights transferred in an interview with Dan Farber a month after filing suit against Novell:
Amendment 2 to the Asset Purchase Agreement specifically set forth that SCO owned all "copyrights and trademarks owned by Novell as of the date of the [Asset Purchase Agreement] required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."
McBride: "All rights and ownership of UNIX and UnixWare." Now if you go to the one thing they will claim, 'Oh, you didn't get the copyrights'. OK? Well fair enough. There is a part in there that says the copyrights didn't transfer over in the first pass. But a year later, there is an Amendment 2 that shows up and says, "Oh, in addition to everything you got a year ago, all copyrights are now transferred over for UNIX and UnixWare." OK? So that's why we filed a a complaint against Novell last month. So McBride was saying it didn't get the copyrights until Amendment 2 in 1996, thus pointing not to the APA but to the amendment as being the document of copyright conveyance, at the same time the lawyers were arguing more or less the opposite.
But Steven Sabbath testified differently in his November 2004 Declaration:
6. In October 1996, Novell and Santa Cruz executed Amendment No. 2 to the APA. I was involved the discussions leading up to Amendment No. 2, and I signed Amendment No. 2 on behalf of Santa Cruz. Amendment No. 2 arose as a result of a dispute between Novell and SCO concerning Novell's attempt to execute, on Santa Cruz's behalf, a royalty buy-out with IBM. That dispute was ultimately resolved through an amendment to IBM's SVRX license that was jointly executed by Santa Cruz, Novell, and IBM. Amendment No. 2, however, was intended to confirm, among other things, the parties' intent that SCO would obtain ownership of the UNIX copyrights under the APA and that Novell had received no rights with respect to UNIX source code under the APA. Paragraph B.5 of Amendment No. 2 was specifically intended to make clear that Novell had no right to increase any SVRX licensee's rights to SVRX source code, no right to grant any new SVRX source code licenses, and no right to prevent Santa Cruz from exercising the rights it obtained under the APA with respect to SVRX source code.
"Would obtain" the copyrights isn't the same as saying they "had obtained" the copyrights under the APA, now, is it? Lawyers speak very carefully, so I think this is a red flag, personally, should there ever come a day when extrinsic evidence is considered.
SCO's lawyers in 2004 asserted that the APA and Amendments were so clear, that was what made Novell's claiming ownership so evil, in SCO's Memorandum of Law in Opposition to Novell's Motion to Dismiss:
Notwithstanding the clear language of the Asset Purchase Agreement, Amendment No. 2 and the eight-plus years SCO has exercised exclusive control over the copyrights in UNIX and UnixWare, Novell's new management has recently begun a malicious campaign to slander SCO's ownership rights in UNIX and UnixWare.
Now, the story has changed. Now, in 2009, for purposes of the appeal, they are *not* clear. Rather, it is now SCO's position that the language is so ambiguous, it can't be decided on the law, but that they need a jury to sort out its actual meaning. Well. Consistency was never a SCO trait. I only mention it because in SCO's Appeal Brief, they quote from an early order of Judge Kimball, where he said language was ambiguous at that early stage of the game, and later, after years of discovery and briefing, he found it no longer ambiguous, and SCO would like the first wording to apply. So I thought it would be fair to demonstrate that SCO has said all kinds of things over the years about Amendment 2, including contradictory things, and then picked just one to mention in the appeal.
Novell, in its Reply Memorandum in Support of its Motion to Dismiss in 2004, expressed its understanding of Amendment 2 like this:
SCO does not rebut Novell's textual analysis that the APA, even as amended by Amendment No. 2, constitutes, at most, a contractual promise to assign, under certain conditions, certain rights falling under the rubric of "copyright".
In SCO's 2nd Amended Complaint in the IBM litigation, it nevertheless wrote:
196. In Amendment No. 2 to the Asset Purchase Agreement, Novell and SCO made clear that SCO owned all "copyrights and trademarks owned by Novell as of the date of the [Asset Purchase Agreement] required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies," and that Novell would not longer be liable should any third party bring a claim against SCO "pertaining to said copyrights and trademarks." (Exh. V, Amendment No. 2 to the Asset Purchase Agreement dated October 16, 1996 at I). In SCO's Reply Memorandum in Support of its Motion to Remand, in May of 2004, SCO posited that "the Asset Purchase Agreement as amended clearly transferred the copyrights at issue to SCO, as Novell has previously and repeatedly admitted." Um. "Repeatedly admitted"? I can't find that in the record anywhere. Other than the flustered June 2003 press release, I see no other statement that would support this SCO sentence. In a footnote, SCO wrote, "5 Novell has not withdrawn this press release or publicly stated that the release is incorrect." Reading all that you have just read, if you were the judge, what would you be thinking? SCO is stating something in a way that is literally true but wildly misleading at the same time. The correspondence between them was obviously Novell repudiating the press release, but since it was initially private, SCO said what it did in this footnote. But my main point is that the story had by then changed. Now, Amendment 2 was necessary for the APA "as amended" to transfer copyrights. So, by then, its position was that the two documents together transferred the copyrights. And at the hearing on the Motion to Remand, Brent Hatch argued that the APA exclusion of all copyrights was "a scrivner's error" corrected by Amendment 2. But Novell prevailed on that remand motion, and Judge Kimball also ruled on the motion to dismiss, denying most of Novell's motion but clearly leaning in Novell's direction, and stating "Novell has raised persuasive arguments as to whether a sufficient writing exists" even if you cobbled together the APA and Amendment 2; it just was too early to decide.
So on the litigation went. At the hearing on May 11, 2004, Novell's Michael Jacobs talked about the Amendment 2 wording, and he points out it didn't wipe out the APA's copyright exclusion, at least not in it entirety, so it was not a wholesale transfer of all copyrights, at the very minimum:
They said something very narrow and very limited. All copyrights and trademarks - so actually to start out with, a very interesting point. We retain the exclusion for all copyrights and trademarks. We don't wipe it away. We say, 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 UNIX and UnixWare technology.
At that same hearing, SCO's Brent Hatch argued that Amendment 2 was a clarification of the APA. He went even further, arguing that the excluded assets, the copyrights, were talking about NetWare:
None of us were present in that negotiation. Section 204(A) says it doesn't matter. You look to the plain language if the document, and you have to cross over that 204(a) bridge, and you have to see a conveyance. You have to see an assignment. You have to see something that says something along the lines of, seller hereby conveys to buyer.
But even if you start penetrating this language, you see why SCO's claim just cannot survive a motion to dismiss, because under 204(a), we should know what copyright rights went to SCO. And as I mentioned when I discussed the structure and logic of the Copyright Act, it's not just what rights and what programs or what rights and what manuals, but Section 201 makes it clear that you can transfer any one or more of the exclusive rights volume within copyright. The right to reproduce, the right to distribute, the right to publicly perform. And then even in that you can convey sub-divisible rights.
So we should know - from the face of the document, we should have a guidepost that says the cases, what programs, what exclusive rights, can't assume that it's all exclusive rights, here especially since it says required for. And that's why this is - this Amendment Number 2, amendment to the APA fails two tests under the law of 204(A). One, is it an instrument of conveyance? Meaning that it had the effect of conveying a present interest in an item of property; and, two, is it close enough so that we're not left completely guessing as to what copyright rights might have - might, in fact, have transferred to Novell - from Novell to SCO, assuming that this was such an instrument of conveyance?
HATCH:...Now, one of the things that he doesn't point out, it's hard to define this. But you'll notice in the excluded assets, the reason it even makes any limitation at all is because Novell at the time was concerned that one thing didn't get transferred over, and that was their NetWare product. And that's why it's worded. It goes all the way down the list. You don't get NetWare. You don't get NetWare this, and you don't get NetWare that. And when it talks about you don't get copyrights in 1.1(A), it's talking about we're not getting the NetWare copyrights.
Well. You say what you feel you must in the heat of battle, I suppose. Anyway, in SCO's Complaint and Amended Complaint, it said:
In Amendment No. 2 to the Asset Purchase Agreement, Novell and SCO made clear that SCO owned all "copyrights and trademarks owned by Novell as of the date of the [Asset Purchase Agreement] required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies," and that Novell would no longer be liable should any third party bring a claim against SCO "pertaining to said copyrights and trademarks"... So, again here, SCO's position was that they owned the copyrights from the 1995 APA onward, but that Amendment 2 made it "clear". That sounds like Amendment 2 was a clarification.
In the SCO v. IBM litigation, SCO filed a Memorandum in Support of an Expedited Motion to Dismiss with Prejudice, in September of 2004, in which it argued that the APA language was very clear and was the transfer document:
The sole exception to the wholesale transfer of UNIX rights under the APA is Novell’s retention of the limited right to receive future royalties paid by UNIX binary code licensees under UNIX System V licenses. See id. at Schedule 1.1(b), VIII (reserving for Novell “All right, title and interest to the SVRX Royalties, less the 5% fee for administering the collection thereof pursuant to Section 4.16 hereof.”). This arrangement was designed as a pricing mechanism; because SCO could not pay Novell the full purchase price up front, SCO agreed to permit Novell to retain these future royalty streams to bridge the price gap. Id. § 1.2(a)-(b) (specifying as “Payments” for “the transfer of the Assets by Seller to Buyer” both SCO common stock and “the SVRX Royalties as defined and described in Section 4.16 hereof”). That's not how I read the language, but SCO is what it is. And as you see, here its position was that Amendment 2 affirmed that the APA transferred everything. So, SCO is now back to saying that the APA alone did the transfer, and the amendment merely made that clearer. At the same time, it argues that the APA language was clear already.
Despite the clearly expressed purpose of the APA to transfer all rights relating to UNIX source code licenses to SCO, IBM quotes a portion of section 4.16(b), out of context, and contends that it gives Novell the power to “waive” all of SCO’s rights (including the intellectual property protections) under the UNIX System V licenses. The text and context of section 4.16 make clear, however, that the sole purpose of that section is to set out the rights and obligations of the parties with respect to the binary royalty income stream that Novell retained through the APA. ...
SCO and Novell subsequently affirmed this understanding – in language that IBM’s motion overlooks entirely – through the October 1996 Amendment 2 to the Asset Purchase Agreement. Exh. 29. In addition to acknowledging that the APA had transferred to SCO “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 UNIX and UnixWare technologies,” id. ¶ A, Amendment 2 reiterated that Novell had no “right to increase any SVRX licensee’s rights to SVRX source code,” no “right to grant new SVRX source code licenses,” and no right to “prevent SCO from exercising its rights with respect to SVRX source code in accordance with the Agreement,” id. ¶ B.5.
IBM thus interprets the APA to create an unreasonable result that the parties never intended.
When Novell registered its copyrights in 2004, it provided a Declaration Regarding Ownership of Copyright, along with an Agreement and Plan of Reorganization between UNIX System Laboratories, AT&T, Novell Acquisitions Corp., and Novell, the latter not made public. Novell stated in the declarations, though, that SCO "acquired certain rights to, inter alia , carry out the business of licensing of UNIX, subject to various obligations to Novell". It goes on to say that under Amendment 2, all copyrights were excluded "except for the copyrights . . . owned by Novell as of the date of the [Asset Purchase] Agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies" but that the SCO Group, as well as its predecessor SCO, Inc., "has failed as of the date of this Declaration to demonstrate that any of the UNIX copyrights . . . are required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies, despite Novell's request that SCO do so." So, Novell concludes, "it retains all or substantially all of the ownership of the copyrights in UNIX. . ."
In SCO's failed motion to remand, it repeated its claims about Amendment 2, as you can see in its Memorandum in Support:
Not only is there "no doubt" that the Asset Purchase Agreement as amended is a "writing", but before this litigation was commenced, Novell issued a press release officially acknowledging that Amendment 2 to the Asset Purchase Agreement transferred UNIX copyrights to SCO in 1996: In its Memorandum in Opposition to SCO's Motion to Remand, Novell argued that SCO was ignoring what is required for a conveyance of copyrights:
In a May 28th letter to SCO, Novell challenged SCO's claims to Unix patent and copyright ownership.... Amendment #2 was sent to Novell last night by SCO. To Novell's knowledge, this amendment is not present in Novell's files. The amendment appears to support SCO's claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996.
[Exhibit 1, Novell Press Release dated June 6, 2003 (emphasis added).] Subsequently for purpose of this litigation, Novell has completely changed position and made its new lawyer generated claim in an attempt to change the focus of the lawsuit and seek federal court jurisdiction. Contrary to what Novell now claims before this court, its June 6th press release confirms that Amendment 2, in fact, transferred copyrights to SCO. Nothing further needed to be done. Amendment 2 was not a mere agreement to transfer copyrights in the future upon some unstated and unknown requirement for SCO to prove that it needed the copyrights. Novell's change of position in its court papers and more recent misrepresentations to the public that the Asset Purchase Agreement as amended did not transfer copyrights to SCO is wrong as a matter of law and fact. A change in position and strategy during litigation cannot be the basis for creating a "substantial issue" under section 204(a) of the Copyright Act.
In its notice of removal, Novell contends that resolution of the ownership issue in this case (and thus the slander of title claim) raises a substantial issue of interpretation of the Copyright Act, namely, whether the APA as amended satisfies the requirements of "an instrument of conveyance" in writing necessary to transfer ownership of a copyright. . . . See, e.g., Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990) (in order to suffice as a written instrument of conveyance under section 204(a), assignment must state "precisely what rights are being transferred"). . . . The section 204(a) issue here arises because there is no instrument that, on its face, purports to convey copyrights, and the only instrument SCO contends is an instrument of conveyance is so indeterminate as to fail the requirements of section 204(a).... Can you believe they started disputing this in 2004, and it's still going on in the court of appeals all these years later?
The instant case presents major section 204(a) issues. Here, like Jasper, there are two documents, the APA and Amendment No. 2, neither of which by itself satisfies the requirements of section 204(a). Unlike Jasper, however, the APA does not purport to effect an assignment, and contains no language of the form "Seller hereby conveys to Buyer ...." Rather, it merely represents a promise to assign, and it expressly excludes all copyrights from the assets to be transferred. (APA, Schedule 1.1(b).) Amendment No. 2, moreover, also contains no language purporting to effect a transfer of assets and merely modifies the Excluded Assets schedule of the APA. And it still provides that "all copyrights" are generally excluded, and then merely provides an exception for those that are "required" for certain reasons. (Amendment No. 2.) There is no listing of which copyrights continue to be excluded from the sale and which are "required."
At most, the documents add up to an agreement to assign certain copyright rights once SCO's alleged predecessor identified them and showed them to be "required." The agreements thus do not satisfy section 204(a).
The motion that generated this hearing in 2005 was about slander of title, primarily, of course, with Novell asking that it be dismissed. Amendment 2 came into it only because SCO insisted that it was an admission on Novell's part. Why did SCO file a claim of slander of title instead of a motion for a declaratory judgment or even specific performance? After all, SCO insists that it can't do business without the copyrights, so specific performance would seem the right course in order to get them, if SCO really thought the contract was so clear. So why originally just slander of title instead?
At the hearing, Novell's lawyer, Michael Jacobs, refers to an outside agenda. And in fact the reason he was probably thinking of was that SCO couldn't bully Linux users unless it owned the copyrights. If you go to a court and ask the court to give you the copyrights, it's a statement that there is a cloud over your assertion of ownership, and everyone will wait for a court to decide if you are in fact the owner. SCO didn't want to wait. And it was already in hot soup, if it didn't own the copyrights, having sued people and filled notebooks with public claims of infringement. So it was in the awkward position of accusing Novell of malice for saying they owned the copyrights when Novell actually did have reason to think so, and in due time the court ruled Novell always had owned them. It was a strategic choice that led to SCO losing the battle, in my opinion, because it was simply too far-fetched.
Judge Kimball asked SCO's attorney Brent Hatch why it chose slander of title at the May 31, 2007 hearing on two of Novell's summary judgment motions, and here's his answer:
MR. HATCH: And the response is every one of the claims here have different elements, and they have different aspects, and they pointed them out. And I'm going to go through those as part of my argument. If you find that convincing, apply for law school right away. I'm just a paralegal, so I think more simply.
I think SCO just wanted to bully folks into taking a SCOsource license. I believe they still want to, by the way, which is why they are pursuing the appeal. Someone wants to kill off Linux in the market place unless it can get paid a toll on every copy sold or used in the enterprise and get control of Linux and riches that way. That dream didn't die; it just keeps morphing.
But slander claim, for example, doesn't require that it be a competitor. I can slander the title to your home, but I don't have to be a competitor of yours. Unfair competition requires being a competitor, and the Unfair Competition Act requires misappropriation. I'm going to talk about that.
The UPA, the Unfair Practices Act, is older and, frankly, the early Unfair Competition Claim Act in Utah, and
I'll talk about that. But it has slightly different elements, as well, as does the common law -- excuse me -- the UCA requires specific conduct. And each one of them has slightly different elements. And we have the ability, if we can show the elements and we can show the facts that support it, to make those claims even though they may be somewhat similar, because a jury may or may not find, they may find on all of them, but they may find that some of the elements support Unfair Competition Act claim, and they may not support one or the other claims. So we have that right.
So, that covers 2004, which is when most of the legal arguments about Amendment 2 were made. What about in 2005? Anything?
Legal Arguments About Amendment 2 in 2005:
The main thing I notice from the May 25, 2005 transcript is how Judge Kimball gave SCO every possible chance to prevail. Here is his ruling in 2005, denying Novell's motion to dismiss. That compelled Novell to endure all these years of litigation to finally get a ruling from the Utah court that it had not slandered SCO's title to the copyrights and that in fact Novell never transferred any of them in 1995, the very issue that is now before the appeals court. The main issue at the time was SCO's slander of title claim. It could have died that very day in 2005, and in my view it should have, and no one can rightly claim that Judge Kimball was unfair to SCO in that he bent over backwards to give them every chance to prove their claims over years and years, but they failed in the end with him.
So, having failed to win on the motion to dismiss, Novell had to answer the complaint, and when it did, it said that Amendment 2 was an amendment to the schedule of excluded assets, not an instrument of copyright conveyance. For one thing, it doesn't identify which copyrights were necessary at that time for Santa Cruz to "exercise its rights", and there's no language in it or the modified APA suggesting a contemporaneous transfer of any copyright, and there's no date for any purported transfer. In that filing, Novell told us for the first time publicly that SCO had repeatedly asked Novell in 2003 to transfer the copyrights to them, thus conceding that Novell's owned them. Why didn't SCO get the copyrights? They were short on money:
24. Neither Amendment No. 2 nor the APA as modified by Amendment No. 2 were intended to, nor do they actually, transfer ownership of the UNIX or UnixWare copyrights owned by Novell at the time of the APA and its Amendments ("UNIX Copyrights"). The word "conceded" telegraphed that Novell would eventually ask that the matter be decided on the law. Otherwise, it would have used the word "admitted".
25. Neither Amendment No. 2 nor the APA as modified by Amendment No. 2 qualify as "an instrument of conveyance, or a note or memorandum of the transfer" under 17 U.S.C. § 204(a) for at least the following reasons:
a. Amendment No. 2 merely amends the schedule of excluded assets and therefore does not, itself, constitute a transfer of any asset.
26. Title to the UNIX Copyrights therefore remains with Novell.
27. By and during early 2003, SCO repeatedly asked Novell to transfer the UNIX Copyrights to SCO. In doing so, SCO conceded that title to the UNIX Copyrights remains exclusively with Novell. Novell rejected all of SCO's requests.
b. Neither Amendment No. 2 nor the modified APA identifies "the copyrights and trademarks owned by Novell] as of the date of the Agreement required for Santa Cruz to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."
c. Neither Amendment No. 2 nor the modified APA contains any language suggesting a contemporaneous transfer of any copyright. To the contrary, the APA provides only that certain assets "will" be transferred.
d. Neither Amendment No. 2 nor the modified APA provides a date for any purported transfer of copyrights.
Why did Novell issue the press release that SCO has clung to ever since? Because SCO was threatening litigation. Novell also referenced the public statement it released in December of 2003:
i) In response to a public claim by SCO that Novell had conceded the superiority of SCO's claim to the UNIX and UnixWare copyrights, Novell admits it issued a press release on December 22, 2003, containing the following text: That brings us to 2006.
Novell believes it owns the copyrights in UNIX, and has applied for and received copyright registrations pertaining to UNIX consistent with that position. Novell detailed the basis for its ownership position in correspondence with SCO. Copies of our correspondence, and SCO's reply, are available here. Contrary to SCO's public statements, as demonstrated by this correspondence, SCO has been well aware that Novell continues to assert ownership of the UNIX copyrights.
Legal Arguments Regarding Amendment 2 in 2006:
Novell then filed its second attempt to get the slander of title claim dismissed by motion, this time by means of a Motion for Partial Summary Judgment. This had more to do with the royalties than Amendment 2's effect on copyrights, but in SCO's Memorandum in Opposition, it said this:
62. Moreover, Amendment No. 2 to the APA, which was executed on October 16, 1996, confirms that the APA transferred to SCO “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 UNIX and UnixWare technologies.” (Ex. 41 ¶ A.) So now it's back to Amendment 2 *confirming* that the APA transferred to SCO at least some copyrights. Novell's position is and was that the referenced language talks about a future transfer, should there ever be a requirement, which never happened. SCO's language instead points to a finished transfer, and it quotes Amendment 2 minus the opening phrase, which reiterates that all copyrights are still excluded except for any required by SCO to exercise its rights with respect to the acquisition. This document is also where SCO laid out its theory that IBM made Novell recant the press release. No evidence was offered in the memorandum that I saw, though, just "proof by assertion", as one comment put it at the time. It's one of many theories SCO has thrown out into the public under protective cover of litigation, which allows you to say things that you otherwise could be sued for defamation or libel or slander or whatever for having said or written.
And with that, we reach the end of 2006. It is short, but 2007 more than makes up for it, because that's when the parties filed gobs of summary judgment motions.
Legal Arguments Regarding Amendment 2 in 2007:
Interestingly, in a 2007 hearing on a summary judgment motion regarding SCO tortious interference claim, we find SCO lawyer Mark James saying this:
On June 6, 2003, after SCO sent Novell Amendment 2 to the asset purchase agreement, Novell retracted its public claim of copyright ownership.So SCO knew by then that Novell press release was a fleeting statement that lasted for only portions of two days, and that it was retracted almost immediately.
Two days later on June 8, 2003, Novell again reversed its position and falsely asserted ownership over the UNIX copyrights. Novell also falsely purported to waive SCO's rights to enforce and terminate the IBM software agreement.
In Novell's April 2007 Answer to SCO's Second Amended Complaint, Novell's position was that the APA and its amendments did not constitute a copyright conveyance:
83. Novell admits that it has alleged in this lawsuit that the APA and its Amendments do not constitute writings sufficient to have transferred copyrights under section 204(a) of the Copyright Act. Each and every other allegation in paragraph 83 is denied. What explanation did Novell provide for why SCO didn't get everything, lock, stock and barrel, and particularly not the copyrights? Money. But here's what SCO did get, according to Novell:
84. Novell admits that Novell and Santa Cruz agreed to the provisions set forth in sections 1.7(c), 4.9, and 4.12 of the APA. To the extent that SCO believes these provisions support a transfer of the UNIX and UnixWare copyrights from Novell to SCO, each and every other allegation in paragraph 84 is denied.
14. Under the APA and its Amendments, Santa Cruz obtained a variety of assets, including assignment of tens of thousands of contracts and licenses, various trademarks, source code and binaries to UnixWare products, and physical assets such as furniture and personal computers. Santa Cruz also obtained the right to develop a "Merged Product," a derivative work that would run on Intel platforms.
Of course, SCO disagreed mightily.
In its 2007 Motion for Summary Judgment on Slander of Title, SCO argued like this:
15. Santa Cruz did not have the financial capacity to pay the purchase price contemplated by Novell for these acquired assets and rights. In order to bridge the price gap and consummate the transaction, Novell and Santa Cruz agreed that Novell would receive Santa Cruz stock and retain certain rights as protection. For example (and as discussed further below),
Novell retained the right to receive royalty payments under SVRX licenses, prior approval rights relating to new SVRX licenses and amended SVRC licenses, the right to direct Santa Cruz to take certain actions relating to SVRX licenses and the right to conduct audits of the SVRX license program. Santa Cruz assumed several related obligations.
The APA provides for the transfer to Santa Cruz of “all right, title, and interest” in the UNIX and UnixWare source code and products and “All rights and ownership of UNIX and UnixWare.” Such language plainly includes the UNIX and UnixWare copyrights. The APA Bill of Sale, in which Novell stated that it “does hereby transfer, convey, sell, assign and deliver” to Santa Cruz “all of the Assets,” effectuated the transfer in words that exceed the requirements of the Copyright Act. Novell relies on language in the excluded assets schedule of the APA, but Amendment No. 2 to the APA expressly replaced that language to clarify that the UNIX and UnixWare copyrights were not among the excluded assets. The provision on which Novell relies simply does not exist for purposes of construing the APA. A bit over the top, don't you think? But that is when the Bill of Sale showed up. And in 2007, that was SCO's ace in the hole. It was the Bill of Sale that effectuated the copyright transfer.
When SCO filed in April of 2007 its Memorandum in Opposition to Novell's Motion for Partial Summary Judgment on its Fourth Counterclaim for Relief, and in Support of SCO's Cross Motion for Partial Summary Judgment, it baldly stated:
Under the APA, Santa Cruz acquired from Novell, in Novell's words, the entire UNIX business "lock, stock and barrel." Well, not the patents. Not the trademark. "Lock, stock and barrel except for a bunch of stuff" would be more accurate. One of the headers in that filing was: "The APA Plainly Transfers the UNIX and UnixWare Business to Santa Cruz." Yes. The business, but not the copyrights. After all, a book store doesn't need to own the copyrights to sell the books.
SCO has relied for years, then, on that one June 3, 2003 press release that Novell quickly recanted and which never read as firmly in SCO's direction as SCO seemed to think it did. It viewed it as an acknowledgment that SCO owns the copyrights.
But rational minds might draw the following conclusion from Novell's initial reaction in the June 6 press release -- that Novell has simply been honest throughout. When it thought SCO might have a point, it said so in public, albeit after SCO threatened to sue Novell in a particularly nasty way and call a press conference to tell the world bad things about Novell. Later, when Novell calmed down and had time to think for more than a minute, it realized that the first statement was not the whole picture, or even an accurate picture, so it retracted it and consistently ever since has maintained that it retained all the copyrights, which Judge Kimball eventually ruled was the case. SCO's position has changed through the years, but other than that press release, Novell's position has remained firmly the same.
Discovery made its position firmer, if anything. It filed four motions for summary judgment in April of 2007, saying that discovery had demonstrated that there could be no dispute about the facts:
The APA explicitly excluded “all copyrights” from the assets to be transferred by Novell to Santa Cruz. SCO’s attempt to rewrite “all copyrights” as “some copyrights” fails because it is contrary to the plain language and to the parol evidence rule.
Novell argued that since the contract language was by then clear, there was no reason to look outside that language, particularly because the contract has an integration clause:
SCO’s reliance on Amendment No. 2 is also misplaced, because Amendment No. 2 did not transfer ownership of any copyrights, and Santa Cruz already had a license and hence did not “require” ownership of the UNIX and UnixWare copyrights.
Thus, when a contract is integrated, “extrinsic evidence is admissible only to supplement or explain the terms of the agreement — and even then, only where such evidence is consistent with the terms of the integrated document ....” Id. at 176-77 (citations omitted).
What about SCO's claim that the excluded copyrights were NetWare copyrights?
The APA includes an express integration clause, which states in relevant part:
Entire Agreement. This Agreement, and the Schedules and Exhibits hereto: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understanding, both written and oral, among the parties with respect to the subject matter hereof....
(Brakebill Decl., Ex. 2, Section 9.5.) Novell and Santa Cruz further agreed, in connection with the Bill of Sale, that the APA is an integrated agreement not to be altered by any other understandings:
It is acknowledged and agreed ... that the Agreement is the exclusive source of the agreement and understanding between Seller and Buyer respecting the Assets.
As a matter of law, the express exclusion of “all copyrights” in Schedule 1.1(b) is not “reasonably susceptible” to SCO’s proposed interpretation of “NetWare copyrights only.” The plain meaning of “all” is all. “All copyrights” cannot reasonably be interpreted as “NetWare copyrights only.” Nor can “all copyrights” reasonably be interpreted as “all copyrights except for UNIX and UnixWare copyrights.”...
If one were to consider witness testimony, one could hardly ignore attorney Allison Amadia's, because she drafted Amendment 2 for Novell. When Santa Cruz's Steve Sabbath contacted her in 1996, claiming the copyrights were excluded in the APA but shouldn't have been -- remember SCO's claimed "scrivner's error" -- she first asked the lawyer who drafted the APA, Tor Braham, about its intent, and he confirmed her impression, that the copyrights were excluded by the APA. Next, Sabbath sent her draft language, which was not acceptable because it would have excluded copyrights from the excluded assets, but which draft she amazingly saved. She says she told him the language was not acceptable, that Novell was not going to tranfer the copyrights, but it was willing to confirm that it had a license to use them in its business. There was no bill of sale for Amendment 2, because nothing was being transferred. So that is what she drafted, and amazingly enough, she still has that document too, with all the edits, all these years later. Significantly, the language was not retroactive to the APA. Amendment 2 became effective on October 16, 1996, some ten months after the APA. And I would posit that no one can top her knowledge as to Novell's intent, because she wrote the thing, and you can't write a contract without knowing what you intend to achieve. It literally can't be done, and that's why none of SCO's extrinsic witness can top her, I don't think, unless her testimony could somehow, someday, at a trial be impeached so that a jury didn't believe her. But I believe her, because she still has the documents from 1996. And significantly she was involved in the IBM-Novell-SCO issue too. So much for SCO's other theory, that Amendment had to do with that. Here's the language Sabbath wanted, and then the language that he got instead:
Here, too, it is clear that the exclusion of “all copyrights” was “all-inclusive,” encompassing copyrights to UNIX, UnixWare, NetWare, and any other copyrighted work. Therefore, the parol evidence offered by SCO to show that “all” means “NetWare only” must be excluded.
SCO’s proposed interpretation is especially far-fetched in view of the plain language of the remainder of Section V of Schedule 1.1(b). Section V excluded from the transferred assets “[a]ll copyrights and trademarks, except for the trademarks UNIX and UnixWare.”... Had the parties intended to make an exception for the UNIX and UnixWare copyrights, it would have been simple to draft this clause as “all copyrights and trademarks, except for the UNIX and UnixWare trademarks and copyrights.” However, the parties chose not to do so. Instead, the “UNIX and UnixWare” exception was limited to trademarks only.
Moreover, if “all copyrights” were interpreted as “NetWare only,” then Section V.A of Schedule 1.1(b) would effectively read, “NetWare copyrights and trademarks, except for the UNIX and UnixWare trademarks.” But this interpretation would make no sense. “NetWare trademarks” do not include UNIX and UnixWare trademarks. If “all copyrights and trademarks” were limited to “NetWare only,” the exception for UNIX and UnixWare trademarks would be superfluous. Thus, the exception for UNIX and UnixWare trademarks logically implies that “all” copyrights and trademarks means “all” copyrights and trademarks, including UNIX and UnixWare.
The bizarre nature of SCO’s proposed interpretation is further demonstrated by the next clause of Section V of Schedule 1.1(b), which excludes “All Patents” from the assets to be transferred. (Brakebill Decl., Ex. 4, Section V.B.) SCO’s own witnesses have admitted that the exclusion of “all” patents excludes “all” patents from the transfer, including patents related to UNIX and UnixWare. 7 SCO thus proposes two conflicting interpretations of “all”: (1) “all patents” means “all patents, including UNIX and UnixWare patents”; but (2) “all copyrights” means “NetWare copyrights only.” SCO’s attempt to interpret “all” in two different ways in the same paragraph of the same contract is an untenable distortion of the plain language.
Sabbath proposed that Section V of Schedule 1.1(b) be "revised" from "All copyrights and trademarks, except for the trademarks UNIX and UnixWare" to read:
None of the SCO witnesses has been able to topple this testimony, as far as I'm concerned. If you read the weasel wording by Sabbath, you see how weak it looks in comparison. It's his word against hers, if you interpret his words broadly in SCO's direction, but she has more than her memory to work with.
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 ... This language was rejected by Amadia because it would have removed copyrights from the excluded assets list, and because it would have meant that SCO would acquire the copyrights by means of the APA. Did you note the "pertains to" language he wanted? Hold that thought. She says she rejected that language, so they negotiated:
11. Mr. Sabbath and I subsequently negotiated a final copyright-related provision reflecting that intent. The agreed-upon Amendment No. 2 was more narrow and restrictive than the original Santa Cruz proposal. For example, the final Amendment No. 2 did not include any provision that Santa Cruz "has acquired" any copyrights. In addition, instead of Santa Cruz's broad proposal to make an exception for copyrights "which pertain to UNIX and UnixWare technologies," the final Amendment No. 2 limited this exception to copyrights that are "required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies." A true and correct copy of the final, executed Amendment No. 2 is attached hereto as Exhibit 2. 13. As indicated on the first page of the signed Amendment No. 2, Amendment No. 2's revision of Section V of Schedule 1.1(b) was effective "as of the 16th day of October 1996." (Exhibit 2 at 1.) During the negotiations, Mr. Sabbath did not propose to me that Amendment No. 2's revision of Section V of Schedule 1.1(b) would be retroactively effective as of the date the Original APA was executed in September 1995.
12. In final form, Paragraph A of Amendment No. 2 provided that Section V of Schedule 1. 1 (b)'s Excluded Asset list would be "revised" from "All copyrights and trademarks, except for the trademarks UNIX and UnixWare" to:
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 UNIX and UnixWare technologies ...
(Exhibit 2 at 1.)
14. Based on my personal involvement in the negotiations and drafting of Amendment No. 2, I am well-situated to describe the intent of Amendment No. 2. Amendment No. 2 was not intended to alter the Original APA's copyright ownership exclusion. Amendment No. 2 was not intended to transfer ownership of any UNIX or UnixWare copyrights owned by Novell. As I mentioned above, Amendment No. 2 affirmed that Santa Cruz had a license under the Original APA to use Novell's UNIX and UnixWare copyrighted works in its business.
15. During the negotiations, Mr. Sabbath and I did not discuss what, if any, specific copyrights might be "required" for Santa Cruz to exercise its rights. Should, after Amendment No. 2, Santa Cruz believe its license to use Novell's copyrighted works was insufficient and that it needed ownership of any particular UNIX or UnixWare copyright rights because ownership of such copyrights was "required" to run its business, I believe Santa Cruz would have to have made such a request to Novell. Indeed, as I've discussed, Novell remained the owner of the UNIX and UnixWare copyrights after Amendment No. 2.
That's why I don't even worry about the case being remanded back to Utah to go through all this the long way. I believe the result will be exactly the same, that SCO didn't get the copyrights, and it has to "require" them and establish that to get any, and it never tried in all those years until the litigation. That doesn't look so good for SCO. Oh, and Braham provided a declaration too, so likely he'd be a witness too, corroborating her account as to his part of it, if it ever went to trial.
And on the other side, in the black trunks, we have a group of folks who say they *thought* the copyrights were supposed to transfer, but either they weren't there for the whole process or at all or like Kim Madsen never heard anyone talk about copyrights at all or were not lawyers. Actually, SCO did answer Braham, like this, in its Reply Memorandum in Further Support of its Motion for Partial Summary Judgment on its First, Second and Fifth Causes of Action and for Summary Judgment on Novell's First Counterclaim", and in it the Bill of Sale is again the magic bullet that transferred the copyrights, and here's the response to Braham's testimony:
The testimony of Messrs. Bradford and Braham relates to the language in the Excluded Assets Schedule of the APA that the parties replaced via Amendment No. 2, and is thus irrelevant. (See Part I.A, above. 7 ) Because the language relied upon by Messrs. Bradford and Braham was replaced, their testimony as to what they sought to accomplish by the supplanted language is of no import, and fails to create any genuine dispute of material fact. Heh heh. I think that's my favorite argument. Amendment 2 replaced the excluded assets wording in the APA, so what the drafters of the APA intended doesn't matter. Don't you love it? (Here's David Bradford's Declaration, by the way, and Braham's.)
So it was in 2007 when SCO moved for summary judgment in 2007, it came up with the argument, one it repeats in its Appeal Brief, that Amendment 2 obliterated and replaced the APA's list of Excluded Assets, in direct contrast to Amadia's testimony:
In fact, Section A replaces the original Item V.A, clarifying that the Excluded Assets do not include those copyrights, which were transferred with “all the Assets” under the APA and Bill of Sale. Odd, if they were required, that SCO never asked for them and happily did business for about a decade before it became an issue. They claim that the language Sabbath asked Amadia for was, in effect, obtained, not the language he asked for, but by stating that the final language *means* the language he asked for, even though the author says it doesn't and even though that language was rejected.
Amendment No. 2 clarified that the copyrights at issue were not Excluded Assets. Section A states that the Excluded Assets do not include the copyrights “required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies.” (Id.) Plainly the UNIX and UnixWare copyrights are so required.
The most elaborate discussion of Amendment 2 as far as Novell's position is concerned is found in Novell's Memorandum in Support of its Opposition to SCO's Motion for Partial Summary Judgment on its 1st, 2nd & 5th Causes of Action. SCO had moved for complete summary judgment on Novell's First Counterclaim for slander of title on the basis that SCO owned the copyrights, so it wasn't slander of title to say so publicly. SCO had also moved for partial summary judgment on its slander of title (Claim I), breach of contract (Claim II), and unfair competition (Claim V) claims, all founded on SCO owning the copyrights. It moved for a judgment that Amendment No. 2 to the APA effectuated a transfer of the UNIX and UnixWare copyrights to Santa Cruz, which at this point in 2007 was SCO's position, that SCO and Novell "shared an understanding that the APA intended to and did transfer the copyrights to Santa Cruz" and that Amendment 2 was meant merely to "clarify th APA by reiterating the transfer of the copyrights." Hardly. Novell explained to the court why SCO should not prevail, and in fact it did not, like this:
The APA expressly excludes "all copyrights" from the transfer of assets. Throughout this litigation, SCO has vacillated between arguing that the transfer of copyrights was effectuated by the APA and contending that such transfer was effectuated instead by Amendment No. 2. In this most recent motion, SCO appears to adopt an amalgamated approach, suggesting that the "all copyrights" exclusion "does not exist for purposes of construing the APA," because the APA was modified thirteen months later by Amendment No. 2. (SCO's Ownership MSJ 4/9/2007, PACER No. 259, at 2.) Yet the original APA is indisputably relevant because the "Bill of Sale" on which SCO relies as evidence of the alleged transfer was based on the APA, and not on Amendment No. 2 (which was not even executed until ten months later). In any event, it does not matter which position SCO takes because neither the APA nor Amendment No. 2 transferred copyright ownership from Novell to Santa Cruz.
Note that the "pertain to" language was specifically rejected by Novell's Amadia. Yet, as you'll see, it shows up in the appeal.
The APA, signed by Novell and Santa Cruz on September 19, 1995, explicitly excluded "all copyrights" from the assets that Novell transferred to Santa Cruz. SCO submits extrinsic evidence that purportedly demonstrates that "all copyrights" did not mean "all copyrights" but only "some copyrights." That evidence is inadmissible under the parol evidence rule, as it seeks not to explain the meaning of the term "all copyrights" but rather to demonstrate a contradiction
between the plain language of the agreement and its supposed intent. SCO's evidence should be ignored and this Court should find, as a matter of law, that the APA did not transfer copyrights.
Because the plain language of the APA is clear, consideration of SCO's extrinsic evidence is both unnecessary and improper. However, even if this evidence were considered, it would not change the conclusion that the copyrights were not transferred. Novell has submitted documents and testimony from the specific individuals that drafted the "all copyrights" exclusion, who have all attested that the exclusion was deliberately inserted to protect Novell's ongoing interests in the UNIX business. SCO, in contrast, has submitted no admissible evidence from a single person involved in drafting the "all copyrights" exclusion, relying instead on testimony from persons who were not involved in drafting that exclusion and who did not participate in negotiations concerning the transfer of copyrights. These individuals have no personal knowledge of the intent of the "all copyrights" exclusion.
Amendment No. 2 did not transfer copyright ownership either. To transfer copyright ownership, the Copyright Act requires a signed "written instrument of conveyance" that makes evident precisely what rights are being transferred. 17 U.S.C. § 204(a). Amendment No. 2 does not meet that standard. It did not purport to "transfer" any copyrights. Nor did it identify with any specificity the copyrights, if any, to be transferred. Accordingly, the Court need not consider extrinsic evidence concerning the intent of Amendment No. 2, because Amendment No. 2 did not transfer the copyrights as a matter of law, regardless of what may or may not have been intended.
Even if this court were to consider extrinsic evidence of intent, the undisputed evidence establishes that Amendment No. 2 was not intended to transfer the copyrights. Novell expressly rejected Santa Cruz's proposed version of Amendment No. 2 that would have transferred all
copyrights pertaining to UNIX and UnixWare to Santa Cruz. Instead, Novell stated that it would agree only to a more limited amendment that exempted from the "all copyrights" exclusion those copyrights "required for" Santa Cruz to run the UNIX-related business contemplated by the APA. Novell understood that amendment as affirming Santa Cruz's license under the APA to use the UNIX and UnixWare copyrighted works. SCO has submitted no admissible evidence to the contrary. SCO relies on various witnesses who opine on the supposed meaning of Amendment No. 2, but none of those witnesses was involved in negotiating or drafting that amendment. Moreover, SCO has not submitted any evidence that outright ownership of any copyrights was "required" for Santa Cruz to run the UNIX-related business contemplated by the APA, when Santa Cruz already had a license under the APA to use the copyrighted works as needed to run that business.
SCO has asserted that the parties' conduct after the APA was signed shows that the copyrights were transferred to Santa Cruz. Once again, this extrinsic evidence is inadmissible. But if the Court were to examine additional evidence, it would simply confirm that Santa Cruz and SCO understood that no transfer of copyrights occurred. In distributing software in the late 1990s, Santa Cruz repeatedly used copyright notices indicating Novell's continued ownership of UNIX and UnixWare code. Moreover, in 2001, in an agreement assigning various UNIX intellectual property rights to SCO, Santa Cruz expressly acknowledged a problem with the "chain of title from Novell" and discussed obtaining a "global IP assignment" from Novell. Obviously, no such assignment would be necessary if the APA and Amendment No. 2 had transferred the copyrights to Santa Cruz. Then, in late 2002 and early 2003, SCO repeatedly contacted Novell to request to amend the APA to transfer SCO the copyrights, recognizing that no such transfer had occurred under the APA and Amendment No. 2. SCO's actions speak louder than its words: SCO was well aware that no transfer of copyrights had occurred.
Because neither the APA nor Amendment No. 2 transferred the copyrights to Santa Cruz, Novell, not SCO, owns the copyrights at issue....
Key points established in Novell's statement of undisputed facts include:
The APA expressly excluded "all copyrights" from the assets to be transferred (Novell's Ownership MSJ No. 1 Facts, ¶¶ 1-4);
The Bill of Sale conveyed the assets described in the APA, as amended by Amendment No. 1 (Id., ¶¶ 25-27); and
Amendment No. 2 did not "transfer" any assets on its own and did not retroactively amend the Bill of Sale to convey assets described in Amendment No. 2 (Id., ¶¶ 28-30).
78. Amendment No. 2 was negotiated primarily through communications between two in-house lawyers, Allison Amadia of Novell and Steve Sabbath of Santa Cruz. (Novell's Ownership MSJ No. 1 Facts, ¶¶ 31-36; Declaration of Allison Amadia in Support of Novell's Ownership MSJ No. 1, PACER No. 278 ("Amadia Decl."), ¶¶ 4-6.) During the summer of 1996, Sabbath telephoned Amadia and stated that the original APA explicitly excluded copyrights to
UNIX and UnixWare and that he wanted to amend the original APA to give Santa Cruz those copyrights. (Id.)
79. Sabbath proposed to revise Section V of Schedule 1.1(b) to read as follows:
All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of this Amendment No. 2, which pertain to the UNIX and UnixWare technologies and which SCO has acquired hereunder. . .
(Amadia Decl., Ex. 1, Paragraph A.) Amadia rejected that draft, stating that Novell would not transfer ownership of any copyrights. (Id., ¶ 10.)
80. Ultimately the parties agreed on much narrower language that became Amendment No. 2. Amadia understood that the final version of Amendment No. 2 did not transfer ownership of any UNIX or UnixWare copyrights but instead merely affirmed Santa Cruz's license to use Novell's UNIX and UnixWare copyrighted works. (Id. at ¶ 14.)
Can you believe we are still only in 2007 in our narrative? Can you tell how sick I am of SCO trolls? You can measure how much by my willingness to put myself through this effort to create an accurate account, to the best of my ability.
Judge Kimball's 2007 Order:
Oh, let's not forget that Judge Dale Kimball ruled in 2007 on whether or not the APA or the bill of sale or Amendment 2 transferred copyrights, and he said none of them separately or together had done so in his Order:
Approximately a year after the APA was signed, on October 16, 1996, Novell and Santa Cruz executed Amendment No. 2 to the APA. Decl. Mark James Ex. 5 ("Am. No. 2"). APA Amendment No. 2 amends the Schedule of Excluded Assets in Schedule 1.1(b) to exclude "All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the [APA] required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies." Am. No. 2 § A.
There is actually a great deal more on this subject in the order, but I'm running out of space, but I recommend that you read it. The end result was that no copyright transfer was found to have happened. And don't forget Novell had filed two objections, its evidentiary objections to the extrinsic witness testimony from SCO, which is in addition to its position that there is no need for any such testimony, and that in fact, it's inappropriate when the contract language regarding copyrights is clear. So, by the middle of 2007, Novell had prevailed with this judge on the meaning of Amendment 2 and its connection to copyrights.
Amendment No. 2 did not specify which copyrights, if any, were "required for SCO to exercise its rights with respect to the acquisition of the UNIX and UnixWare technologies." Amendment No. 2 also did not contain any provision actually transferring ownership of copyrights or other assets from Novell to Santa Cruz. Amendment No. 2 states that the APA was amended "[a]s of the 16th day of October 1996." Id. Therefore, it did not retroactively amend the APA as of the date the APA was signed or the date the transaction closed. Furthermore, the parties did not execute a "Bill of Sale" or any similar document transferring copyrights from Novell to Santa Cruz in connection with Amendment No. 2, nor did they amend the previous Bill
of Sale. Moreover, Amendment No. 2 did not make any corresponding amendment to the transferred assets on Schedule 1.1(a).
During negotiations on Amendment No. 2, SCO attempted to effectuate a transfer of the copyrights of UNIX and UnixWare, but Novell rejected the proposal. Decl. Allison Amadia at ¶ 6, 8, 10....
Sabbath later sent Amadia a draft proposal revising Schedule 1.1(b) of the APA to read: "All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of this Amendment No.2, which pertain to the UNIX and UnixWare technologies and which SCO has acquired hereunder. . . ." Id. ¶ 8, Ex. 1. Novell rejected the proposed amendment. Id. ¶ 10. Amadia told Sabbath that while Novell was willing to affirm that Santa Cruz had a license under the APA to use Novell's UNIX and UnixWare copyrighted works in its business, Novell would not transfer ownership of any copyrights. Id.
Instead of a blanket exception for copyrights pertaining to UNIX and UnixWare technologies, the final version of Amendment No. 2 was limited to copyrights that were
"required for SCO to exercise its rights with respect to the acquisition of the UNIX and UnixWare technologies." Amend. No. 2 § A. The final version of Amendment No. 2 also deleted Santa Cruz's proposed reference to copyrights "which SCO has acquired hereunder." Amendment No. 2 does not include any reference to an acquisition or transfer of copyrights.
Jim Tolonen, Novell's Chief Financial Officer and Novell's business executive assigned to Amendment No. 2, confirms that it was never Novell's intent to transfer copyrights by way of Amendment No. 2. Decl. Jim Tolonen at ¶ 13, 14. He states that he would not have signed it if he had believed it would do so. Id. ¶ 15. He testifies that Amendment No. 2 was also not meant to "clarify" what the parties intended to transfer in the original APA. Id. ¶ 14. Rather, he states that Novell intended to retain the UNIX and UnixWare copyrights in the APA, and Amendment No. 2 confirmed that Santa Cruz would be allowed to continue to use the Novell-retained copyrightsas it had been doingas was required to exercise its rights under the APA. Id. ¶ 16.
Sabbath has no recollection of negotiating the copyright portion of Amendment No. 2. SCO relies on the testimony of Robert Frankenberg and Ed Chatlos regarding Amendment No. 2. However, both men had left Novell before Amendment No. 2 was negotiated and had no involvement in the negotiation of the amendment. Frankenberg Dep. at 86; Chatlos Decl. ¶ 4. SCO relies on the testimony of several other individuals involved in the business, but none of them admits to being involved in the negotiations of Amendment No. 2 or to having any specific recollection of the negotiations with respect to the transfer of copyrights....
SCO asserts that the APA provided for the transfer of the copyrights where it provided for the transfer of all of Novell's "right, title, and interest in and to" the Assets on Schedule 1.1(a), and Schedule 1.1(a), in turn, identifies "all rights and ownership of UNIX and UnixWare, including but not limited to all versions of UNIX and UnixWare and all copies of UNIX and UnixWare." Id. APA § 1.1(a), Sched. 1.1(a).
SCO's analysis of the transfer of copyrights, however, completely ignores the Excluded Assets on Schedule 1.1(b). Section 1.1(a) specifically states that the "Assets to be so purchased shall not include those assets (the "Excluded Assets) set forth on Schedule 1.1(b). Because Section 1.1(a) of the APA transfers the Assets on Schedule 1.1(a) and excludes the assets on Schedule 1.1(b), the proper course of analysis is to examine both schedules.
Not surprisingly in the transfer of a software business, the schedules both contain sections on intellectual property. With respect to their "Intellectual Property" provisions, Schedule 1.1(a) and Schedule 1.1(b) are consistent. Schedule 1.1(b) excludes from transfer "[a]ll copyrights and trademarks, except for the trademarks UNIX and UnixWare" and "[a]ll Patents." Id. APA Sched. 1.1(b) § V.A, V.B. Schedule 1.1(a) transfers only "[t]rademarks 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)." Id. APA Sched. 1.1(a) § V.
SCO claims that it is improper to rely on the Intellectual Property provision of the Excluded Asset Schedule in the original APA, because Amendment No. 2 revised that provision to read "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 UNIX and UnixWare technologies." APA Amend. No. 2 (emphasis added to demonstrate amendment). Throughout this litigation, SCO has vacillated between arguing that the transfer of copyrights was effectuated by the APA and contending that the transfer was effectuated instead by Amendment No. 2. It now argues that the court must look only to the APA as amended by Amendment No. 2. Novell, however, contends that the court must analyze whether the APA as amended when the transaction closed transferred the copyrights and also whether Amendment No. 2, which was entered a year later, effectuated a transfer of the copyrights retroactively or at that time.
Novell takes issue with SCO's argument that the "all copyrights" exclusion in Schedule 1.1(b) of the APA no longer exists for purposes of construing the APA because the exclusion was subsequently modified by Amendment No. 2. Amendment No. 2, executed a year after the
APA, states that it amends the APA as of October 16, 1996, not the date of the original APA or the Closing date of the original APA. The APA does not constitute an instrument of conveyance because it merely describes the assets that Novell "will" sell in the future. The instrument of conveyance for the APA was the Bill of Sale that the parties signed on the date the APA closed. When the parties executed Amendment No. 2 a year later, it was not made retroactive, did not amend the previous Bill of Sale, did not refer to a new Bill of Sale, and did not itself contain any language of conveyance to transfer any copyrights. Novell contends that there is no basis for concluding that the Bill of Sale, executed on December 6, 1995, could have transferred any assets contained in an amendment executed ten months later without some language in the amendment allowing that to occur.
SCO cites to Nish Noroian Farms v. Agricultural Labor Relations Board, for the proposition that "[a] written instrument must be construed as a whole, and multiple writings must be considered together when part of the same contract." 35 Cal. 3d 726, 735 (Cal. 1984). In Nish Noroian, the court concluded that a waiver provision in an earlier settlement had to be examined in light of the formal agreement entered later which incorporated and superseded it. Id. The court referred to Sections 1641 and 1642 of the California Civil Code, which also provide basic contractual interpretation rules. Rule 1641 states that a contract is to be interpreted to give effect to every provision of the contract, when practicable. Cal. Civ. Code § 1641. And Rule 1642 states that contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together. Id. § 1642.
These legal principles, however, do not suggest that the court should analyze the transfer of copyright issue without giving any consideration to the text of the original APA. Rather, the
court must consider the original APA, the agreement executed in connection with the APA's closing, Amendment No. 2, and Amendment No. 2's relationship to the original APA and the agreements executed in connection with its closing. The court concludes that the proper way to analyze the issue, therefore, is to look at the Agreements in turn in the same chronological order that the parties entered the agreements. See Universal Sales Corp. v. Cal. Press Mfg. Co., 128 P.2d 665, 671-72 (Cal. 1942) (suggesting that the court place itself in the same situation in which the parties found themselves at the time of contracting).
A. Did Copyrights Transfer Under the APA and Contemporaneous Agreements?
SCO's plain language argument relies on cases holding that "[i]n a non-consumer setting such as this, a transfer of all right, title and interest to computer programs and software can only mean the transfer of the copyrights as well as the actual computer program or disks." Shugrue v. Continental Airlines Inc., 977 F. Supp. 280, 285-86 (S.D.N.Y. 1997); see also Relational Design & Tech., Inc. v. Brock, 1993 WL 191323, at *6 (D. Kan. May 25, 1993); Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410, 413 (7th Cir. 1992). These cases, however, do not support SCO's contention. Each of these cases recognized that the terms "all right, title, and interest" transferred copyrights when there was no other language addressing copyrights.
In Shugrue, the court found a transfer of the copyrights based on the language "all right, title, and interest" because "[n]o exception was carved out for copyrights" and "no rights, titles, or interests were retained." 977 F. Supp. at 285. Similarly, in Schiller & Schmidt, the court noted that "the agreement does not mention the word 'copyright.'" 969 F.2d at 413.
Furthermore, the Relational Design case, cited by SCO, does not actually support SCO's position. The court concluded that where a contract stated that a party would own "all rights to
the completed program with no licensing or royalties fees due," the contract transferred only ownership in a material objectthe source codenot the copyright embodied in the object. 1993 WL 191323, at *6 ("Ownership of a copyright, or of any exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied.").
In any event, because there is specific language in the APA regarding the inclusion and exclusion of copyrights, the cases SCO relies upon are factually distinguishable from this case. Even if this court were to accept SCO's contention that Schedule 1.1(b) of the original APA should not be considered because it was later amended, Schedule 1.1(a) of the original APA specifically addresses intellectual property and includes only trademarks. It is unlikely that any of the cases SCO relies upon would have agreed that a transfer of other intellectual property rights, such as copyrights and patents, occurred when only trademarks are identified under the heading of "Intellectual Property." In interpreting the plain language of the APA in this case, Schedule 1.1(a), itself, represents a limitation of the intellectual property the parties intended to transfer.
SCO's plain language arguments also focus on Recitals A and B and Section 1.3(a)(i) of the APA. SCO claims that these provisions demonstrate the parties' intent that "all of the Business" be transferred to Santa Cruz and, therefore, that the APA transferred copyrights. Recital A defines Novell's UNIX and UnixWare "Business" to include the development of a line of software, the sale of binary and source code licenses to the various versions of UNIX and UnixWare, the support of such products, and the sale of other products which are directly related to UNIX and UnixWare. Recital B defines the "Acquisition" contemplated by the parties to mean that Santa Cruz would "acquire certain of the assets of, and assume certain of the liabilities
of [Novell] comprising the Business." Section 1.3(a)(i), which provides the intent of the parties with respect to the transfer of customers, states that "[i]t is the intent of the parties hereto that all of the Business . . . be transferred to Buyer."
These general provisions provide little insight into whether the parties intended to transfer the UNIX and UnixWare copyrights to Santa Cruz. The Business is not defined specifically enough to include copyrights. And the definition of the Acquisition of the Business merely states that Santa Cruz would acquire certain of the assets comprising the Business. Where there are specific provisions of the document detailing the assets being transferred and the assets being excluded, such as Schedules 1.1(a) and 1.1(b), the more specific provisions control. National Ins. Underwriters v. Maurice Carter, 17 Cal. 3d 380, 386 (1976) ("[W]hen a general and particular provision are inconsistent, the latter is paramount to the former."). Schedule 1.1(a) provides that the only intellectual property Santa Cruz was acquiring were the UNIX and UnixWare trademarks. Moreover, there is nothing inconsistent with the provisions cited by SCO and the more specific schedules provided for in the APA. Recital B specifically defines the Acquisition as certain assets comprising the Business.
SCO further argues that the agreements executed by the parties in connection with the Closing of the APA support its position that copyrights transferred under the APA. "It is a general rule that several papers relating to the same subject matter and executed as parts of substantially one transaction, are to be construed together as one contract." Harm v. Frasher, 181 Cal. App. 2d 405, 412-13 (Ct. App. 1960). On the Closing Date, Novell and Santa Cruz executed the Bill of Sale which provides that it "does hereby transfer, convey, sell, assign, and deliver to Buyer . . . all of the Assets" in accordance with Section 1.1(a) of the APA. SCO
asserts that the Bill of Sale expressly effectuated the transfer of all assets identified in Section 1.1(a) of the APA, which included "all rights and ownership" of UNIX and UnixWare. Again, however, SCO fails to recognize that the term "Assets" in the APA is a defined term that does not include any of the assets on the Excluded Assets schedule. Moreover, the Bill of Sale specifically states that the defined terms have the meanings given in the APA and that the provisions of the APA control. Therefore, the Bill of Sale did not grant additional rights to any party, does not create an ambiguity with respect to any term in the APA, and did not effectuate a transfer of assets that was not provided for in the APA.
In addition, SCO contends that the TLA confirms that Novell transferred the copyrights to Santa Cruz on the Closing Date because Section 1.6 of the APA expressly provided for a license back to Novell of the technology transferred to Santa Cruz. Under the TLA, Santa Cruz granted a license to Novell with certain restrictions and specified that SCO owned the "Licensed Technology." SCO contends that Section 1.6 and the TLA would be senseless had Novell retained the ownership of the copyrights because Novell would not have needed a license to the Licensed Technology.
SCO, however, does not recognize that the TLA provided that the term Licensed Technology had the meaning given to it in the APA. The APA defines "Licensed Technology" as "all of the technology included in the Assets and all derivatives of the technology included in the Assets." The term Assets is defined in the APA as those assets included on Schedule 1.1(a) but not those assets excluded from transfer on Schedule 1.1(b). Novell would need a license to be able to use these other aspects of the technology sold to Santa Cruz and derivatives of the transferred assets. Because the "Licensed Technology" included rights distinct from Novell's
UNIX and UnixWare copyrights, it makes sense that Novell would need a license back with respect to those assets. Furthermore, the same logic would imply that Novell transferred ownership of UNIX-related patents because Novell would not have needed a license to these patents if it retained ownership. SCO's admission that Novell did not transfer ownership of the patents refutes SCO's argument that the TLA implies that Novell must have transferred ownership of all UNIX-related technology to Santa Cruz. The plain language of the APA, therefore, is in harmony with the plain language of the TLA.
Furthermore, SCO's attempt to rewrite "all copyrights" in Schedule 1.1(b) to mean "NetWare Copyrights Only" is contrary to the plain language of the Schedule 1.1(a) and Schedule 1.1(b). Schedule 1.1(b) clearly distinguished UNIX and UnixWare trademarks as assets being transferred. Schedule 1.1(a) also clearly transferred only UNIX and UnixWare trademarks. If the parties intended to transfer UNIX and UnixWare copyrights as well, they could have easily demonstrated that intent while they were making the distinction for UNIX and UnixWare trademarks. There is nothing in the text of the APA that would support an interpretation of "all copyrights" to mean only NetWare copyrights.
In Blumenfeld v. R. H. Macy & Co., 92 Cal. App. 3d 38 (1979), the California Court of Appeals rejected a similar attempt to interpret "all" to mean "less than all." The trial court relied on extrinsic evidence to interpret a contract assigning "all claims against third parties relating to the [shopping] Center" as limited to claims against current tenants of the Center. The court of appeals reversed, holding that the "all-inclusive language of the agreement is not reasonably susceptible of the meaning advanced." Id. at 46.
The language of Schedule 1.1(b) is not reasonably susceptible to being interpreted to
mean "all copyrights except for UNIX and UnixWare copyrights." The parties clearly delineated that the UNIX and UnixWare trademarks were exceptions and they clearly chose not to make a similar exception for the copyrights. There is also no basis for reading the language to mean that the only copyrights excluded were NetWare copyrights. If the parties had intended to exclude only NetWare copyrights, it would have been simple to use "NetWare copyrights" instead of "all copyrights. However, the parties used "all copyrights." The exclusion of "all copyrights" was all inclusive. Interestingly, SCO does not argue that Schedule 1.1(b)'s exclusion of "all patents" means "only Netware patents." The use of "all patents" after "all copyrights" clearly shows that "all copyrights" cannot be interpreted to mean "only Netware copyrights" while "all patents" means "all patents."
The court concludes that the APA as amended by Amendment No. 1 excluded UNIX and UnixWare copyrights from the Assets transferred to Santa Cruz by the Bill of Sale. The Bill of Sale executed by the parties on December 6, 1995, transferred ownership to Santa Cruz of the Assets as defined by the APA and Amendment No. 1. Thus, the scope of the Assets transferred by the Bill of Sale is determined by the definition of Assets set forth in the APA and Amendment No. 1. Amendment No. 1 made some revisions to Schedules 1.1(a) and (b) but did not change the description of the Intellectual Property included and excluded from the transfer. A review of Schedule 1.1(a) listing transferred assets and Schedule 1.1(b) listing Excluded Assets demonstrates that the transferred assets did not include the UNIX and UnixWare copyrights. The only "Intellectual Property" listed in the Schedule 1.1(a) list of assets to be transferred are the UNIX and UnixWare trademarks. Schedule 1.1(a) did not identify UNIX or UnixWare copyrights as an asset to be transferred. Conversely, the Schedule 1.1(b) list of "Excluded
Assets" expressly excluded from the transferred assets "[a]ll copyrights and trademarks, except for the trademarks UNIX and UnixWare." Thus, the language of the APA and Amendment No. 1 at the time of the Bill of Sale is clear: all copyrights were excluded from the transfer.
Apart from the language of the agreements, SCO maintains that it has provided the court with extrinsic evidence that the parties intended the APA to transfer the UNIX and UnixWare copyrights to Santa Cruz. Under California law, extrinsic evidence is admissible both to support interpretations of contracts to which the language at issue is reasonably susceptible and to demonstrate the parties' intent under contractual provisions that the court deems to be ambiguous. Universal Sales Corp. v. Call Press Mfg. Co., 128 P.2d 665, 671-72 (Cal. 1942). Therefore, oral testimony and other extrinsic evidence are not admissible to support an interpretation of a contract that is contrary to the plain language. The critical issue is "whether the offered evidence is relevant to prove a meaning which the language of the instrument is reasonably susceptible." Dore v. Arnold Worldwide, Inc., 39 Cal. 4th 384, 391 (2006). If the contract is not reasonably susceptible to the proposed interpretation, extrinsic evidence is inadmissible and does not create a triable issue of fact that would defeat summary judgment. Id. at 388, 391-93.
When a contract is integrated, "extrinsic evidence is admissible only to supplement or explain the terms of the agreement--and even then, only where such evidence is consistent with the terms of the integrated document." EPA Real Estate Partnership v. Kang, 12 Cal. App. 4th 171, 175-77 (1992). The APA includes an express integration clause stating that the "Agreement, and the Schedules and Exhibits" "constitute the entire agreement among the parties with respect to the subject matter . . . and supersede all prior agreements and understanding, both
written and oral." APA § 9.5. Novell and Santa Cruz further agreed, in connection with the Bill of Sale, that the APA is an integrated agreement not to be altered by any other understandings: "It is acknowledged and agreed . . . that the Agreement is the exclusive source of the agreement and understanding between the Seller and Buyer respecting the Assets." Bill of Sale ¶ 5.
The 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. Moreover, even if the court considered the extrinsic evidence, there is significant evidence that the exclusion "all copyrights" was deliberate and consistent with the basic objectives of the APA. While there is no specific evidence that business executives negotiated the issue of copyrights, the changes to the drafts of the agreement show that a significant change occurred. Novell has provided extrinsic evidence supporting the change in the language and the fact that it was relayed to SCO, whereas SCO has failed to present any evidence from witnesses on its side of the transaction who had any involvement with the actual drafting or negotiation of the language in the contract.
They fight over language in Amendment 2, but not the language that stands out to me:
...required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies. That phrase is a limitation, as I read it. But no one else seems to have seen it that way.
And that brings us to the end of 2007, at last.
Legal Arguments Regarding Amendment 2 in 2008:
There was a bit of jousting regarding the buyout language in the B part of the amendment in 2008, as there had been in 2007, but that's separate from the tracing I'm doing here. Other than that, we had the trial itself, which wasn't about copyrights, since Judge Kimball had already ruled on summary judgment that Novell never transferred them to SCO. On day 2 of the trial, Darl McBride went on and on about the press release anyway. One juicy detail he reveals is that then-Novell CEO Jack Messman's first reaction when Darl called him up and told him about finding Amendment 2 was to ask, "Is this a trick?"
Legal Arguments Regarding Amendment 2 in 2009:
In 2009, there is SCO's appellate brief and Novell's and then SCO's Reply and then the May 6, 2009 hearing in appeals court. Which, of all the theories SCO put forward through the years as to when the copyrights allegedly transferred did it pick for the appeal? This:
Amendment No. 2, as noted above, specified that copyrights "required for [SCO] to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies" are not excluded from the Assets Schedule — the assets transferred to Santa Cruz.
Why? Ten witnesses said they thought that was the intent, which SCO cunningly placed in a table, as if five of SCO's witnesses were actually on Novell's side. Like Duff Thompson. Puh-lease. I hope the appeals court judges know who those people are. And I suppose SCO hopes they don't. Here's the part of SCO's summary regarding Amendment 2, its list of what it thinks were errors on Judge Kimball's part:
The district court's ruling that, as a matter of law, the UNIX and UnixWare copyrights were not transferred with the sale of the UNIX and UnixWare business should be reversed for at least three independent reasons.
First, the district court interpreted the APA without considering Amendment No. 2, the very Amendment that expressly clarified the issue of copyright transfer and ownership by replacing the exclusion of "all copyrights". It is fundamental error to rely on language of a contract that has been expressly replaced. It was also error to conclude that Amendment No. 2 did not independently suffice to transfer the copyrights. Clearly, the Amendment must be read together with the provisions of the APA that transferred "[a]ll rights and ownership" in UNIX and UnixWare.
Second, the district court's finding that SCO had obtained only an "implied license" to the copyrights simply cannot be squared with the relevant provisions of the APA that deal with the sale of assets. If Amendment No. 2 was intended only to affirm an "implied license," the Amendment would have said that and would not have changed the language regarding copyrights in the Schedules of Assets being sold. Amendment No. 2 also would have been entirely unnecessary if the APA had already conferred an implied license.
Third, although it had previously found the APA to be ambiguous on the subject of copyright transfers, the district court disregarded the probative extrinsic evidence of numerous witnesses and documents drawn from both sides of the transaction and the subsequent course of performance. The court then improperly drew inferences in favor of Novell in resolving what both it and Novell had previously recognized to be ambiguities.
I hope the appeals court judges like to read, so they can see for themselves how skewed this account really is, or is to me, anyway. A bit more detail from SCO's argument:
Under California law, which governs the APA, the district court clearly erred in interpreting the APA without Amendment No. 2, and then Amendment No. 2 standing alone, instead of reading the APA as amended as a single coherent document. Not as illogical as taking an amendment that says point blank that it's effective date is a year or so after the APA's date and squishing them together so that somehow the amendment is retroactive. So they are sticking with the theory that the APA was amended by Amendment 2 to wipe away the Excluded Assets section completely, whereby, presto, SCO would own all the copyrights after all. And SCO quotes the everlovin' press release of 2003 to claim that the wording is ambiguous. Jury, please.
The APA as amended calls for the inclusion, not exclusion, of the UNIX and UnixWare copyrights from the asset sale....Amendment No. 2 expressly revises the Excluded Assets Schedule of the APA. (00374.) "A written instrument must be construed as a whole, and multiple writings must be considered together when part of the same contract." Nish, 35 Cal. 3d at 735. Once Amendment No. 2 removed the carve-out of UNIX and UnixWare copyrights, those copyrights were within the purview of the Assets Schedule and were transferred by the Bill of Sale. Novell's argument, accepted by the district court (at 12040-41), that the amendment was not intended to apply "retroactively" to the transfers effectuated upon the closing of the APA is illogical.
Novell, of course, pointed out that the effective date of Amendment 2 was 1996, not 1995 like the APA. And it addressed SCO's witnesses and their internal impressions that they thought it was the intent to transfer copyrights:
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.'" (05184(¶26); 05185(¶29).)
Only one witness, then, really, Steve Sabbath, and Novell's witness, Allison Amadia's documentary proof tops his alleged memories from more than a decade ago, one would assume. Novell's summary then on this point goes like this:
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.)
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.
SCO's reply to Novell was basically a repeat, except for this astounding sentence: "This is the rare case where the principals on both sides of the contract agree on the parties' intent." They mean that goofball chart they invented, attributing their witnesses to Novell. Blech. It brought to mind Judge Lucero's quip at the hearing last week, calling the case and docket number and noting, "fortunately, this is not a contentious case." Laughter all around. I assume they realize that chart is bogus and doesn't represent Novell's witnesses' positions at all.
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 transferred.
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.
Our eyewitness says that at the hearing, SCO claimed that Amendment 2's date is irrelevant. And apparently Stuart Singer, SCO's attorney at the hearing, was asked about SCO's use of the "pertains to" language that Sabbath wanted but didn't get in its brief. Judge McConnell apparently did not miss that significant bit:
McConnell asked SCO about the differences in language between Amendment 2 and the representations that were made in SCO's brief. The difference of "required for" versus "pertains to". "I think we can all agree that required for is narrower than pertains to". I'm very glad he noticed, because that kind of gloss over is one of the signs, I'd suggest, that SCO is dancing a little too fast, hoping you can't keep up. Novell, in turn, stood on its very strong dime, that the requirements of copyright law's section 204(a) has to be met and there plainly needs to be an instrument of transfer. This wasn't, no matter how you slice and dice it or smoosh it all together in your analysis.
Singer stated that he thought that was arguable and was going to go on and McConnell stated something to the effect of "yet you seem to be making your case based on the 'pertains to' argument when the language is 'required for'"
So, there you have it.
I know this article is long. And you're free to reach your own conclusions. But I wanted to lay it all out for you in one place, with all the resources at hand so you could. Why should the appeals court be the only ones having to wade through all this stuff? And that is no doubt precisely what they are doing, while we are too. And if trolls keep dropping by, you have now everything you need to politely deal with it, if you see them before I do.
Some of the argument at the hearing was abstruse legal thrust and parry about whether it should be a motion to dismiss or a summary judgment motion, as you'll see in the transcript, which is interesting to follow if you like that sort of thing. It has to do with procedural things, and burden of proof, and things that I personally find fascinating, but that's now a sideshow for us, so many years later. But if you find it interesting too, here's an article that explains a bit about why it matters whether a filing is a motion to dismiss or not and whether Novell had to raise an affirmative defense prior to filing a motion to dismiss -- it's procedural talk, and it won't make much sense to you, unless you read the transcript carefully first.
For completeness, here is Novell's Answer to SCO's Amended Complaint (as distinguished from its answer to SCO's Second Amended Complaint, as well as Groklaw's eyewitness reports on the hearing on Novell's motion to dismiss on May 25, 2005, which it turns out were outstandingly accurate, if you compare the reports with the transcript now available.
And finally, we don't want to forget the notes from the Novell board meeting on the eve of signing the APA:
Novell will retain all of its patents, copyrights and trademarks (except for the trademarks UNIX and UnixWare), a royalty-free, perpetual, worldwide license back to UNIX and UnixWare for internal use and resale in bundled products, Tuxedo and other miscellaneous, unrelated technology. And with that, phew, here's the hearing transcript as text:
2 FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
6 SCO GROUP, et al.,
8 -vs- 2:03-CV-139 K
9 NOVELL, INC.,
10 Defendant. )
14 BEFORE THE HONORABLE DALE A. KIMBALL
15 DATE: MAY 25, 2005
16 REPORTER'S TRANSCRIPT OF PROCEEDINGS
17 ARGUMENT ON MOTION
25 Reporter: REBECCA JANKE, CSR, RMR
2 A P P E A R A N C E S
4 FOR THE PLAINTIFF: BOIES, SCHILLER & FLEXNER
5 BY: EDWARD J. NORMANDD, ESQ.
6 SEAN ESKOVITZ, ESQ.
7 333 MAIN STREET
8 ARMONK, NEW YORK 10504
11 FOR THE DEFENDANT: MORRISON & FOERSTER
12 BY: MICHAEL A. JACOBS, ESQ.
13 425 MARKET STREET
14 SAN FRANCISCO, CALIFORNIA 94105
1 MAY 25, 2005 SALT LAKE CITY, UTAH
2 P R O C E E D I N G S
3 * * *
4 THE COURT: We're here this afternoon in the
5 matter of the SCO Group, Inc., vs. Novell, Inc.,
6 2:04-CV-139. Plaintiff is represented by Mr. Brent Hatch,
7 Mr. Sean Eskovitz, Mr. Ed Normand, correct?
8 MR. HATCH: Correct, Your Honor.
9 THE COURT: Defendant by Mr. Michael Jacobs,
10 Mr. Thomas Karrenberg and Mr. John Mullen.
11 MR. KARRENBERG: That's correct, Your Honor.
12 THE COURT: This is defendants' motion to dismiss
13 the Amended Complaint, correct?
14 MR. KARRENBERG: Correct.
15 MR. HATCH: Yes, Your Honor.
16 MR. KARRENBERG: Mr. Jacobs will handle the
17 presentation, Your Honor.
18 THE COURT: Mr. Jacobs.
19 Who's going to argue for the plaintiff?
20 MR. HATCH: Mr. Normand will, Your Honor.
21 THE COURT: Mr. Normand.
22 Go ahead, Mr. Jacobs. There was some talk in one
23 of the briefs about treating this as a motion for summary
25 MR. JACOBS: Yes, Your Honor.
1 THE COURT: That seems premature to me. I'm not
2 inclined to do that. I guess somebody could try to talk me
3 into it briefly.
4 MR. JACOBS: I'll try briefly, Your Honor. They
5 submitted documents outside of the record, of the
6 Complaint. The rules are clear. The Tenth Circuit has
7 been very strong on this, that if you go outside the record
8 and you submit additional evidence, you risk conversion of
9 the motion into summary judgment. But it is your call,
10 Your Honor. I think you have a lot of discretion in this
11 area and, given your initial inclination, I think I'll
12 argue this as if it's a motion to dismiss.
13 THE COURT: Why don't you do that. Take a minute
14 at the end and try to persuade me otherwise.
15 MR. JACOBS: First, Your Honor, I want to note
16 the overlap of the issue in this case with the SCO v. IBM
17 case that you are handling. I believe Your Honor will
18 recall that there is a -- that the same copyright ownership
19 issue that underlies the slander-of-title claim here is at
20 issue in SCO v. IBM, and, in the IBM case, IBM moved for
21 summary judgment. In your order of February 9, you noted
22 that that issue was out, and I just wanted to make sure we
23 keep you informed of the crossovers here.
24 THE COURT: I do know something about that.
25 MR. JACOBS: Yes. You noted in your order, first
1 of all that SCO had made a -- that there was a plethora of
2 public statements concerning IBM's and others' infringement
3 of SCO's purported copyrights to the UNIX software. And
4 then you observed that SCO, in its briefing, chose to
5 cavalierly ignore IBM's claims that SCO could not create a
6 disputed fact regarding whether it even owned the relevant
7 copyrights. And this is since we filed the motion to
8 dismiss. There was a motion for summary judgment on
9 ownership, and SCO could not create a disputed issue of
10 fact on ownership.
11 Looking at our motion, Your Honor, it seems to
12 me, just stepping back from the briefing, there are two
13 things that leap out. One is that, in trying to argue that
14 they have well-pleaded the issue of malice, SCO has shifted
15 gears in their theory of ownership.
16 On the original motion to dismiss, they were
17 arguing the Asset Purchase Agreement plus Amendment Number
18 2. And you parsed the language of those carefully in your
19 original order and gave us your views on what they meant.
20 And what Your Honor said about the Asset Purchase Agreement
21 was that it was undisputed that it, standing alone, didn't
22 transfer copyright ownership.
23 In arguing that their Complaint is well-pleaded,
24 what SCO has done, notwithstanding that reading of the
25 underlying documents that they attached to their Complaint,
1 what they have done is gone back and said that the Asset
2 Purchase Agreement transferred copyright ownership, and
3 that's why their Complaint is well-pleaded, that's why they
4 can show malice.
5 That they have had to do this I think tells us
6 that there are problems with the pleading in their
7 Complaint. The basic issue on the motion to dismiss side
8 of this, I think, is this: If the Asset Purchase Agreement
9 indisputably didn't transfer ownership, and if they
10 can't -- and if they are still arguing that it did, does it
11 suffice, for the purposes of an allegation of malice,
12 merely to say "malice" and attach other malice-like words
13 to it?
14 That can't be the standard on a motion to dismiss
15 when there is a record like the record you have before you
16 on this motion. It's a well-pleaded Complaint that we look
17 at, and we construe only reasonable inferences in their
18 favor. And if what they have to do to argue to you that we
19 acted maliciously in asserting that -- we, Novell, acted
20 maliciously in asserting that we believe we owned the
21 copyrights, is point to an agreement that you have already
22 construed and said it's undisputed that it doesn't transfer
23 copyright ownership, then I don't see how they overcome
24 their pleading burden.
25 I call it a pleading burden, but I think really
1 what we are saying is, if you look at this Complaint, the
2 allegations are controverted by the very documents that
3 they attach to their Complaint, and that doesn't pass
4 pleading muster.
5 So, the first point, the first title of the point
6 was, they have gone back and they are now looking at the
7 Asset Purchase Agreement and saying that, on a stand-alone
8 basis, transferred copyright ownership. They say Amendment
9 Number 2 was merely confirmatory. The documents don't
10 support that. To argue it, to base your allegations on it,
11 is to make allegations that are controverted by the
12 underlying documents.
13 The second point that leaps out is this: In our
14 opening memorandum on this motion, we pointed out that part
15 of the back-and-forth between the parties was a letter from
16 Novell to SCO in which Novell says, "The fact that you came
17 to us and asked us to transfer the copyrights to you, and
18 we refused, tells us that we own the copyrights."
19 We flagged that in several places in our opening
20 brief. SCO's opposition doesn't even treat that issue.
21 They don't mention this once, and so our basic -- at a very
22 simple intuitive level, our argument to you is this: How
23 can it be that if they came to us and asked us to transfer
24 to them the copyrights, they can now turn around and say
25 it's malicious for us to claim that we own the copyrights?
1 The two don't go together, and, once again, what
2 we're saying is, this allegation of malice is controverted
3 by the underlying record, the record that's within the four
4 corners of the Complaint. You don't need to go outside the
5 Complaint. The letter is a letter they averted to. It's
6 properly in the record on the motion to dismiss.
7 So we have two gut-level instincts or two
8 gut-level points to make on this motion to dismiss. One.
9 If we have a meritorious argument on ownership, then just
10 saying malice can't controvert the basis for that, where
11 the basis for that appears in the four corners on the
12 Complaint. And, number 2, taking that a step further,
13 where the four corners of the Complaint show that they came
14 to Novell and asked Novell to transfer copyright ownership
15 to SCO, it can't be malicious for Novell to say, having not
16 transferred copyright ownership in response to that
17 request, it can't be malicious for Novell to say, "We own
18 the copyrights."
19 And no amount of argument about the standard on a
20 motion to dismiss will overcome that basic controversion of
21 their essential theory. That's the core of the argument on
22 the motion to dismiss. We went off and did some exegesis
23 on conditional privileges, on the proper standard on
24 malice, but I don't think you need to reach a lot of those
25 issues in order to decide the motion. I'm happy to
1 entertain questions and try and pars where the law is on
2 the motion to dismiss.
3 I think that's -- just maybe one note on it. I
4 think the basic issue between the parties is whether the
5 restatement applies, and if the restatement applies, then
6 the conditional privileges apply and then we have this
7 argument from structure and logic that the standard on
8 malice has to be higher to overcome the conditional
9 privileges because, as Your Honor noted in the original
10 order, knowing falsehood is an element of a claim of
11 slander of title. So to say knowing falsehood is a sort of
12 recursive problem here. If it's just knowing falsehood is
13 sufficient to overcome the conditional privileges, then we
14 haven't done anything to a defendant to protect the
15 interests that the conditional privileges protect if we
16 just leave the standard at knowing falsehood.
17 One reason to think of this as a motion for
18 summary judgment is you then don't have to worry about our
19 successive motion to dismiss issue, which they briefed --
20 the parties briefed well. I would note a couple of things,
21 though, on the successive motion to dismiss issue. One is
22 that in response to your -- to your earlier order's mandate
23 that they clarify their pleading of special damages, their
24 clarified pleading highlighted the availability to us of a
25 conditional privilege because their point on pleading
1 special damages was that the -- that Novell's assertion of
2 ownership caused people that they were communicating with
3 not to take licenses.
4 And our point is, on a conditional privilege,
5 that is exactly right. These are interested parties in the
6 issue of ownership. We properly communicated with them.
7 We didn't overly communicate with them. We are, therefore,
8 eligible for the conditional privilege, and we cite their
9 additional pleading of special damages. I think one reason
10 to treat this as a motion for summary judgment, Your Honor,
11 is, I believe the following is true. This is not a
12 slander-of-title case. It is, at best, a declaratory
13 judgment of copyright ownership.
14 That's what they should have pled originally.
15 That's what they certainly should have pled in response not
16 only to our original motion but to your order. Your order
17 should have said to SCO -- if I were in SCO's shoes, and I
18 get an order, which the order says, "Novell has some
19 persuasive arguments here," how then do I turn around and
20 just refile allegations of malice? How do I satisfy my
21 Rule 11 obligations to just say malice, when the Court's
22 order; well reasoned, articulate, detailed, says persuasive
24 And that's the basic problem here. However you
25 kill this claim, whether on a motion to dismiss or a motion
1 for summary judgment, this is not a slander-of-title case,
2 and SCO must have some strategic reason for trying to treat
3 it as a slander-of-title case. I think they want the
4 community out there to believe that they have a slam dunk
5 on copyright ownership and so if they plead it as a
6 declaratory judgment of copyright ownership, they must feel
7 they are going to be conceding what we all know to be true,
8 which is that there is a real horse race here of who owns
9 these copyrights.
10 And I don't think any of us are really going to
11 know, really going to know in a positive sense, until you
12 rule on the ultimate question of who owns the copyrights.
13 Again, though --
14 THE COURT: You say I can grant the motion to
15 dismiss without even reaching that question, right?
16 MR. JACOBS: That's exactly right. You can grant
17 the motion to dismiss the slander-of-title claim, and our
18 argument to you is you should do it with prejudice because
19 they have had several chances to plead it right. What it
20 really is -- and to use this courtroom for some outside
21 strategic purpose is not something that should be
23 It's a declaratory judgment of copyright
24 ownership at best. They didn't plead it that way. The
25 slander-of-title claim should be dismissed. Maybe it
1 should be dismissed on both theories. They converted it to
2 a summary judgment. They haven't created a disputed issue
3 of fact, but if we didn't convert it to a summary judgment,
4 looking within the four corners of the Complaint, their
5 allegations of malice are controverted within those four
6 corners. Thank you.
7 THE COURT: Thank you, Mr. Jacobs.
8 Mr. Normand.
9 MR. NORMAND: Good afternoon, Your Honor. My
10 name is Ted Normand. I represent the SCO group. I'm going
11 to be alluding to some slides in binders that I will be
12 giving to opposing counsel.
13 THE COURT: All right. Thank you.
14 MR. NORMAND: Your Honor, this is Novell's second
15 motion to dismiss challenging SCO's claim for slander of
16 title. In its first motion, Novell argued that SCO had not
17 adequately pleaded the falsity or special damage elements
18 of its claim. The Court ruled on that motion in June, 2004
19 and held that SCO had adequately pleaded the falsity
20 element of the claim but had not adequately pleaded the
21 special damages.
22 Let me quote the relevant portion of the Court's
23 order. At Tab 2 the Court said, "Drawing all inferences in
24 favor of SCO, which this Court must do on a motion to
25 dismiss, this Court cannot conclude that SCO can present no
1 set of facts that would prove this claim."
2 SCO, thereafter, filed an Amended Complaint in
3 which it pleaded special damages. SCO's allegations
4 concerning the other elements of this claim remain the
5 same. Novell then filed its second motion to dismiss. In
6 that motion, Novell does not challenge the sufficiency of
7 the allegations of the malice element of SCO's claim. It
8 does not challenge the sufficiency of the allegations of
9 any other element of the claim.
10 Instead, Novell argues that where Novell has
11 asserted a colorable legal argument on the ownership issue,
12 it must follow that Novell, when it has made claims of
13 ownership, did not act with malice. Now, of course Novell
14 could have made that argument in its first motion to
15 dismiss and has not disputed that fact.
16 Novell's motion to dismiss fails for three
17 independent insufficient reasons. First, Novell waived the
18 argument in its second motion. Tab 3, Your Honor: Under
19 Rule 12(g), a party shall not thereafter make a motion
20 based on the defense or objection so omitted from its
21 initial motion to dismiss.
22 In tab 5, Your Honor: Under 12(g), the filing of
23 an Amended Complaint will not revive the right to present,
24 by motion, defenses that were available but were not
25 asserted in timely fashion prior to the amendment.
13 1 Novell has said in its briefing and has said
2 today that its motion was triggered by the Court's June,
3 2004 order, but nothing the Court said in that order
4 constitutes a new matter in the Amended Complaint, and
5 nothing precluded Novell from arguing that the falsity
6 issue affects the malice issue in its first motion to
8 The second reason that Novell's motion fails is
9 that SCO properly alleges the fact supporting a claim for
10 slander of title. Although SCO is obligated under Rule
11 9(b) to allege malice only generally, we have alleged
12 malice specifically. Novell argues today otherwise but
13 SCO's allegations of malice are plainly sufficient to
14 overcome the privileges that Novell has asserted.
15 Tab 8, Your Honor: SCO has alleged that Novell's
16 false public statements of ownership were made
17 intentionally, maliciously and with utter disregard for the
18 truthfulness thereof.
19 That is, of course, the conclusory language that
20 Mr. Jacobs referred to, but, in Tab 9, we go on in some
21 detail: SCO has alleged Novell's purpose and motivation
22 for making its false public statements of ownership. SCO
23 has alleged that Novell made its wrongful and injurious
24 statements to interfere with SCO's exercise of its rights,
25 rights with respect to UNIX and UNIXWare technologies, to
1 cause customers and potential customers of SCO to not do
2 business with SCO and to attempt, in bad faith, to block
3 SCO's ability to enforce its copyrights.
4 Tab 10, Your Honor: Novell suggests that SCO
5 must prove a certain level of malice to overcome the
6 asserted privileges.
7 At least Novell made that argument in its
8 briefing, but SCO has alleged that Novell acted with the
9 full range of malice, all sorts of malice that are
10 addressed in the line of precedent under the Utah Supreme
11 Court precedent. Those allegations satisfy the requisite
12 pleading standard and defeat the privileges that Novell has
14 The third reason Novell's motion fails is that
15 Novell's argument about the relationship between the
16 falsity element and the malice element are mistaken. In
17 fact, Novell cites no case to support the argument that a
18 party's assertion of ownership can preclude a finding of
19 malice. Instead, Novell argues again --
20 THE COURT: Your position is that even if there's
21 a real contest over ownership, you can still have malice;
22 is that right?
23 MR. NORMAND: That is our position, Your Honor,
24 and I'll address that argument in a little bit more detail
25 when I get to what Novell has called the merits of its
1 claim. I'm trying now to show that on its own terms, as a
2 motion to dismiss, the allegations are sufficient to defeat
3 the privileges that Novell has asserted.
4 Novell's main argument is that this Court has --
5 this is Novell's words -- that this Court has made an
6 objective determination that Novell's statements were made
7 in good faith. Now, we don't think that is a remotely
8 reasonable reading of this Court's June, 2004 order. This
9 Court concluded that SCO's Complaint presented a
10 substantial federal question regarding copyright ownership.
11 The Court did not even comment on Novell's state of mind
12 when it made its claims of ownership.
13 The Court did not address whether Novell actually
14 believed the copyrights had been transferred when it made
15 its claims of ownership, and, in fact, the Court declined
16 to consider such questions in the order.
17 Tab 15, Your Honor: The Court stated, "The
18 parties each have their own divergent interpretations of
19 the agreements at issue in this case. However, the Court
20 agrees with SCO and concludes that all of these arguments
21 as to the parties' understandings and interpretations of
22 the agreements would more properly be before the Court on
23 motions for summary judgment or trial."
24 We made these three independent points in our
25 opposition memorandum, and we believe that they defeat
1 Novell's motion to dismiss. Now, in response to these
2 arguments, Novell has essentially, and confirmed that
3 today, abandoned its motion to dismiss. Novell concedes
4 that it seeks conversion in order to avoid the application
5 of the waiver rule. Novell now argues that this Court
6 should convert the motion because, in the background
7 section of its opposition memorandum, SCO cited certain
8 materials on the issue of falsity, not on the issue of
10 This Court has broad discretion in determining
11 whether to convert, and if the Court does not rely on the
12 materials outside the pleadings, there is no basis to
13 convert. And we set forth those cases at Tab 19. I won't
14 dwell on this argument in light of Your Honor's comments,
15 but I will summarize our arguments as to why there is no
16 basis to convert, Your Honor.
17 First, as I mentioned, SCO expressly submitted
18 the materials in its opposition memorandum on the falsity
19 element, not as to malice. Novell, itself, attached
20 numerous materials to its moving papers. Novell repeatedly
21 says that SCO submitted the materials to try to show
22 Novell's malice, but that is not a fair reading of our
23 memorandum as we show in Tab 21, Your Honor.
24 By way of example, we stated in our memorandum
25 that to provide the context for its allegations, SCO
1 addresses here the numerous bases -- even before discovery
2 has begun in this case -- that compel the conclusion that
3 Novell's claim to ownership of the UNIX copyrights is
5 We also stated that the legal plausibility of a
6 party's argument for ownership does not even constitute
7 direct evidence of the party's good faith, let alone
8 resolve the question. We made clear that the Court need
9 not consider the materials SCO submitted in resolving
10 Novell's motion, and if there is any lingering doubt, let
11 me be clear that we are not relying on any material outside
12 the record in opposing the motion to dismiss.
13 I mean, in the argument I just made in opposition
14 to the motion to dismiss, I did not refer to any material
15 outside the record.
16 Very quickly, Your Honor, two other points. Case
17 law bears out Novell has not even filed a 56.1 statement.
18 There are cases pointing out that in a party's failure to
19 do that, there is no basis for a conversion, and there has
20 been no discovery. We cite the relevant precedent at Tabs
21 24 and 25 on those issues, Your Honor.
22 As to what Novell calls the merits, Your Honor,
23 again, I won't dwell, but Novell's motion, as revised,
24 fares no better. As we show in some detail in the slides,
25 each of Novell's two main arguments fail under the relevant
1 precedent. Let me summarize these arguments very quickly
2 in light of Your Honor's comments.
3 First, Novell continues to assert that its legal
4 arguments on falsity preclude a finding of malice as a
5 matter of law. This goes to the question Your Honor asked
6 earlier. Novell again insists that the Court has already
7 resolved that issue, that the Court has undertaken what
8 Novell says is an inquiry into Novell's subjective state of
9 mind. Again, that's not a fair reading of the June, 2004
11 More to the point, Your Honor, let me emphasize
12 how the necessary implications of Novell's argument are
13 unreasonable. If fact issues on falsity precluded a
14 finding of malice, then a slander-of-title claim could
15 survive summary judgment only by first proving the falsity
16 as a matter of law. In other words, a slander-of-title
17 plaintiff would have to prevail on a required partial
18 motion for summary judgment on the falsity issue in order
19 even to get to trial.
20 There is no basis in logic or the authority for
21 that argument, and, in fact, the cases Novell cites made
22 clear that a defendant can have a plausible argument as to
23 legal ownership and still act with malice. Novell's
24 second-made argument is that it is entitled to judgment as
25 a matter of law on the basis of the asserted privileges.
1 As Mr. Jacobs says, there is a complicated line
2 of authority on the question of what, exactly, malice is
3 under Utah law, where the Utah cases come out as to the
4 elements of a claim for slander of title. Suffice it to
5 say that, regardless of how the Court resolves those
6 issues -- and they need not be resolved now -- our
7 allegations are sufficient to overcome the privileges, and
8 even pre-discovery, the documents we already have defeat
9 those arguments that their privilege requires judgment as a
10 matter of law in their favor.
11 Novell concedes, for example, that common law
12 malice would be sufficient to defeat the privilege they
13 assert. Even in the absence of any discovery, we have
14 documents that demonstrate common law malice -- we can
15 demonstrate common law malice -- and certainly documents
16 from which the Court can infer that Novell acted with
17 malice, which is, of course, the standard that applies if
18 the Court deems it appropriate to convert this into a
19 motion for summary judgment.
20 One example is Novell's press release on June 6,
21 2003, which we quote at Tab 43, Your Honor. That press
22 release alone controverts the arguments that Mr. Jacobs
23 made today about how the APA operates. Novell's press
24 release states: "Amendment Number 2 to the APA was sent to
25 Novell last night by SCO. To Novell's knowledge, this
1 amendment is not present in Novell's files. The amendment
2 appears to support SCO's claim that the ownership of
3 certain copyrights for UNIX did transfer to SCO."
4 At an absolute minimum, Your Honor, the press
5 release constitutes one, and the admission that Amendment
6 Number 2 is relevant on the question of ownership, and,
7 two, evidence that Novell had acted recklessly in claiming
8 ownership because it was not even aware of the amendment.
9 Certainly the Court can infer those facts from that
11 As the Court noted in its June, 2004 order,
12 "Moreover, the press release may indicate that Novell
13 initially believed that the APA, as amended, appeared to be
14 a sufficient Section 204(a) writing for purposes of the
15 Copyright Act, i.e., that Amendment Number 2 confirms that
16 there had been a transfer of copyrights."
17 Novell tries to explain away the press release --
18 at least it did in its papers -- asking the Court to infer
19 certain unstated meaning to the words that Novell used in
20 the press release. One of the many reasons that argument
21 fails is that the Court must draw inferences in SCO's
22 favor. And, of course, Your Honor, it almost goes without
23 saying, the entire point of the press release was for
24 Novell to correct what it had previously and publicly said
25 about the APA.
21 1 It's important to note, Your Honor, that the
2 premise of Novell's own argument is that the Court can
3 infer, from the evidence on the question of falsity,
4 Novell's own malice. Those are inferences the Court draws
5 in SCO's favor. It follows from Novell's argument that the
6 evidence on falsity that is before the Court does bear on
7 the issue of malice. We have, we would submit, new
8 material that we have obtained, even since our opposition
9 memorandum, on the question of falsity.
10 Novell has taken issue with that evidence prior
11 to the Court's June, 2004 order and in both its memoranda
12 on its motion to dismiss. We have not had discovery, but
13 we have been able to obtain additional affidavits that
14 confirm that, one, the APA was intended to transfer the
15 copyrights; and, two, Amendment Number 2 to the APA
16 confirms that the transfer was made. And, again, if Your
17 Honor likes, I can walk through that testimony.
18 One final point, Your Honor.
19 THE COURT: That's here under several of your
21 MR. NORMAND: Yes, Your Honor. It is at Tabs 54,
22 55 and 56. The testimony summarized at Tabs 55 and 56 is
23 new. We have obtained it since the time of our opposition
25 Given Mr. Jacobs' focus in his argument, let me
1 address, in some detail, the May, 2003 press release that
2 Novell relies on so heavily. Tab 46, Your Honor: Novell
3 says the press release demonstrates that Novell could not
4 have disseminated a knowing falsehood. In that press
5 release, according to Novell, Novell confirmed that SCO had
6 recently asked Novell to transfer the copyrights to SCO.
7 Novell says SCO asked for a transfer, Novell refused, and
8 then SCO asserted that it owns the copyrights anyway.
9 Then Tab 47, Your Honor, Novell relies, as they
10 have again today, on that press release above all other
11 evidence. Indeed, reviewing the record, one single
12 uncontroverted fact is enough to defeat SCO's claim that
13 SCO asked Novell to transfer to the copyrights to it. Now,
14 as an initial matter, we are in a Catch-22. Novell claims
15 that we have not controverted their evidence on malice. We
16 have not submitted material on malice. We have submitted
17 material on falsehood.
18 Tab 48, Your Honor: Novell does not present any
19 evidence that SCO had actually made any such request for a
20 transfer. As to SCO's supposed request, the press release
21 is inadmissible hearsay. As Novell says, only admissible
22 evidence can be heard on summary judgment.
23 And, again, we have the document that Novell
24 purports to characterize, and it shows that SCO expressly
25 asked Novell to clarify that in the APA the parties did
1 transfer all right, title and interest. In short, the
2 document on which Novell places its heaviest reliance is
3 inadmissible and mischaracterizes the actual facts of SCO's
4 communication with Novell.
5 One final point, Your Honor. Tab 58 will
6 summarize some of the abundant case law on the issue of
7 malice. Although the Court may address malice as a
8 question of law, in the absence of any evidence, such
9 evidence does create a classic fact issue. The issue of
10 malice is ordinarily a factual issue. Malice is a question
11 of intent that involves many intangible factors, such as
12 witness credibility, which the Court has seen none of, that
13 are best left to the consideration of a fact finder after a
14 full trial.
15 And as to public statements, in particular,
16 malice calls into question a defendant's state of mind,
17 about which we know virtually nothing, or about which we
18 have had no discovery, and does not lend itself readily to
19 summary judgment.
20 In sum, Your Honor, Novell's motion fails as a
21 motion to dismiss. There is no basis to convert it, and
22 even the pre-discovery evidence defeats it, to the extent
23 the Court wants to treat it as a motion for summary
25 THE COURT: Thank you, Mr. Normand.
24 1 Reply, Mr. Jacobs?
2 MR. JACOBS: There are a couple of
3 oversimplifications going on here. One is that falsity and
4 malice don't intersect and have no overlap. I think there
5 are a couple of reasons why that's an important argument
6 for SCO to make. One is the conversion argument. Having
7 put this in a section on falsity of their brief, SCO now
8 argues, well, falsity has nothing to do with malice and so
9 don't convert a motion on malice to a motion for summary
10 judgment. We didn't mean it, Your Honor. It wasn't really
12 But the law is not so simple, and malice is not
13 so simple, as many of the cases we cited show. Our
14 argument is not so simple. Our argument is not simply that
15 we had a good faith basis. Your order demonstrates our
16 good faith basis for our ownership argument. Our argument
17 is, look at the record of the communications back and forth
18 between the parties. Look at the thoughtfulness of those
19 communications. Look at the fact that Novell asked SCO, do
20 you have any basis, under Amendment Number 2, for believing
21 that the copyrights were required? SCO was silent.
22 In each case, we're relying on evidence, now
23 characterized as inadmissible, that SCO relied on in its
24 Complaint. The press release, for example, that says --
25 and SCO asked us to transfer the copyright -- is referred
1 to in SCO's Complaint. It can't be inadmissible. It's
2 part of the Complaint for purposes of the motion to
4 What the -- what a detailed review of the
5 correspondence back and forth shows, coupled with the fact
6 that the Court has held, has found, preliminarily, to be
7 sure -- and I'm cautious about over relying on an initial
8 order -- but that's what triggered the motion was, how can
9 we have malice when there's a real horse race here? Take
10 the correspondence back and forth. Take the points that
11 Novell made to SCO that were not responded to during that
12 period. Couple that with a review of the Asset Purchase
13 Agreement and the conclusion that the Asset Purchase
14 Agreement excluded copyrights.
15 That is enough to grant a motion to dismiss or,
16 if converted, a motion for summary judgment.
17 Let me flip Mr. Normand's opening argument on its
18 head. If ever there was a case where a motion to dismiss
19 could be granted on a slander-of-title claim, if ever there
20 was a case where litigants could head off getting into each
21 others' subjective, legally-informed, legally-advised state
22 of mind about a legal dispute, this is it. There is no
23 evidence of malice in the tenor or content of the
24 back-and-forth between the parties. There's a real horse
25 race on ownership. We should not have to go further and
1 find out why people said what they said.
2 Thank you, Your Honor.
3 THE COURT: Thank you.
4 MR. NORMAND: With Your Honor's permission, may I
5 speak briefly?
6 THE COURT: Sure. Then he gets to speak again
7 because it's his motion.
8 MR. NORMAND: Of course, Your Honor. Just a few
9 points very quickly. We did say, expressly, in our
10 opposition memorandum that falsity and malice are related.
11 We just don't think they are related nearly as closely as
12 Novell argues, and we think the cases show that they are
13 not related that closely.
14 Second, we do not believe that there is a horse
15 race or a real contest on the question of ownership. Under
16 California law, the extrinsic evidence of the sort that we
17 have already presented creates ambiguity in the agreement.
18 There clearly is ambiguity, and the extrinsic evidence is
19 not ambiguous. We think the documents argue they are
20 ambiguous, as the Court acknowledged. The extrinsic
21 evidence is clear. Novell's own chief negotiator says, "We
22 intended to transfer the copyrights in the APA." And our
23 position is that Amendment Number 2 clarifies that intent.
24 Finally, Your Honor, Mr. Jacobs argues as to the
25 tenor or the substance of the claims of ownership
1 themselves. We explained in our slides why there is no
2 support for that argument in the case law. The question is
3 Novell's state of mind when it made assertions. Novell
4 can't essentially put up the words it used in claiming
5 ownership as a shield to an inquiry into its state of mind.
6 In fact, Novell's own argument is that this Court has
7 already made an inquiry into Novell's state of mind in the
8 June, 2004 order. Novell concedes that there has to be
9 some assessment of its state of mind. Thank you, Your
11 THE COURT: Thank you.
12 Mr. Jacobs?
13 MR. JACOBS: I think the issue is joined, Your
14 Honor. I think you have it.
15 THE COURT: Thank you. I'll take the motion
16 under advisement and get a ruling out hopefully not too far
17 off. Thank you all. Court will be in recess.
2 REPORTER'S CERTIFICATE
3 STATE OF UTAH )
4 ) ss.
5 COUNTY OF SALT LAKE)
7 I, REBECCA JANKE, do hereby certify that I
8 am a Certified Court Reporter for the State of Utah;
9 That as such Reporter I attended the hearing
10 of the foregoing matter on May 25, 2005, and
11 thereat reported in Stenotype all of the testimony
12 and proceedings had, and caused said notes to be
13 transcribed into typewriting, and the foregoing pages
14 numbered 1 through 28 constitute a full, true and
15 correct record of the proceedings transcribed.
16 That I am not of kin to any of the parties
17 and have no interest in the outcome of the matter;
18 And hereby set my hand and seal this 20th
19 day of July, 2005.
25 REBECCA JANKE, CSR, RMR