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May 25, 2005 Hearing Transcript, SCO v. Novell - no line numbers
Sunday, May 10 2009 @ 05:57 PM EDT

Here is the transcript of the May 25, 2005 hearing in SCO v. Novell, this time with line numbers removed, for the benefit of those who rely on screen readers.

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

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

SCO GROUP, et al.,
Plaintiffs,
-vs-
NOVELL, INC.,
Defendant.

2:03-CV-139 K

BEFORE THE HONORABLE DALE A. KIMBALL

DATE: MAY 25, 2005

REPORTER'S TRANSCRIPT OF PROCEEDINGS

ARGUMENT ON MOTION

Reporter: REBECCA JANKE, CSR, RMR

1

A P P E A R A N C E S

FOR THE PLAINTIFF: BOIES, SCHILLER & FLEXNER
BY: EDWARD J. NORMANDD, ESQ.
SEAN ESKOVITZ, ESQ.
[address]
FOR THE DEFENDANT: MORRISON & FOERSTER
BY: MICHAEL A. JACOBS, ESQ.
[address]

2

MAY 25, 2005 SALT LAKE CITY, UTAH

P R O C E E D I N G S

* * *

*THE COURT:* We're here this afternoon in the matter of the SCO Group, Inc., vs.
Novell, Inc., 2:04-CV-139. Plaintiff is represented by Mr. Brent Hatch, Mr. Sean
Eskovitz, Mr. Ed Normand, correct?

*MR. HATCH:* Correct, Your Honor.

*THE COURT:* Defendant by Mr. Michael Jacobs, Mr. Thomas Karrenberg and Mr. John
Mullen.

*MR. KARRENBERG:* That's correct, Your Honor.

*THE COURT:* This is defendants' motion to dismiss the Amended Complaint, correct?

*MR. KARRENBERG:* Correct.

*MR. HATCH:* Yes, Your Honor.

*MR. KARRENBERG:* Mr. Jacobs will handle the presentation, Your Honor.

*THE COURT:* Mr. Jacobs.

Who's going to argue for the plaintiff?

*MR. HATCH:* Mr. Normand will, Your Honor.

*THE COURT:* Mr. Normand.

Go ahead, Mr. Jacobs. There was some talk in one of the briefs about treating
this as a motion for summary judgment?

*MR. JACOBS:* Yes, Your Honor.

3

*THE COURT:* That seems premature to me. I'm not inclined to do that. I guess
somebody could try to talk me into it briefly.

*MR. JACOBS:* I'll try briefly, Your Honor. They submitted documents outside of
the record, of the Complaint. The rules are clear. The Tenth Circuit has been
very strong on this, that if you go outside the record and you submit additional
evidence, you risk conversion of the motion into summary judgment. But it is
your call, Your Honor. I think you have a lot of discretion in this area and,
given your initial inclination, I think I'll argue this as if it's a motion to
dismiss.

*THE COURT:* Why don't you do that. Take a minute at the end and try to persuade
me otherwise.

*MR. JACOBS:* First, Your Honor, I want to note the overlap of the issue in this
case with the SCO v. IBM case that you are handling. I believe Your Honor will
recall that there is a -- that the same copyright ownership issue that underlies
the slander-of-title claim here is at issue in SCO v. IBM, and, in the IBM case,
IBM moved for summary judgment. In your order of February 9, you noted that that
issue was out, and I just wanted to make sure we keep you informed of the
crossovers here.

*THE COURT:* I do know something about that.

*MR. JACOBS:* Yes. You noted in your order, first

4

of all that SCO had made a -- that there was a plethora of public statements
concerning IBM's and others' infringement of SCO's purported copyrights to the
UNIX software. And then you observed that SCO, in its briefing, chose to
cavalierly ignore IBM's claims that SCO could not create a disputed fact
regarding whether it even owned the relevant copyrights. And this is since we
filed the motion to dismiss. There was a motion for summary judgment on
ownership, and SCO could not create a disputed issue of fact on ownership.

Looking at our motion, Your Honor, it seems to me, just stepping back from the
briefing, there are two things that leap out. One is that, in trying to argue
that they have well-pleaded the issue of malice, SCO has shifted gears in their
theory of ownership.

On the original motion to dismiss, they were arguing the Asset Purchase
Agreement plus Amendment Number 2. And you parsed the language of those
carefully in your original order and gave us your views on what they meant. And
what Your Honor said about the Asset Purchase Agreement was that it was
undisputed that it, standing alone, didn't transfer copyright ownership. In
arguing that their Complaint is well-pleaded, what SCO has done, notwithstanding
that reading of the underlying documents that they attached to their Complaint,

5

what they have done is gone back and said that the Asset Purchase Agreement
transferred copyright ownership, and that's why their Complaint is well-pleaded,
that's why they can show malice.

That they have had to do this I think tells us that there are problems with the
pleading in their Complaint. The basic issue on the motion to dismiss side of
this, I think, is this: If the Asset Purchase Agreement indisputably didn't
transfer ownership, and if they can't -- and if they are still arguing that it
did, does it suffice, for the purposes of an allegation of malice, merely to say
"malice" and attach other malice-like words to it?

That can't be the standard on a motion to dismiss when there is a record like
the record you have before you on this motion. It's a well-pleaded Complaint
that we look at, and we construe only reasonable inferences in their favor. And
if what they have to do to argue to you that we acted maliciously in asserting
that -- we, Novell, acted maliciously in asserting that we believe we owned the
copyrights, is point to an agreement that you have already construed and said
it's undisputed that it doesn't transfer copyright ownership, then I don't see
how they overcome their pleading burden.

I call it a pleading burden, but I think really

6

what we are saying is, if you look at this Complaint, the allegations are
controverted by the very documents that they attach to their Complaint, and that
doesn't pass pleading muster.

So, the first point, the first title of the point was, they have gone back and
they are now looking at the Asset Purchase Agreement and saying that, on a
stand-alone basis, transferred copyright ownership. They say Amendment Number 2
was merely confirmatory. The documents don't support that. To argue it, to base
your allegations on it, is to make allegations that are controverted by the
underlying documents.

The second point that leaps out is this: In our opening memorandum on this
motion, we pointed out that part of the back-and-forth between the parties was a
letter from Novell to SCO in which Novell says, "The fact that you came to us
and asked us to transfer the copyrights to you, and we refused, tells us that we
own the copyrights."

We flagged that in several places in our opening brief. SCO's opposition doesn't
even treat that issue. They don't mention this once, and so our basic -- at a
very simple intuitive level, our argument to you is this: How can it be that if
they came to us and asked us to transfer to them the copyrights, they can now
turn around and say it's malicious for us to claim that we own the copyrights?

7

The two don't go together, and, once again, what we're saying is, this
allegation of malice is controverted by the underlying record, the record that's
within the four corners of the Complaint. You don't need to go outside the
Complaint. The letter is a letter they averted to. It's properly in the record
on the motion to dismiss.

So we have two gut-level instincts or two gut-level points to make on this
motion to dismiss. One. If we have a meritorious argument on ownership, then
just saying malice can't controvert the basis for that, where the basis for that
appears in the four corners on the Complaint. And, number 2, taking that a step
further, where the four corners of the Complaint show that they came to Novell
and asked Novell to transfer copyright ownership to SCO, it can't be malicious
for Novell to say, having not transferred copyright ownership in response to
that request, it can't be malicious for Novell to say, "We own the copyrights."

And no amount of argument about the standard on a motion to dismiss will
overcome that basic controversion of their essential theory. That's the core of
the argument on the motion to dismiss. We went off and did some exegesis on
conditional privileges, on the proper standard on malice, but I don't think you
need to reach a lot of those issues in order to decide the motion. I'm happy to

8

entertain questions and try and pars where the law is on the motion to dismiss.

I think that's -- just maybe one note on it. I think the basic issue between the
parties is whether the restatement applies, and if the restatement applies, then
the conditional privileges apply and then we have this argument from structure
and logic that the standard on malice has to be higher to overcome the
conditional privileges because, as Your Honor noted in the original order,
knowing falsehood is an element of a claim of slander of title. So to say
knowing falsehood is a sort of recursive problem here. If it's just knowing
falsehood is sufficient to overcome the conditional privileges, then we haven't
done anything to a defendant to protect the interests that the conditional
privileges protect if we just leave the standard at knowing falsehood.

One reason to think of this as a motion for summary judgment is you then don't
have to worry about our successive motion to dismiss issue, which they briefed
-- the parties briefed well. I would note a couple of things, though, on the
successive motion to dismiss issue. One is that in response to your -- to your
earlier order's mandate that they clarify their pleading of special damages,
their clarified pleading highlighted the availability to us of a conditional
privilege because their point on pleading

9

special damages was that the -- that Novell's assertion of ownership caused
people that they were communicating with not to take licenses.

And our point is, on a conditional privilege, that is exactly right. These are
interested parties in the issue of ownership. We properly communicated with
them. We didn't overly communicate with them. We are, therefore, eligible for
the conditional privilege, and we cite their additional pleading of special
damages. I think one reason to treat this as a motion for summary judgment, Your
Honor, is, I believe the following is true. This is not a slander-of-title case.
It is, at best, a declaratory judgment of copyright ownership.

That's what they should have pled originally. That's what they certainly should
have pled in response not only to our original motion but to your order. Your
order should have said to SCO -- if I were in SCO's shoes, and I get an order,
which the order says, "Novell has some persuasive arguments here," how then do I
turn around and just refile allegations of malice? How do I satisfy my Rule 11
obligations to just say malice, when the Court's order; well reasoned,
articulate, detailed, says persuasive arguments?

And that's the basic problem here. However you kill this claim, whether on a
motion to dismiss or a motion

10

for summary judgment, this is not a slander-of-title case, and SCO must have
some strategic reason for trying to treat it as a slander-of-title case. I think
they want the community out there to believe that they have a slam dunk on
copyright ownership and so if they plead it as a declaratory judgment of
copyright ownership, they must feel they are going to be conceding what we all
know to be true, which is that there is a real horse race here of who owns these
copyrights.

And I don't think any of us are really going to know, really going to know in a
positive sense, until you rule on the ultimate question of who owns the
copyrights. Again, though --

*THE COURT:* You say I can grant the motion to dismiss without even reaching
that question, right?

*MR. JACOBS:* That's exactly right. You can grant the motion to dismiss the
slander-of-title claim, and our argument to you is you should do it with
prejudice because they have had several chances to plead it right. What it
really is -- and to use this courtroom for some outside strategic purpose is not
something that should be countenanced.

It's a declaratory judgment of copyright ownership at best. They didn't plead it
that way. The slander-of-title claim should be dismissed. Maybe it

11

should be dismissed on both theories. They converted it to a summary judgment.
They haven't created a disputed issue of fact, but if we didn't convert it to a
summary judgment, looking within the four corners of the Complaint, their
allegations of malice are controverted within those four corners. Thank you.

*THE COURT:* Thank you, Mr. Jacobs.

Mr. Normand.

*MR. NORMAND:* Good afternoon, Your Honor. My name is Ted Normand. I represent
the SCO group. I'm going to be alluding to some slides in binders that I will be
giving to opposing counsel.

*THE COURT:* All right. Thank you.

*MR. NORMAND:* Your Honor, this is Novell's second motion to dismiss challenging
SCO's claim for slander of title. In its first motion, Novell argued that SCO
had not adequately pleaded the falsity or special damage elements of its claim.
The Court ruled on that motion in June, 2004 and held that SCO had adequately
pleaded the falsity element of the claim but had not adequately pleaded the
special damages.

Let me quote the relevant portion of the Court's order. At Tab 2 the Court said,
"Drawing all inferences in favor of SCO, which this Court must do on a motion to
dismiss, this Court cannot conclude that SCO can present no

12

set of facts that would prove this claim."

SCO, thereafter, filed an Amended Complaint in which it pleaded special damages.
SCO's allegations concerning the other elements of this claim remain the same.
Novell then filed its second motion to dismiss. In that motion, Novell does not
challenge the sufficiency of the allegations of the malice element of SCO's
claim. It does not challenge the sufficiency of the allegations of any other
element of the claim.

Instead, Novell argues that where Novell has asserted a colorable legal argument
on the ownership issue, it must follow that Novell, when it has made claims of
ownership, did not act with malice. Now, of course Novell could have made that
argument in its first motion to dismiss and has not disputed that fact.

Novell's motion to dismiss fails for three independent insufficient reasons.
First, Novell waived the argument in its second motion. Tab 3, Your Honor: Under
Rule 12(g), a party shall not thereafter make a motion based on the defense or
objection so omitted from its initial motion to dismiss.

In tab 5, Your Honor: Under 12(g), the filing of an Amended Complaint will not
revive the right to present, by motion, defenses that were available but were
not asserted in timely fashion prior to the amendment.

13

Novell has said in its briefing and has said today that its motion was triggered
by the Court's June, 2004 order, but nothing the Court said in that order
constitutes a new matter in the Amended Complaint, and nothing precluded Novell
from arguing that the falsity issue affects the malice issue in its first motion
to dismiss.

The second reason that Novell's motion fails is that SCO properly alleges the
fact supporting a claim for slander of title. Although SCO is obligated under
Rule 9(b) to allege malice only generally, we have alleged malice specifically.
Novell argues today otherwise but SCO's allegations of malice are plainly
sufficient to overcome the privileges that Novell has asserted.

Tab 8, Your Honor: SCO has alleged that Novell's false public statements of
ownership were made intentionally, maliciously and with utter disregard for the
truthfulness thereof.

That is, of course, the conclusory language that Mr. Jacobs referred to, but, in
Tab 9, we go on in some detail: SCO has alleged Novell's purpose and motivation
for making its false public statements of ownership. SCO has alleged that Novell
made its wrongful and injurious statements to interfere with SCO's exercise of
its rights, rights with respect to UNIX and UNIXWare technologies, to

14

cause customers and potential customers of SCO to not do business with SCO and
to attempt, in bad faith, to block SCO's ability to enforce its copyrights.

Tab 10, Your Honor: Novell suggests that SCO must prove a certain level of
malice to overcome the asserted privileges.

At least Novell made that argument in its briefing, but SCO has alleged that
Novell acted with the full range of malice, all sorts of malice that are
addressed in the line of precedent under the Utah Supreme Court precedent. Those
allegations satisfy the requisite pleading standard and defeat the privileges
that Novell has asserted.

The third reason Novell's motion fails is that Novell's argument about the
relationship between the falsity element and the malice element are mistaken. In
fact, Novell cites no case to support the argument that a party's assertion of
ownership can preclude a finding of malice. Instead, Novell argues again --

*THE COURT:* Your position is that even if there's a real contest over
ownership, you can still have malice; is that right?

*MR. NORMAND:* That is our position, Your Honor, and I'll address that argument
in a little bit more detail when I get to what Novell has called the merits of its

15

claim. I'm trying now to show that on its own terms, as a motion to dismiss, the
allegations are sufficient to defeat the privileges that Novell has asserted.

Novell's main argument is that this Court has -- this is Novell's words -- that
this Court has made an objective determination that Novell's statements were
made in good faith. Now, we don't think that is a remotely reasonable reading of
this Court's June, 2004 order. This Court concluded that SCO's Complaint
presented a substantial federal question regarding copyright ownership. The
Court did not even comment on Novell's state of mind when it made its claims of
ownership.

The Court did not address whether Novell actually believed the copyrights had
been transferred when it made its claims of ownership, and, in fact, the Court
declined to consider such questions in the order.

Tab 15, Your Honor: The Court stated, "The parties each have their own divergent
interpretations of the agreements at issue in this case. However, the Court
agrees with SCO and concludes that all of these arguments as to the parties'
understandings and interpretations of the agreements would more properly be
before the Court on motions for summary judgment or trial."

We made these three independent points in our opposition memorandum, and we
believe that they defeat

16

Novell's motion to dismiss. Now, in response to these arguments, Novell has
essentially, and confirmed that today, abandoned its motion to dismiss. Novell
concedes that it seeks conversion in order to avoid the application of the
waiver rule. Novell now argues that this Court should convert the motion
because, in the background section of its opposition memorandum, SCO cited
certain materials on the issue of falsity, not on the issue of malice.

This Court has broad discretion in determining whether to convert, and if the
Court does not rely on the materials outside the pleadings, there is no basis to
convert. And we set forth those cases at Tab 19. I won't dwell on this argument
in light of Your Honor's comments, but I will summarize our arguments as to why
there is no basis to convert, Your Honor.

First, as I mentioned, SCO expressly submitted the materials in its opposition
memorandum on the falsity element, not as to malice. Novell, itself, attached
numerous materials to its moving papers. Novell repeatedly says that SCO
submitted the materials to try to show Novell's malice, but that is not a fair
reading of our memorandum as we show in Tab 21, Your Honor.

By way of example, we stated in our memorandum that to provide the context for
its allegations, SCO

17

addresses here the numerous bases -- even before discovery has begun in this
case -- that compel the conclusion that Novell's claim to ownership of the UNIX
copyrights is meritless.

We also stated that the legal plausibility of a party's argument for ownership
does not even constitute direct evidence of the party's good faith, let alone
resolve the question. We made clear that the Court need not consider the
materials SCO submitted in resolving Novell's motion, and if there is any
lingering doubt, let me be clear that we are not relying on any material outside
the record in opposing the motion to dismiss.

I mean, in the argument I just made in opposition to the motion to dismiss, I
did not refer to any material outside the record.

Very quickly, Your Honor, two other points. Case law bears out Novell has not
even filed a 56.1 statement. There are cases pointing out that in a party's
failure to do that, there is no basis for a conversion, and there has been no
discovery. We cite the relevant precedent at Tabs 24 and 25 on those issues,
Your Honor.

As to what Novell calls the merits, Your Honor, again, I won't dwell, but
Novell's motion, as revised, fares no better. As we show in some detail in the
slides, each of Novell's two main arguments fail under the relevant

18

precedent. Let me summarize these arguments very quickly in light of Your
Honor's comments.

First, Novell continues to assert that its legal arguments on falsity preclude a
finding of malice as a matter of law. This goes to the question Your Honor asked
earlier. Novell again insists that the Court has already resolved that issue,
that the Court has undertaken what Novell says is an inquiry into Novell's
subjective state of mind. Again, that's not a fair reading of the June, 2004 order.

More to the point, Your Honor, let me emphasize how the necessary implications
of Novell's argument are unreasonable. If fact issues on falsity precluded a
finding of malice, then a slander-of-title claim could survive summary judgment
only by first proving the falsity as a matter of law. In other words, a
slander-of-title plaintiff would have to prevail on a required partial motion
for summary judgment on the falsity issue in order even to get to trial.

There is no basis in logic or the authority for that argument, and, in fact, the
cases Novell cites made clear that a defendant can have a plausible argument as
to legal ownership and still act with malice. Novell's second-made argument is
that it is entitled to judgment as a matter of law on the basis of the asserted
privileges.

19

As Mr. Jacobs says, there is a complicated line of authority on the question of
what, exactly, malice is under Utah law, where the Utah cases come out as to the
elements of a claim for slander of title. Suffice it to say that, regardless of
how the Court resolves those issues -- and they need not be resolved now -- our
allegations are sufficient to overcome the privileges, and even pre-discovery,
the documents we already have defeat those arguments that their privilege
requires judgment as a matter of law in their favor.

Novell concedes, for example, that common law malice would be sufficient to
defeat the privilege they assert. Even in the absence of any discovery, we have
documents that demonstrate common law malice -- we can demonstrate common law
malice -- and certainly documents from which the Court can infer that Novell
acted with malice, which is, of course, the standard that applies if the Court
deems it appropriate to convert this into a motion for summary judgment.

One example is Novell's press release on June 6, 2003, which we quote at Tab 43,
Your Honor. That press release alone controverts the arguments that Mr. Jacobs
made today about how the APA operates. Novell's press release states: "Amendment
Number 2 to the APA was sent to Novell last night by SCO. To Novell's knowledge,
this

20

amendment is not present in Novell's files. The amendment appears to support
SCO's claim that the ownership of certain copyrights for UNIX did transfer to SCO."

At an absolute minimum, Your Honor, the press release constitutes one, and the
admission that Amendment Number 2 is relevant on the question of ownership, and,
two, evidence that Novell had acted recklessly in claiming ownership because it
was not even aware of the amendment. Certainly the Court can infer those facts
from that evidence.

As the Court noted in its June, 2004 order, "Moreover, the press release may
indicate that Novell initially believed that the APA, as amended, appeared to be
a sufficient Section 204(a) writing for purposes of the Copyright Act, i.e.,
that Amendment Number 2 confirms that there had been a transfer of copyrights."

Novell tries to explain away the press release -- at least it did in its papers
-- asking the Court to infer certain unstated meaning to the words that Novell
used in the press release. One of the many reasons that argument fails is that
the Court must draw inferences in SCO's favor. And, of course, Your Honor, it
almost goes without saying, the entire point of the press release was for Novell
to correct what it had previously and publicly said about the APA.

21

It's important to note, Your Honor, that the premise of Novell's own argument is
that the Court can infer, from the evidence on the question of falsity, Novell's
own malice. Those are inferences the Court draws in SCO's favor. It follows from
Novell's argument that the evidence on falsity that is before the Court does
bear on the issue of malice. We have, we would submit, new material that we have
obtained, even since our opposition memorandum, on the question of falsity.

Novell has taken issue with that evidence prior to the Court's June, 2004 order
and in both its memoranda on its motion to dismiss. We have not had discovery,
but we have been able to obtain additional affidavits that confirm that, one,
the APA was intended to transfer the copyrights; and, two, Amendment Number 2 to
the APA confirms that the transfer was made. And, again, if Your Honor likes, I
can walk through that testimony.

One final point, Your Honor.

*THE COURT:* That's here under several of your Tabs?

*MR. NORMAND:* Yes, Your Honor. It is at Tabs 54, 55 and 56. The testimony
summarized at Tabs 55 and 56 is new. We have obtained it since the time of our
opposition memorandum.

Given Mr. Jacobs' focus in his argument, let me

22

address, in some detail, the May, 2003 press release that Novell relies on so
heavily. Tab 46, Your Honor: Novell says the press release demonstrates that
Novell could not have disseminated a knowing falsehood. In that press release,
according to Novell, Novell confirmed that SCO had recently asked Novell to
transfer the copyrights to SCO. Novell says SCO asked for a transfer, Novell
refused, and then SCO asserted that it owns the copyrights anyway.

Then Tab 47, Your Honor, Novell relies, as they have again today, on that press
release above all other evidence. Indeed, reviewing the record, one single
uncontroverted fact is enough to defeat SCO's claim that SCO asked Novell to
transfer to the copyrights to it. Now, as an initial matter, we are in a
Catch-22. Novell claims that we have not controverted their evidence on malice.
We have not submitted material on malice. We have submitted material on falsehood.

Tab 48, Your Honor: Novell does not present any evidence that SCO had actually
made any such request for a transfer. As to SCO's supposed request, the press
release is inadmissible hearsay. As Novell says, only admissible evidence can be
heard on summary judgment.

And, again, we have the document that Novell purports to characterize, and it
shows that SCO expressly asked Novell to clarify that in the APA the parties did

23

transfer all right, title and interest. In short, the document on which Novell
places its heaviest reliance is inadmissible and mischaracterizes the actual
facts of SCO's communication with Novell.

One final point, Your Honor. Tab 58 will summarize some of the abundant case law
on the issue of malice. Although the Court may address malice as a question of
law, in the absence of any evidence, such evidence does create a classic fact
issue. The issue of malice is ordinarily a factual issue. Malice is a question
of intent that involves many intangible factors, such as witness credibility,
which the Court has seen none of, that are best left to the consideration of a
fact finder after a full trial.

And as to public statements, in particular, malice calls into question a
defendant's state of mind, about which we know virtually nothing, or about which
we have had no discovery, and does not lend itself readily to summary judgment.

In sum, Your Honor, Novell's motion fails as a motion to dismiss. There is no
basis to convert it, and even the pre-discovery evidence defeats it, to the
extent the Court wants to treat it as a motion for summary judgment.

*THE COURT:* Thank you, Mr. Normand.

24

Reply, Mr. Jacobs?

*MR. JACOBS:* There are a couple of oversimplifications going on here. One is
that falsity and malice don't intersect and have no overlap. I think there are a
couple of reasons why that's an important argument for SCO to make. One is the
conversion argument. Having put this in a section on falsity of their brief, SCO
now argues, well, falsity has nothing to do with malice and so don't convert a
motion on malice to a motion for summary judgment. We didn't mean it, Your
Honor. It wasn't really important.

But the law is not so simple, and malice is not so simple, as many of the cases
we cited show. Our argument is not so simple. Our argument is not simply that we
had a good faith basis. Your order demonstrates our good faith basis for our
ownership argument. Our argument is, look at the record of the communications
back and forth between the parties. Look at the thoughtfulness of those
communications. Look at the fact that Novell asked SCO, do you have any basis,
under Amendment Number 2, for believing that the copyrights were required? SCO
was silent.

In each case, we're relying on evidence, now characterized as inadmissible, that
SCO relied on in its Complaint. The press release, for example, that says -- and
SCO asked us to transfer the copyright -- is referred

25

to in SCO's Complaint. It can't be inadmissible. It's part of the Complaint for
purposes of the motion to dismiss.

What the -- what a detailed review of the correspondence back and forth shows,
coupled with the fact that the Court has held, has found, preliminarily, to be
sure -- and I'm cautious about over relying on an initial order -- but that's
what triggered the motion was, how can we have malice when there's a real horse
race here? Take the correspondence back and forth. Take the points that Novell
made to SCO that were not responded to during that period. Couple that with a
review of the Asset Purchase Agreement and the conclusion that the Asset
Purchase Agreement excluded copyrights.

That is enough to grant a motion to dismiss or, if converted, a motion for
summary judgment.

Let me flip Mr. Normand's opening argument on its head. If ever there was a case
where a motion to dismiss could be granted on a slander-of-title claim, if ever
there was a case where litigants could head off getting into each others'
subjective, legally-informed, legally-advised state of mind about a legal
dispute, this is it. There is no evidence of malice in the tenor or content of
the back-and-forth between the parties. There's a real horse race on ownership.
We should not have to go further and

26

find out why people said what they said.

Thank you, Your Honor.

*THE COURT:* Thank you.

*MR. NORMAND:* With Your Honor's permission, may I speak briefly?

*THE COURT:* Sure. Then he gets to speak again because it's his motion.

*MR. NORMAND:* Of course, Your Honor. Just a few points very quickly. We did
say, expressly, in our opposition memorandum that falsity and malice are
related. We just don't think they are related nearly as closely as Novell
argues, and we think the cases show that they are not related that closely.

Second, we do not believe that there is a horse race or a real contest on the
question of ownership. Under California law, the extrinsic evidence of the sort
that we have already presented creates ambiguity in the agreement. There clearly
is ambiguity, and the extrinsic evidence is not ambiguous. We think the
documents argue they are ambiguous, as the Court acknowledged. The extrinsic
evidence is clear. Novell's own chief negotiator says, "We intended to transfer
the copyrights in the APA." And our position is that Amendment Number 2
clarifies that intent.

Finally, Your Honor, Mr. Jacobs argues as to the tenor or the substance of the
claims of ownership

27





themselves. We explained in our slides why there is no support for that argument
in the case law. The question is Novell's state of mind when it made assertions.
Novell can't essentially put up the words it used in claiming ownership as a
shield to an inquiry into its state of mind. In fact, Novell's own argument is
that this Court has already made an inquiry into Novell's state of mind in the
June, 2004 order. Novell concedes that there has to be some assessment of its
state of mind. Thank you, Your Honor.

*THE COURT:* Thank you.

Mr. Jacobs?

*MR. JACOBS:* I think the issue is joined, Your Honor. I think you have it.

*THE COURT:* Thank you. I'll take the motion under advisement and get a ruling
out hopefully not too far off. Thank you all. Court will be in recess.

28

REPORTER'S CERTIFICATE
STATE OF UTAH
COUNTY OF SALT LAKE)

I, REBECCA JANKE, do hereby certify that I am a Certified Court Reporter for the
State of Utah;

That as such Reporter I attended the hearing of the foregoing matter on May 25,
2005, and thereat reported in Stenotype all of the testimony and proceedings
had, and caused said notes to be transcribed into typewriting, and the foregoing
pages numbered 1 through 28 constitute a full, true and correct record of the
proceedings transcribed.

That I am not of kin to any of the parties and have no interest in the outcome
of the matter;

And hereby set my hand and seal this 20th day of July, 2005.

REBECCA JANKE, CSR, RMR

29


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