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More darts - SCO's opposition to Daubert hearings and to Chatlos, Michels testimony
Saturday, February 20 2010 @ 03:18 PM EST

Can you believe there's more? Five more, to be exact. SCO has filed two more oppositions to Novell's motions in limine, specifically their motion to exclude testimony from Ed Chatlos, Burt Levine, Kim Madsen, and Doug Michels, and they also filed their opposition to Novell's motions for Daubert hearings to disqualify SCO's experts Christine Botosan, Dr. Gary Pisano, and G. Gervaise Davis III.

This is SCO's side of the story, and they in essence say over and over that their experts are wonderfully qualified, and that their witnesses were cited by the appeals court, so they must be able to present their stories to the jury. It's true the appeals court did cite folks like Ed Chatlos, but it never mentioned he wasn't working for the company at the time the APA's Amendment 2 was signed. So did the appeals court make a mistake in not even addressing that issue? SCO claims that "at the time of the APA" Chatlos was the Novell Senior Director for UNIX Strategic Partnerships and Business Development. I wonder what they mean by "at the time". Maybe it's vague, like saying "in Noah's day".

I would like to see some substantiation that he was with the company when all the APA documents were signed. Since, as I mentioned in the previous article, the Novell board minutes [PDF] the day before it was signed explicitly say copyrights would not transfer, should he not have to be there at that very day and the next, when the APA was signed to have his testimony be relevant, particularly since the appeals court said the APA was not ambiguous, and it definitely excluded copyrights? I note the minutes tell us who attended that meeting, and no Ed Chatlos. If he was the lead negotiator, why wasn't he invited? I'm sure we'll hear more on this point eventually.

That's only part of why Novell would like to appeal their decision, of course, I would guess. Meanwhile, SCO is acting like the decision was written on stone tablets and brought down the mountain by Moses himself.

Here's what Judge Dale Kimball wrote about Ed Chatlos in his August 2007 order:

Ed Chatlos, Novell's Senior Director for UNIX Strategic Partnerships and Business Development, was a primary negotiator for Novell during the business negotiation of the deal. Chatlos' Declaration states that he left Novell voluntarily in 1996, but it does not indicate his current employment. Decl. Mark James Ex. 12 ("Chatlos Decl.") at 4. He did disclose in his deposition, however, that his wife has been employed by SCO since the time of the APA in 1995. Decl. Mark James Ex. 13 ("Chatlos Dep.") at 49. During the business negotiations of the APA, Chatlos recalled disputes over the price because SCO could not pay the full purchase price as contemplated by Novell. Id. at 36. He testified that the royalty payments were used as a resolution to bridge the gap. Id. Chatlos also testified that there was no discussion about excluding or including copyrights because he believes it was implicit in the deal that the copyrights would be transferred. Id. at 122-24. He testified that he was not involved in any discussions with Novell's negotiation team regarding concerns of a potential bankruptcy by Santa Cruz. However, he also testified that he believes that the APA reflects the intent of the agreement. Id. at 130. Although he continued to review drafts of the agreement, his deposition testimony reflects that he had little recollection of the work done by Novell's legal team. Id. at 105. He could not recollect David Bradford's role in the deal or the names of the attorneys at Wilson Sonsini who worked on the APA. Id. at 37, 80.
The bit about his wife is interesting, eh? And, if, as he says, there were no discussions about copyrights transferring, and the APA says copyrights were excluded, did they transfer? I mean, seriously? Is it *that* easy to lose your copyrights? What a world that would be, if every time someone entered a marketing agreement, they had to worry about witnesses testifying a decade or so later to what they heard at the water cooler and how it led to an impression that the copyrights were supposed to transfer.

Chatlos does confirm that SCO lacked the money to pay for everything it at first wanted, which is why the Novell board notes matter. What protection was there for Novell if it transferred all the copyrights and only had a contract for royalty payments with no way to enforce it, if SCO reneged on the deal or went bankrupt? Companies don't always honor contracts, as SCO Group so vividly demonstrated. How naive would Novell have had to be to turn over everything on a wing and a prayer, when they knew, and the minutes reflect it, that they had concerns about Santa Cruz's viability? Tor Braham, who drafted the APA for Novell, testified to that also in his Declaration. Braham was at Wison Sonsini at the time. Larry Sonsini is listed as being present at that Novell board meeting the day before the APA was signed, incidentally. Here's part of what Braham says about Novell's concerns:

7. The APA was not a straight up asset purchase. The contract took on a more complex form due to various issues that arose in the course of negotiations. For example, Santa Cruz did not have the cash to buy both the UNIX assets that Novell had purchased from USL in 1993 plus Novell's UnixWare business. SCO's financial health also raised serious concerns about Santa Cruz's viability as a company. Further, once the form of consideration for the deal became Santa Cruz stock, it became necessary to structure the deal so that Novell would receive less than 20% of Santa Cruz stock. This structuring enabled Santa Cruz to complete the deal more quickly without the delay of seeking shareholder approval. However, the value of the Santa Cruz stock that Novell received or approximately 16.7% was approximately $50 million, or far less than the $300 million that Novell paid to USL in 1993 and far less than what Novell believed the USL assets were worth. With these issues in mind, we negotiated specific provisions in the contract whereby Novell's business and legal interests were protected through contractual mechanisms.

8. The APA was primarily a forward-looking deal. The common goal of both Novell and Santa Cruz was for Santa Cruz to take Novell's UnixWare operating system, to enhance and innovate it, and to proliferate it as a low-cost UNIX competitor to Microsoft's Windows NT product for use on personal computers. To that end, the parties specifically contemplated that Santa Cruz would develop a product called, in the APA, the "Merged Product" to run on computers powered by 32-bit Intel x86 chips. Novell, on the other hand, would focus its business on its networking operating system, called NetWare, as well as related products, including NetWare Directory Services. It was not in Novell's interest to have a homogeneous operating system environment in the PC world dominated by Microsoft. Novell would benefit from a heterogeneous computing environment that included Santa Cruz's successful proliferation of an enhanced UnixWare or Merged Product.

A marketing deal, I'd call it, and I think that would be fair. Here's where you can find Ed Chatlos's declaration and some information our research dug up on his time at Novell and when he left to join AT&T, publicly reported to have happened in January of 1996. Amendment 2, by the way was dated October of 1996, so he surely can't testify about that. But notice SCO's Memorandum in Opposition in 2004 to Novell's earlier motion to dismiss, which mentions Mr. Chatlos. It says that Mr. Chatlos "held day-to-day responsibility for the potential deal and acted as the principal interface with SCO on the business negotiations for Novell. During the Novell-SCO negotiations, Mr. Chatlos met regularly with SCO representatives, sometimes several times a week, from June to September 1995." OK. The APA was signed on September 19, 1995. But APA's Amendment 1 was signed in December of 1995. Was he there? So, my point is that he clearly, by SCO's own admission, wasn't involved in the whole APA story, from soup to nuts, since everything pivots on Amendment 2, definitely after he had left, and what can he testify about that?

The SCO Memorandum in Opposition also says that Mr. Chatlos will testify to the following:

Given my central role in the negotiations, I believe I would have known if the parties had agreed that Novell would retain any UNIX copyrights.
Well, perhaps if he'd attended that board meeting, he'd have heard the news. What can he say in the face of that writing? Maybe he can testify to what led up to the deal, but if he wasn't there for that pivotal decision the day before, what does it all mean? Maybe that he wasn't informed of the final decision. You think a reasonable jury might reach that conclusion?

Here are the filings:

02/19/2010 - 698 - MEMORANDUM in Opposition re 644 MOTION in Limine No. 18 to Exclude Certain Testimony from Douglas Michels for Lack of Personal Knowledge and Violation of Parol Evidence Rule filed by Plaintiff SCO Group. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2)(Hatch, Brent) (Entered: 02/19/2010)

02/19/2010 - 699 - MEMORANDUM in Opposition re 648 MOTION in Limine No.19 to Exclude Certain Testimony from Edward Chatlos, Burt Levine, and Kim Madsen for Lack of Personal Knowledge filed by Plaintiff SCO Group. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5)(Hatch, Brent) (Entered: 02/19/2010)

02/19/2010 - 700 - MEMORANDUM in Opposition re 659 MOTION for Daubert Hearing to Disqualify G. Gervaise Davis III filed by Plaintiff SCO Group. (Attachments: # 1 Exhibit A, # 2 Appendix of Unpublished Cases)(Hatch, Brent) (Entered: 02/19/2010)

02/19/2010 - 701 - MEMORANDUM in Opposition re 655 MOTION for Daubert Hearing to Disqualify Dr. Christine A. Botosan filed by Plaintiff SCO Group. (Attachments: # 1 Expert Report of Christine Botosan - FILED UNDER SEAL, # 2 Rebuttal Report of Christine Botosan - FILED UNDER SEAL, # 3 Declaration of Christine Botosan - FILED UNDER SEAL, # 4 Appendix of Unpublished Cases)(Hatch, Brent) (Entered: 02/19/2010)

02/19/2010 - 702 - MEMORANDUM in Opposition re 657 MOTION for Daubert Hearing to Disqualify Dr. Gary Pisano filed by Plaintiff SCO Group. (Attachments: # 1 Expert Report of Dr. Gary Pisano - FILED UNDER SEAL, # 2 Rebuttal Report of Dr. Gary Pisano - FILED UNDER SEAL, # 3 Appendix of Unpublished Cases)(Hatch, Brent) (Entered: 02/19/2010)

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