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More filings in Novell - Allocation of Issues -- Updated
Saturday, March 06 2010 @ 11:28 AM EST

It's been a busy week heading up to the Novell trial in Utah, and I had an accident, which is why I've been offline. I am recovering now, and we'll have the more detailed reports from the hearing shortly. There were some additional filings on Friday and this morning, including some more decisions from Judge Stewart (we have 762 as text), and some more pre-trial filings from both sides. So while we're waiting for the trial to commence, let's get caught up.



Here are all the filings:

03/05/2010 - 761 - MEMORANDUM DECISION and ORDER on Allocation of Issues for Bench and Jury Trial. Signed by Judge Ted Stewart on 3/5/2010. (ce) (Entered: 03/05/2010)

03/05/2010 - 762 - MEMORANDUM DECISION granting 748 Motion to Determine that First Amendment Defenses Apply to Slander of Title and Require Proof of Constitutional Malice. Defendant's Motions in Limine No. 2 to Determine that First Amendment Defenses Apply to Slander of Title filed by Defendant Novell, Inc. and Motion in Limine No. 3 to Determine that SCO is a Limited Purpose Public Figure filed by Defendant Novell, Inc. are granted. Signed by Judge Ted Stewart on 3/5/2010. (ce) (Entered: 03/05/2010)

03/05/2010 - 763 - MEMORANDUM DECISION Denying Defendant's 729 Request for Judicial Notice of Prior Factual Findings. Signed by Judge Ted Stewart on 3/5/2010. (ce) (Entered: 03/05/2010)

03/05/2010 - 764 - DOCUMENTS LODGED consisting of Letter from Brent O. Hatch to Judge Stewart re: videos and other demonstrative evidence to be used in opening statement. (ce) (Entered: 03/05/2010)

03/05/2010 - 765 - DOCUMENTS LODGED consisting of Letter from Brent O. Hatch re: trial matters. (ce) (Entered: 03/05/2010)

03/05/2010 - 766 - MEMORANDUM DECISION and ORDER Limiting Use of Deposition Testimony During Opening Statements. Signed by Judge Ted Stewart on 3/5/2010. (ce) (Entered: 03/05/2010)

03/05/2010 - 767 - TRIAL BRIEF (Amended) by Defendant Novell, Inc.. (Brennan, Sterling) (Entered: 03/05/2010)

03/05/2010 - 768 - Proposed Exhibit List by Defendant Novell, Inc... (Brennan, Sterling) (Entered: 03/05/2010)

03/05/2010 - 769 - Proposed Witness List (Will Call) by Novell, Inc.. (Brennan, Sterling) (Entered: 03/05/2010)

03/05/2010 - 770 - Proposed Witness List (May Call) by Novell, Inc.. (Brennan, Sterling) (Entered: 03/05/2010)

03/05/2010 - 771 - Proposed Witness List (Depositions) by Novell, Inc.. (Brennan, Sterling) (Entered: 03/05/2010)

03/05/2010 - 772 - OBJECTIONS to Novell's Proposed Jury Instructions and Verdict Form filed by Plaintiff SCO Group. (Attachments: # 1 Appendix of Unpublished Cases)(Hatch, Brent) (Entered: 03/05/2010)

03/06/2010 - 773 - OBJECTIONS to 741 Proposed Jury Verdict filed by Defendant Novell, Inc.. (Brennan, Sterling) (Entered: 03/06/2010)

03/06/2010 - 774 - OBJECTIONS to 739 Proposed Jury Instructions filed by Defendant Novell, Inc.. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2)(Brennan, Sterling) (Entered: 03/06/2010)

Here's the breakdown on what the jury will decide and what will be left to the judge, from #761:
This matter is before the Court for a determination of which issues are to be decided by the Court and which are to be decided by the jury. In the Pretrial Order, the parties agreed that Plaintiff's claim for specific performance should be resolved by the Court and that the parties' claims for slander of title should be tried to the jury, but disagreed as to whether Plaintiff's remaining claim for breach of the implied covenant of good faith and fair dealing and Defendant's claim for declaratory judgment should be tried to the Court or the jury.

The parties now agree that:

1. Plaintiff's slander of title claim against Defendant should be tried to the jury;

2. Defendant's slander of title claim against Plaintiff should be tried to the jury;

3. Plaintiff's remaining claim that Defendant breached the implied covenant of good faith and fair dealing should be tried to the Court;

4. The Court should declare Defendant's rights under Section 4.16 of the APA;

5. Plaintiff's claim for specific performance should be tried to the Court; and

6. If Defendant's unclean hands is tried, it should be tried to the Court.

There is a footnote on 6, which says that "Plaintiff argues that Defendant's affirmative defense of unclean hands should not be tried at all.

Update: To understand #762, you need the briefs, which I neglected to post:

The filings:

03/04/2010 - 758 - RESPONSE re 729 Request, 749 Brief, to Novell's Request for Judicial Notice filed by Plaintiff SCO Group. (Hatch, Brent) (Entered: 03/04/2010)

03/04/2010 - 759 - MEMORANDUM in Opposition re 748 MOTION to Determine that First Amendment Defenses Apply to Slander of Title and Require Proof of Constitutional Malice filed by Plaintiff SCO Group. (Attachments: # 1 Appendix of Unpublished Cases)(Hatch, Brent) (Entered: 03/04/2010)

I'll put them as text at the end.

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

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

THE SCO GROUP, INC., a Delaware corporation,
Plaintiff/Counterclaim Defendant,

vs.

NOVELL, INC., a Delaware corporation,
Defendant/Counterclaim Plaintiff.

MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT'S
MOTION TO DETERMINE THAT FIRST AMENDMENT DEFENSES
APPLY TO SLANDER OF TITLE AND REQUIRE PROOF OF
CONSTITUTIONAL MALICE

Case No. 2:04-CV-139 TS

This matter is before the Court on Defendant's Motion to Determine that First Amendment Defenses Apply to Slander of Title and Require Proof of Constitutional Malice. In that Motion, as well as two previous motions in limine, Defendant seeks a ruling that the First Amendment applies to slander of title claims. Defendant also seeks a ruling that Plaintiff is a limited-purpose public figure for purposes of the First Amendment. If Defendant were to prevail in both instances, Plaintiff would be required to prove, by clear and convincing evidence, that Defendant acted with actual malice. Plaintiff argues that First Amendment standards should not apply to its slander of title claim. Plaintiff also suggests that the Court could propound a

1

question to the jury to ask whether Defendant acted with actual malice. Plaintiff does not argue that it is not a limited-purpose public figure.

I. DISCUSSION

A. SLANDER OF TITLE

As both parties recognize, the impact of the First Amendment and the Supreme Court's decision of New York Times Co. v. Sullivan,1 on slander of title actions is unclear. The Supreme Court has not explored the issue.2 As stated in Comment C to the Restatement (Second) of Torts § 623A:
In the absence of any indications from the Supreme Court on the extent, if any, to which the elements of the tort of injurious falsehood will be affected by the free-speech and free-press provisions of the First Amendment, it is not presently feasible to make predictions with assurance.3
In New York Times Co. v. Sullivan, the Supreme Court held that the First Amendment requires a public official to prove that a defamatory falsehood relating to his official conduct was made with "actual malice," that is, with "knowledge that it was false or with reckless disregard of whether it was false or not."4 The Court has extended this rule to include claims by private individuals who are "limited-purpose public figures."5 The Supreme Court has also extended the

2

rule to claims for invasion of privacy and intentional infliction of emotional distress.6 The Court has held that "such a standard is necessary to give adequate 'breathing space' to the freedoms protected by the First Amendment."7

Federal courts have relied on this principle in extending the First Amendment to other claims directed against an allegedly wrongful statement. In Jefferson County School District No. R-1 v. Moody's Investor's Services, Inc.,8 the Tenth Circuit applied the First Amendment's protection of statements of opinion to claims for publication of an injurious falsehood.9 The Tenth Circuit also rejected claims for intentional interference with contract and for intentional interference with prospective business relations on First Amendment grounds, noting that lower courts had rejected "a variety of tort claims based on speech protected by the First Amendment."10 The court specifically cited to Unleko Corp. v. Rooney.11 In that case, the Ninth Circuit stated that claims for product disparagement and tortious interference were "subject to the same first amendment requirements that govern actions for defamation."12

3

In Bose Corp. v. Consumers Union of United States, Inc.,13 the district court addressed a product disparagement case, a tort closely related to slander of title.14 The court provided the following thoughtful analysis:

An analysis of the Supreme Court's reasoning in New York Times also leads to the conclusion that the actual malice standard should not be limited to personal defamation actions. In the New York Times line of cases the Supreme Court has attempted to strike a balance between the need for a vigorous and uninhibited press and the legitimate state interest in compensating individuals for wrongful injury to reputation.

The nature of the balancing process changes significantly in product disparagement cases because different interests are being weighed. In a personal defamation action one of the competing interests being balanced is an individual's interest in the protection of his reputation, which, according to Mr. Justice Stewart reflects no more than our basic concept of the essential dignity and worth of every human being a concept at the root of any decent system of ordered liberty. On the other hand, in this product disparagement action we are concerned with a manufacturer's interest in the reputation of its product, an interest not nearly as significant as an individual's interest in his personal reputation and hardly at the root of any decent system of ordered liberty. Damage to a product's reputation, unlike damage to the reputation of an individual, can always be measured in terms of monetary loss. Moreover, a manufacturer almost always has access to the channels of communication that can be used to refute disparaging comments about its product.

On the other side of the scale in this balancing process is the consumer's interest in obtaining information about the quality and characteristics of consumer products. The public's interest in obtaining information of this type is perhaps even greater than the corresponding interest in personal defamation actions, the interest in obtaining information about other people. Information obtained from product commentators often relates to health or safety problems in consumer products. It would be unfortunate indeed if the threat of product disparagement actions stifled the free flow of such information.

4

On balance, the Court concludes that the factors underlying the New York Times privilege militate perhaps even more strongly in favor of the application of the actual malice standard in product disparagement cases than they do in personal defamation actions. Accordingly, the Court rules that the New York Times actual malice standard is applicable in this product disparagement case, provided, of course, that the plaintiff is a public figure for First Amendment purposes.15
This case was later appealed to the Supreme Court, but the applicability of the malice standard in a product disparagement case was not before the Court and, therefore, not addressed.16

The California Supreme Court has held that First Amendment defenses apply to "all claims whose gravamen is the alleged injurious falsehood of a statement" because "constitutional protection does not depend on the label given the stated cause of action."17 The Utah Supreme Court has held that actual malice is required in a product disparagement action against a media defendant.18 The Colorado Court of Appeals has stated that "[t]he constitutional protections afforded a defendant in a defamation action are applicable to a defendant in a product disparagement action."19

Plaintiff asserts that federal courts have never applied First Amendment defenses to a slander of title action. In support, Plaintiff cites to Mueller v. Abdnor.20 One of the issues on

5

appeal in that case is whether the trial court was correct in using a preponderance standard, rather than the higher clear and convincing standard.21 The court noted that "[t]he higher standard . . . does not apply in the ordinary defamation case, but in an action brought by an individual, specifically a public official or a public figure."22 The court further noted that, under Missouri law, the "clear and convincing standard applies only in cases involving a public figure or public official."23 While acknowledging that the defendant in that case, the Small Business Administration, may be a public figure, because the case involved defamation to land, not defamation to an individual's reputation, the court found that the trial court applied the appropriate standard.24 The Court finds Mueller unhelpful because it does not involve a matter of public interest. Further, the Mueller court seemed to recognize that the clear and convincing standard could be applicable in some circumstances not present in that case.

Plaintiff also relies on Zacchani v. Scripps-Howard Broadcasting Co.25 In that case, the Supreme Court declined to apply a First Amendment defense to a claim for misappropriation of property. Importantly, that case did not involve an allegedly wrongful statement. Further, the Court emphasized the distinction between the tort of misappropriation of property and the other

6

torts to which First Amendment protections had been extended.26 Based on these considerations, the Court finds Zacchani to be inapplicable here.

Having reviewed the relevant authority, the Court finds that slander of title claims are subject to the First Amendment. As one commentator aptly stated:
There is no reason to accord lessened protection because the plaintiff's claim is denominated "disparagement," "trade libel," or "injurious falsehood" rather than "libel" or "slander" or because the injury is to economic interests rather than to personal reputation. Since only economic injury and not injury to reputation and psyche is at issue, perhaps the balance should tip even further to the side of free expression.27

B. COMMERCIAL SPEECH

Plaintiff further argues that Defendant's statements are entitled to lesser protection because they constitute commercial speech. Plaintiff, however, does not argue that all of Defendant's statements can be considered commercial speech. Plaintiff only points to two statements that it contends are commercial speech: press releases from May 28, 2003 and June 6, 2003.28

"The Supreme Court has not held whether the actual malice standard applies to commercial speech . . . ."29 Various courts, however, have held that the actual malice standard

7

does not apply to commercial speech.3030 The Court need not reach this issue because it finds that Defendant's May 28, 2003 and June 6, 2003 press releases do not constitute commercial speech.

The Supreme Court defines commercial speech as "expression related solely to the economic interests of the speaker and its audience."31 The Court has stated that the "core notion of commercial speech" is "speech which does no more than propose a commercial transaction."32 "According to the Court, speech may properly be characterized as commercial speech where, among other things, (1) it is concededly an advertisement, (2) it refers to a specific product, or (3) it is motivated by an economic interest in selling the product."33 If all three factors are present, there is strong support for the conclusion that the speech is commercial.34

With these principles in mind, the Court considers the two press releases which Plaintiff argues are commercial speech. Defendant's May 28, 2003 press release states:

Defending its interests in developing services to operate on the Linux platform, Novell today issued a dual challenge to The SCO Group over its recent statements regarding its UNIX ownership and potential intellectual property rights claims over Linux.
First, Novell challenged SCO's assertion that it owns the copyrights and patents to UNIX System V, pointing out that the asset purchase agreement entered

8

into between Novell and SCO in 1995 did not transfer these rights to SCO. Second, Novell sought from SCO facts to back up its assertion that certain UNIX System V code has been copied into Linux. Novell communicated these concerns to SCO via a letter (text below) from Novell® Chairman and CEO Jack Messman in response to SCO making these claims.

"To Novell's knowledge, the 1995 agreement governing SCO's purchase of UNIX from Novell does not convey to SCO the associated copyrights," Messman said in the letter. "We believe it unlikely that SCO can demonstrate that it has any ownership interest whatsoever in those copyrights. Apparently you share this view, since over the last few months you have repeatedly asked Novell to transfer the copyrights to SCO, requests that Novell has rejected."

"SCO claims it has specific evidence supporting its allegations against the Linux community," Messman added. "It is time to substantiate that claim, or recant the sweeping and unsupported allegation made in your letter. Absent such action, it will be apparent to all that SCO's true intent is to sow fear, uncertainty, and doubt about Linux in order to extort payments from Linux distributors and users."

"Novell has answered the call of the open source community," said Bruce Perens, a leading proponent of open source. "We admire what they are doing. Based on recent announcements to support Linux with NetWare services and now this revelation ... Novell has just won the hearts and minds of developers and corporations alike."35
The text of the letter from Mr. Messman to SCO President and CEO Darl McBride is reprinted in the press release.36 The press release then provides a short statement about Novell, stating that it is "a leading provider of information solutions."37 The letter identifies certain Novell products and provides contact information.38

Defendant's June 6, 2003 press release states:

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

9

#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.

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.39
That press similarly provides a brief statement about Defendant.40

The Court finds that these press releases do not constitute commercial speech as they do not propose a commercial transaction. Turning to the first factor set out in Bolger, the Court agrees with Plaintiff that, in some circumstances, a press release may constitute an advertisement. This is not such a circumstance. While, as discussed below, the press releases do mention certain of Defendant's products, they do not attempt to market those products in anyway. Rather, these press releases merely challenge Plaintiff's claims of ownership to the UNIX and UnixWare copyrights and their claims of infringement of such copyrights by Linux. Second, the press releases do mention some of Defendant's specific products. However, the mention of specific products is only in passing and in connection with boilerplate language describing Defendant. Third, there is at least some evidence to suggest that Defendant made these statements because they were motivated by an economic interest. By challenging Plaintiff on its claims of ownership and infringement Defendant could be seen as appealing to the Linux community, which may have been out of an economic interest. However, considering each of the Bolger factors and these press releases as a whole, the Court finds that Defendant's possible economic interest in making these statements alone does not convert these press releases into

10

commercial speech. Therefore, they are not entitled to lesser protection under the First Amendment as argued by Plaintiff.

C. LIMITED-PURPOSE PUBLIC FIGURE

Defendant next argues that, if the First Amendment applies to claims for slander of title, Plaintiff is a limited-purpose public figure. Plaintiff does not argue that it is not a limited-purpose public figure. Rather, Plaintiff argues that if the First Amendment does apply to a slander of title claim and Defendant's statements qualify for heightened protection, the appropriate course would be to provide a special question on the verdict form.41 As a result of Plaintiff's failure to respond to Defendant's argument, the Court finds that Plaintiff is a limited- purpose public figure. Even without Plaintiff's apparent concession of this point, the Court would find Plaintiff to be a limited-purpose public figure.

"[A] limited-purpose public figure is only a public figure with respect to a specific issue."42 The Supreme Court has defined a limited-purpose public figure as one who "voluntarily injects himself or is drawn into a particular public controversy and thereby becomes a public figure for a limited range of issues."43

Utah employs a two-part test to determine whether the plaintiff is a limited-purpose public figure. First, the court must isolate the specific public controversy related to the defamatory remarks. Next, the court should examine the type and extent of the plaintiff's participation in that public controversy to

11

determine whether, under Gertz, he has "thrust [himself] to the forefront of [the] controvers[y] in order to influence the resolution of the issues involved."44

First, the Court finds that there is a public controversy concerning the ownership of the UNIX and UnixWare copyrights and Plaintiff's contention that Linux users infringed those copyrights. In support of its Motion in Limine No. 3, Defendant has submitted a number of news accounts of this controversy.45 Further, thousands of companies and individuals have a direct interest in the controversy because of the impact it may have on them. Second, the Court finds that Plaintiff thrust itself to the forefront of the controversy in order to influence the resolution of those issues. Specifically, Plaintiff made a number of public statements, through press releases and other means, and actively sought media coverage to air its position on these issues. Therefore, the Court finds that Plaintiff is a limited-purpose public figure concerning its alleged UNIX rights.

II. CONCLUSION

Based on the above, the Court finds that the First Amendment applies to slander of title claims, that Defendant's press releases are not commercial speech, and that Plaintiff is a limited- purpose public figure. As a result, Plaintiff must prove, by clear and convincing evidence, that Defendant acted with actual malice. The above reasoning is equally applicable to Defendant's slander of title claim.

12

It is therefore
ORDERED that Defendant's Motion to Determine that First Amendment Defenses Apply to Slander of Title and Require Proof of Constitutional Malice (Docket No. 748) is GRANTED.

It is further
ORDERED that Defendant's Motions in Limine No. 2 and 3 (Docket Nos. 629 and 630) are GRANTED.

DATED March 5, 2010.

BY THE COURT:
(signature)
TED STEWART
United States District Judge

13

1 376 U.S. 254 (1964).
2 Robert D. Sack, Sack on Defamation, § 13.1.8 (Practicing Law Institute 2008).
3 Restatement (Second) of Torts § 623A, cmt. c (1977).
4 Sullivan, 376 U.S. at 279-80.
5 Gertz v. Robert Welch, Inc., 418 U.S. 323, 351 (1974) (defining limited purpose public figure as "an individual [who] voluntarily injects himself or is drawn into a particular public controversy and thereby becomes a public figure for a limited range of issues").
6 See Time, Inc. v. Hill, 385 U.S. 374, 390-91 (1967); Hustler Magazine v. Falwell, 485 U.S. 46, 56 (1988).
7 Hustler Magazine, 485 U.S. at 56.
8 175 F.3d 848 (10th Cir. 1999).
9 Id. at 856. The Court recognizes, as Plaintiff argues, that Jefferson addressed First Amendment protection of opinions. Despite this difference in the case before the Court, the Court finds it significant that Jefferson extended First Amendment protections to a claim for an injurious falsehood.
10 Id. at 857.
11 912 F.2d 1049, 1057 (9th Cir. 1990).
12 Id. at 1058.
13 Bose Corp. v. Consumers Union of United States, Inc., 508 F.Supp. 1249, rev'd on other grounds, 692 F.2d 189 (1st Cir. 1982), aff'd, 466 U.S. 485 (1984).
14 See Robert D. Sack, Sack on Defamation, § 13.1.1 (Practicing Law Institute 2007) (explaining that injurious falsehood describes two common law torts: slander of title and disparagement of quality); Jack B. Parson Co. v. Nield, 751 P.2d 1131, 1134 (Utah 1988) (stating that slander of title is also known as injurious falsehood).
15 Bose Corp., 508 F.Supp. at 1270-71 (internal quotation marks and citations omitted).
16 Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 513 (1984).
17 Blatty v. New York Times, Co., 728 P.2d 1177, 1182 (Cal. 1987).
18 Direct Import Buyer's Ass'n v. K.S.L., Inc., 572 P.2d 692, 696 (Utah 1977) (stating that "this case involves, not defamation of character, but defamation of a product of a business and the correct standard to be applies is that of actual malice.").
19 Teilhaber Mfg. Co. v. Unarco Materials Storage, 791 P.2d 1164, 1167 (Colo. Ct. App. 1989).
20 972 F.2d 931 (8th Cir. 1992).
21 Id. at 936.
22 Id.
23 Id.
24 Id. at 937.
25 433 U.S. 562 (1977).
26 Id. at 573-75.
27 Robert D. Sack, Sack on Defamation, § 13.1.8.
28 Plaintiff has previously stated that it does not assert that the June 6, 2003 press release constitutes slander of title. See Docket No. 682 at 2-3.
29 Dial One of the Mid-South, Inc. v. BellSouth Telecomms., Inc., 269 F.3d 523, 526-27 (5th Cir. 2001).
30 See Procter & Gamble Co. v. Amway Corp., 242 P.3d 539, 556 (5th Cir. 2001) ("Supreme Court precedent prevents us from importing the actual-malice standard into cases involving false commercial speech."); U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 937 (3d Cir. 1990) (concluding that commercial speech "does not warrant heightened constitutional protection").
31 Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n, 447 U.S. 557, 561 (1980).
32 Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66 (1983) (quotation marks and citations omitted).
33 United States v. Wenger, 427 F.3d 840, 847 (10th Cir. 2005) (citing Bolger, 463 U.S. at 66-67).
34 Bolger, 463 U.S. at 67.
35 Docket No. 748, Ex. 2.
36 Id.
37 Id.
38 Id.
39 Id., Ex. 3.
40 Id.
41 Docket No. 683 at 2.
42 World Wide Ass'n of Specialty Programs v. Pure, Inc., 450 F.3d 1132, 1136 (10th Cir. 2006).
43 Gertz, 418 U.S. at 351.
44 World Wide Ass'n of Specialty Programs, 450 F.3d at 1136-37 (quoting Wayment v. Clear Channel Broad., Inc., 116 P.3d 271, 283 (Utah 2005)).
45 See Docket No. 630.

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

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

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC., by and through the
Chapter 11 Trustee in Bankruptcy, Edward N.
Cahn,
Plaintiff/Counterclaim-Defendant,
vs.
NOVELL, INC., a Delaware corporation,
Defendant/Counterclaim-Plaintiff.

SCO'S OPPOSITION TO NOVELL'S
MOTION FOR JUDICIAL NOTICE OF
PRIOR FACTUAL FINDINGS

Civil No. 2:04 CV-00139

Judge Ted Stewart

(1)

Plaintiff/counterclaim-defendant, The SCO Group, Inc. ("SCO"), by and through the Chapter 11 Trustee in Bankruptcy, Edward N. Cahn, respectfully submits this brief in opposition to Novell's Request for Judicial Notice of Prior Factual Findings dated February 24, 2010 (the "Request for Judicial Notice").

INTRODUCTION

Novell's Request for Judicial Notice is the latest effort by Novell to transform this into a trial about the language Judge Kimball used in making certain rulings in 2007 rather than a trial about the underlying facts concerning Novell's actions and intentions. Juries determine facts, including the issues of malice and intent that underlie SCO's claim for slander of title.

In ruling on motions in limine, the Court made clear that this trial should be about facts — not judicial statements about facts, especially where Novell seeks to cherry-pick such statements from a judicial opinion and attempt to deliver them to the jury as axiomatic truths that preclude consideration of the evidence. The Court thus already concluded that such "findings" are irrelevant, pose a danger of unfair prejudice, could mislead and confuse the jury, and therefore should not be admitted under Federal Rules of Evidence 402 and 403. (See, e.g., Order Granting SCO's Motion in Limine No. 2 at 2 ("While Defendant argues that the Court's prior rulings are relevant to support its defense, the real evidence on these issues is that which was presented to the court on summary judgment not the summary judgment ruling itself.").)

ARGUMENT

I. JUDICIAL NOTICE OF "FACTS" WITHIN PRIOR JUDICIAL RULINGS IS INAPPROPRIATE.

Courts considering requests to take judicial notice of prior findings have recognized that the mere fact that a court made certain findings does not render them "not subject to reasonable dispute" or appropriate for judicial notice. As such, courts have limited judicial notice to the fact

(2)

of a judicial record's existence, rather than to any facts found or alleged within a court decision. Novell's own cases support the point. In Randy's Studebaker Sales, Inc. v. Nissan Motor Corp. in U.S.A., 533 F.2d 510, 521 (10th Cir. 1976), the Tenth Circuit noted that the trial court should have made clear to the jury that taking judicial notice of a prior judicial finding (a preliminary injunction) did not mean that the prior finding was properly decreed. The Tenth Circuit confirmed that the jury was to decide the claims presented to it on the evidence in the record and not on the basis of prior findings. Id. That is precisely what this Court has held in denying Novell's motions in limine.

The Tenth Circuit's holding in Studebaker Sales is consistent with the holdings of courts in other jurisdictions that judicial notice of prior judicial records should be limited to a record's existence, rather than to facts found or set forth within a decision. See Holloway v. Lockhart, 813 F.2d 874, 878-79 (8th Cir. 1987); Sosinky v. Grant, 6 Cal. App. 4th 1548 (Cal. Ct. App. 1992). Like Novell, the plaintiffs in Sosinky asked the court to take judicial notice of findings it had made in a related case. Denying plaintiffs' request, the court held that "we do not see why 'facts' which were in actuality the subject of a reasonable dispute would become, after the dispute has been decided, 'facts' which could not reasonably be subject to dispute." Id. at 1566 (emphasis in original).

Novell also relies extensively on Ag Services of America, Inc. v. Nielsen, 231 F.3d 726 (10th Cir. 2000), but that case does not even mention judicial notice, let alone hold that a court can take judicial notice of a court's statements in a prior summary judgment ruling. Instead that case concerns the claim that the Seventh Amendment "protects a party's right to a jury trial by ensuring that factual determinations made by a jury are not thereafter set aside by the court, except as permitted under common law." Id. at 730. The court held that "under the Seventh

2 (3)

Amendment, the court may not substitute its judgment of the facts for that of the jury; it may only grant a new trial if it concludes that the jury's verdict was so against the weight of the evidence as to be unsupportable." Id. Novell actually seeks to do the exact opposite: Deny SCO the right to have a jury decide the factual issues underlying the remanded claims by judicially noticing comments and collateral findings made on other claims as axiomatic, dispositive conclusions on factual issues that should be for the jury.

II. THE REQUESTED "FINDINGS" ARE NOT APPROPRIATE FACTS FOR JUDICIAL NOTICE.

Judicial notice provides a mechanism for consideration of facts that are "not subject to reasonable dispute" and that are relevant. Fed. R. Evid. 201(b), 402. Because the effect of judicial notice is to deprive a party of the opportunity to use rebuttal evidence, cross- examination, and argument to attack contrary evidence, caution must be used in noticing facts as beyond controversy under Rule 201(b). See Fed. R. Evid. 201(b) advisory committee notes; Int'l Star Class Yacht Racing Ass'n v. Tommy Hilfiger U.S.A., Inc., 146 F.3d 66, 70 (2d Cir. 1998). None of Novell's proposed series of facts meets this test.

  • Request No. 1. "[A]greements that postdate the APA may constitute SVRX Licenses."

This Court has already ruled that "the determination that agreements that postdate the APA may constitute SVRX Licenses is the law of the case and Plaintiff will be precluded from presenting evidence or arguing otherwise." (Order on Novell Motion in Limine No. 9 at 2.) That, of course, does not mean that the statement is relevant to any issue in the case. SCO submits that the proposed statement for judicial notice is not relevant because just as it has been determined that agreements that postdate the APA may constitute SVRX licenses, it also has been determined that SCOsource licenses are not SVRX royalty-bearing licenses. (Docket No. 542 at 28-35.) Indeed, this is precisely the point which Novell unsuccessfully sought to reopen

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in its recent Rule 60(b) motion.1 Because the only purported purpose of telling the jury that SVRX Licenses may postdate the APA would be to facilitate and even advance Novell's argument that SCOsource licenses are such agreements, and that argument is foreclosed, Novell's request for judicial notice should be denied.

  • Request No. 2. "Although Novell may have initially intended to sell the complete UNIX business, both parties agree that Santa Cruz was either unwilling or unable to commit sufficient financial resources to purchase the entire UNIX business outright."

This passing comment is not a "factual finding." Not every statement in the Court's 50-plus page opinion should be viewed as a finding. While some testimony suggests that the parties structured the deal to allow for the purchase price to be paid in part through royalties because Santa Cruz could not pay the entire purchase price in cash, other witnesses, including Santa Cruz Chief Technology Officer Douglas Michels, testified that the deal was structured as such because of the parties' uncertainty regarding the amount of the revenue stream the royalties would generate. (Deposition of Douglas Michels dated 3/28/07 at 14-15.) The jury should be permitted to decide the facts and consequences of such testimony. The reference in the Court of Appeals opinion was not necessary to any judgment by the Court and thus does not preclude litigation of any identical issue in this case. Moss v. Kopp, 559 F.3d 1155, 1161 (10th Cir. 2009).

  • Request No. 3. "If [one] were to interpret the contract based initially only on the APA itself — without regard to Amendment No. 2 — . . . its language unambiguously excludes the transfer of copyrights."

This Request is flatly in the face of the Tenth Circuit's decision in the case that "Amendment No. 2 must be considered together with the APA as a unified document" and

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"California law . . . dictates that we construe them together, following Amendment No. 2 wherever the language contradicts the APA." The SCO Group, Inc. v. Novell, Inc., 578 F.3d 1201, 1211 (10th Cir. 2009). It is hard to envision a statement to the jury in the context of this case that would be more misleading than Novell's proposed request number 3.

  • Requests No. 4 & 5. "[T]here is no evidence that Novell's public statements [regarding copyright ownership] were based on anything but its good faith interpretation of the contracts"; and "there is no evidence to demonstrate that Novell's position [regarding copyright ownership] was contrary to its own understanding of the contractual language or objectively unreasonable given the history of the dispute between the parties."

Judge Kimball did not make either of these statements in the context of SCO's slander of title claim. Indeed, Novell elected not to move for summary judgment on SCO's slander of title claim on these grounds. These statements concern only the unfair competition and breach of contract claims, which will not be tried, and are not relevant to the claims that are going to trial.

Moreover, these statements do not relate to the question of Novell's subjective malice for purposes of slander of title. "A publisher's knowledge of the falsity of a statement is inherently subjective." Ferguson v. Williams & Hunt, Inc., 221 P.3d 205, 215 (Utah 2009).2 There is an abundance of admissible evidence from which the jury may find that Novell intentionally or recklessly made false claim to the copyrights, and that Novell acted maliciously to harm SCO. That evidence includes (i) testimony that Novell intentionally and maliciously timed its announcement on the day of SCO's earnings report to "confound SCO's stock position" and "upset the stock price" and that Novell's Vice Chairman leaked this information "with laughter" and "chortling"; (ii) evidence that Novell made its ownership announcement without considering Amendment No. 2 and without consulting the people who negotiated the amended APA; (iii)

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evidence that Novell's claim that Amendment No. 2 was "not present in Novell's files" proved to be false, as Novell CEO Jack Messman later admitted that a signed copy of Amendment No. 2 had been present in Novell's files all along, and that Novell had recklessly published its initial ownership claims knowing that it had, at least, an unsigned copy of the Amendment; and (iv) evidence that Novell's repeated statements that SCO contacted Novell in 2002 or 2003 "seeking a transfer of copyrights" were false, as Novell's own in-house counsel admitted that SCO never sought such a transfer, and the testimony of three SCO witnesses showed that SCO did not ever make such request.

None of this evidence was the subject of Novell's motion for summary judgment on the claims for breach of the implied duty of good faith and fair dealing and unfair competition. As reflected in the briefing on that motion (Docket No. 272 at 9; Docket No. 332 at 12-16), Novell made a legal argument with respect to what California law required for violation of the implied duty. While the Court's ruling that there is no claim for breach of the implied duty disposes of that claim, there is no basis for expanding its reach to other claims, an expansion not found in either Novell's motion to the Court nor the Court's ruling.

In addition, Novell's position on why it should not be found to have acted with malice regarding the May 28, 2003, slander is directly tied to what the Tenth Circuit did reverse — Novell's asserted belief in the effect of the unamended APA. "Novell's interpretation at that time was based on its reading of the copyright exclusion language in the original APA . . . Novell's subsequent press releases must also be understood by reference to the original language of the APA." (Novell Response to SCO's Motion in Limine No. 1 at 2.) Novell is permitted to advance this explanation, but it would be improper to admit a district court's statement regarding Novell's intent, made at the time when the district court was under the erroneous belief that it

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was proper to interpret the APA independently from Amendment No. 2 — a position subsequently rejected by the Tenth Circuit.

  • Requests No. 6 & 7. "SCO breached its fiduciary duties to Novell by failing to account for and remit the appropriate SVRX Royalty payments to Novell for the SVRX portions of the 2003 Sun . . . Agreement[]."; and "SCO was not authorized under the APA to amend, in the 2003 Sun Agreement, Sun's 1994 SVRX buyout agreement with Novell, and SCO needed to obtain Novell's approval before entering into the amendment."

These statements are not relevant to the trial. They relate only to Novell's prior argument regarding "substantial performance," which the Court rejected in denying Novell's Motion in Limine No. 11 and granting SCO's Motion in Limine No. 3 on multiple bases:

"[E]vidence of Defendant's monetary judgment is irrelevant to the issues before the jury. Further, any relevance is substantially outweighed by the danger of unfair prejudice and confusion of the issues. The Court finds that Plaintiff would be prejudiced if the jury was informed that a substantial judgment has been entered against it and would likely be confused by such evidence."
(Order on SCO's Motion in Limine No. 3 and Novell's Motion in Limine No. 11 at 3.) The Court further held that to the extent Novell argued that the 2008 trial findings were relevant to Novell's "substantial performance" defense, that issue was never addressed by the prior courts and "[t]herefore, the law of the case doctrine is not applicable here." Similarly, the breach of fiduciary duty finding constituted the basis for the award on Novell's claim, and is no more relevant to the issues in this trial than the existence of that money judgment. Finally, the issue of whether part of the Sun Agreement exceeded the scope of the APA was litigated in the prior trial and is not relevant to any issues in this trial.

III. ANY RELEVANCE OF THE PROPOSED MATTERS FOR JUDICIAL NOTICE IS OUTWEIGHED BY THEIR PREJUDICIAL EFFECT

Rule 403 allows this Court to exclude even relevant evidence if "any relevance is substantially outweighed by the danger of unfair prejudice and confusion of the issues." (Order Granting SCO's Motion in Limine No. 2 at 2.) Pulling sentences out of a lengthy judicial

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opinion without the surrounding context elevates those snippets above other evidence the jury will hear, guarantees confusion, and creates prejudice. As this Court stated at the pretrial conference: "As a general matter, I want both of you to avoid reference to the prior decision by Judge Kimball or the Tenth Circuit. . . . I'm going to be very hesitant to allow reference to those things because I believe that it would be confusing to the jury and also very prejudicial." (Transcript of 2/25/10 Pretrial Conference at 53.) For this same additional reason, the proposed requests for judicial notice should be denied, and this trial should proceed as a trial of the evidence, not a trial about what previously has been said about the evidence.

CONCLUSION

SCO respectfully submits, for the reasons set forth above, that the Court should deny Novell's Request for Judicial Notice of Prior Factual Findings.

DATED this 4th day of March, 2010.

By: /s/ Brent O. Hatch
HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark F. James

BOIES, SCHILLER & FLEXNER LLP
David Boies
Robert Silver
Stuart H. Singer
Edward Normand
Sashi Bach Boruchow

Counsel for The SCO Group, Inc.

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(Certificate of Service not transcribed, see PDF)

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1 In deciding Motion in Limine No. 9, the Court observed that it would have been appropriate for SCO to file its own motion in limine to preclude Novell from arguing that it is entitled to any SCOsource revenues. Although SCO did not file a motion in limine on the issue, it may now object to the relevancy of any evidence on this point — whether through requests for judicial notice or otherwise. McCormick on Evidence § 52 (6th ed. 2009).
2 "Likewise, acting with reckless disregard as to the statement's falsity involves a showing of subjective intent or state of mind. The Restatement explains that reckless disregard as to falsity 'exists when there is a high degree of awareness of probable falsity or serious doubt as to the truth of the statement.'" Ferguson, 221 P.3d at 215 (citing Restatement (Second) of Torts § 600 cmt. b (1977)).

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

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC., by and through the
Chapter 11 Trustee in Bankruptcy, Edward N.
Cahn,
Plaintiff/Counterclaim-Defendant,
vs.
NOVELL, INC., a Delaware corporation,
Defendant/Counterclaim-Plaintiff.

SCO'S OPPOSITION TO NOVELL'S
MOTION TO DETERMINE THAT
FIRST AMENDMENT DEFENSES
APPLY TO SLANDER OF TITLE AND
REQUIRE PROOF OF
CONSTITUTIONAL MALICE

Civil No. 2:04 CV-00139

Judge Ted Stewart

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TABLE OF CONTENTS

TABLE OF AUTHORITIES iii
INTRODUCTION 1
ARGUMENT 1
I. THE NATURE OF SCO'S CLAIM DOES NOT WARRANT THE FIRST
AMENDMENT PROTECTION NOVELL SEEKS
1
A. The Relevant Rationales and Balance of Interests 2
B. SCO's Claim Implicates Unprotected Interests of the Defendant 2
C. Novell's Line of Argument, and Citations, Are Misplaced 6
II. THE NATURE OF NOVELL'S SPEECH DOES NOT WARRANT THE FIRST
AMENDMENT PROTECTION NOVELL SEEKS
8
III. SCO'S PROPOSED VERDICT FORM IS APPROPRIATE TO DEAL WITH FIRST
AMENDMENT CONCERNS NOVELL HAS RAISED
11
CONCLUSION 11

ii (2)

TABLE OF AUTHORITIES

Cases
Bd. of Trustees of the State Univ. of N.Y. v. Fox,
492 U.S. 469 (1989)
9
Blatty v. New York Times Co.,
42 Cal. 3d 1033 (1986)
6
Bolger v. Youngs Drug Prods. Corp.,
463 U.S. 60 (1983)
9
Bose Corp. v. Consumers Union of U.S., Inc.,
466 U.S. 485 (1984)
6
Bose Corp. v. Consumers Union,
508 F. Supp. 1249 (D. Mass. 1981)
6
Eddy's Toyota of Wichita, Inc. v. Kmart Corp.,
945 F. Supp. 220 (D. Kan. 1996)
8
Henderson v. Times Mirror Co.,
669 F. Supp. 356 (D. Colo. 1987)
7
Hustler Magazine v. Falwell,
485 U.S. 46 (1988)
3, 7
Jefferson County School District No. R-1 v. Moody's Investor's Services, Inc.,
175 F.3d 848 (10th Cir. 1999)
1, 2
Mast v. Overson,
971 P.2d 928 (Utah Ct. App. 1998)
5
Milkovich v. Lorain Journal Co.,
497 U.S. 1 (1990)
2, 7
Mueller v. Abdnor,
972 F.2d 931 (8th Cir. 1992)
5
Neuralstem, Inc. v. StemCells, Inc.,
2009 WL 2412126 (D. Md. Aug. 4, 2009)
9
New York Times Co. v. Sullivan,
376 U.S. 254 (1964)
2

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Ohralik v. Ohio State Bar Ass'n,
436 U.S. 447 (1978)
8
Paterson v. Little, Brown & Co.,
502 F. Supp. 2d 1124 (W.D. Wash. 2007)
5
Procter & Gamble Co. v. Amway Corp.,
242 F.3d 539 (5th Cir. 2001)
9
Proctor & Gamble Co. v. Haugen,
222 F.3d 1262 (10th Cir. 2000)
9
South Dakota v. Kansas City Southern Industries,
880 F.2d 40 (8th Cir. 1989)
7
Time, Inc. v. Hill,
385 U.S. 374 (1967)
4, 5
Toyota of Wichita, Inc. v. Kmart Corp.,
945 F. Supp. 220 (D. Kan. 1996)
8
U.S. Healthcare, Inc. v. Blue Cross,
898 F.2d 914 (3d Cir. 1990)
9
Unelko Corp. v. Rooney,
912 F.2d 1049 (9th Cir. 1990)
7
Zacchani v. Scripps-Howard Broadcasting Co.,
433 U.S. 562 (1977)
3, 4, 5

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Plaintiff/counterclaim-defendant, The SCO Group, Inc. ("SCO"), respectfully submits this Memorandum in Opposition to Novell's Motion to Determine That First Amendment Defenses Apply to Slander of Title and Require Proof of Constitutional Malice.

INTRODUCTION

The Court has asked for more authority, not more argument. Novell's brief does not present any significant new cases. The fact remains that the only federal court squarely to confront the issue has concluded that a defendant is not entitled to the First Amendment standard of proof in defending a claim for slander of title. Novell also fails in its effort to distinguish the Supreme Court precedent providing the analysis that controls here. The Court should properly deny Novell's motion, but recognizing the uncertainty on the issue, SCO asks the Court to structure the verdict form and jury instructions to avoid the need for a retrial, regardless of how the Court of Appeals may resolve the issue.

ARGUMENT

I. THE NATURE OF SCO'S CLAIM DOES NOT WARRANT THE FIRST AMENDMENT PROTECTION NOVELL SEEKS

Novell concedes that no federal court has applied to a claim for slander of title the First Amendment protection that Novell seeks. Novell tries to argue (at 2-5) from a sort of "transitive property" that in Jefferson County School District No. R-1 v. Moody's Investor's Services, Inc., 175 F.3d 848 (10th Cir. 1999), the Tenth Circuit applied the protection to a claim for "injurious falsehood," and that it has generally been stated that a claim for slander of title is a type of claim for "injurious falsehood," but Novell concedes that none of the actual claims the Tenth Circuit resolved was a claim for slander of title. Indeed, Novell's citation (at 4) to Sack on Defamation confirms that claims for "injurious falsehood" do not concern a claim that a plaintiff has personally been defamed.

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The Supreme Court has long held in the First Amendment context that "we are compelled by neither precedent nor policy to give any more weight to the epithet 'libel' than we have to other 'mere labels' of state law." New York Times Co. v. Sullivan, 376 U.S. 254, 269 (1964). The mere label given to a state claim, in short, does not determine whether it does or does not implicate First Amendment concerns. Id. SCO addresses below the even more fundamental problems with Novell's reliance on Jefferson.

A. The Relevant Rationales and Balance of Interests.

First Amendment protection applies to claims for defamation in cases against public figures, or limited-purpose public figures, because (i) there is an important state interest in permitting criticism of public officials in their conduct of governmental affairs; (ii) there is an important state interest in permitting criticism of individuals who are intimately involved in the resolution of important public questions or who shape events in areas of concern to society at large; and (iii) public figures have voluntarily exposed themselves to increased risk of injury from defamatory falsehood concerning themselves. Milkovich v. Lorain Journal Co., 497 U.S. 1, 10-18 (1990) (citing authority). The precedent thus reflects the Court's balance of the state's relatively weak interest in protecting individuals from defamatory falsehoods about themselves, where they have exposed themselves to public commentary and on public issues, against the First Amendment's protection of "uninhibited, robust, and wide-open" debate about such public figures. New York Times Co. v. Sullivan, 376 U.S. 254, 270 (1964).

B. SCO's Claim Implicates Unprotected Interests of the Defendant.

The threshold question here is the following: Does SCO's claim implicate the rationales and balance of interests at issue in the Supreme Court's relevant precedent? If yes, the state interest in protecting such statements is implicated, and the First Amendment applies. If no, that

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state interest is no implicated, and there is no basis for affording Novell any First Amendment protection. The answer to that threshold question is "no."

In particular, Novell misapprehends the significance of the Supreme Court's decision in Zacchani v. Scripps-Howard Broadcasting Co., 433 U.S. 562 (1977). Zacchani speaks directly to a critical question in this case: How does the Supreme Court analyze the First Amendment issue when the plaintiff has not brought a claim implicating the plaintiff himself, and where in fact there is a strong state interest in protecting the plaintiff's right to pursue his claim? The relevant question is whether the Supreme Court's analysis of the claim for misappropriation of property in that case, rather than the analysis of a defamation-type claim about an individual that Novell proposes, is the relevant one here. The answer is "yes."

The Court explained that whereas the "interest protected" in a defamation claim is "permitting recovery for placing the plaintiff in a false light," the interest in permitting a right to the fruits of one's property, concerning the plaintiff's circus act, "is in protecting the proprietary interest of the individual in his act in part to encourage such entertainment." Id. at 572-73. The interest is thus "closely analogous to the goals of patent and copyright law, focusing on the right of the individual to reap the reward of his endeavors and having little to do with protecting feelings or reputation." Id. at 573 (emphasis added). Where the Constitution empowered Congress to enact laws "intended definitely to grant valuable, enforceable rights in order to afford greater encouragement to the production of works of benefit to the public," the Constitution does not prevent the full use of state law similarly "to protect the entertainer's incentive in order to encourage the production of this type of work." Id. at 576-77; see also Hustler Magazine v. Falwell, 485 U.S. 46, 53 (1988) (reaffirming the ruling in Zaccahani "that the 'actual malice' standard does not apply to the tort of appropriation of a right of publicity").

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It bears emphasis moreover, that the Supreme Court's analysis in Time, Inc. v. Hill, 385 U.S. 374 (1967), presaged the holding in Zacchani. In Time, which Novell (at 2-3) concedes to be relevant, the Court considered whether the defendant could invoke a First Amendment defense against the plaintiff's claim under a New York right of privacy statute. The Court noted that the particular grounds on which plaintiff invoked the statute was the right of action that exists where the defendant's "name, picture, or portrait is the subject of a 'fictitious' report or article." Id. at 384-85. The Court described the plaintiff's claim as one for "calculated falsehood." Id. at 390. In addition, critical to the analysis here, the Court initially observed that the text of the New York statute appeared to proscribe only "the appropriation and use in advertising or to promote the sale of goods, of another's name, portrait or picture without his consent." Id. at 381. The Court stated: "An application of that limited scope would present different questions of violation of the constitutional protections for speech and press." Id. (emphasis added). The Court's analysis thus underscores the need for a court to analyze and understand the particular scope of the plaintiff's claims, in order to consider the appropriate "questions" and "constitutional protections" at issue.

Considering its decision in Time, the Zacchani Court then took care to emphasize the very particular scope of the claim at issue in that case. The Zacchani Court thus emphasized that the Time Court "was aware that it was adjudicating a 'false light' privacy case involving a matter of public interest, not a case involving 'intrusion,'" or "'appropriation' of a name or likeness for the purposes of trade." Zacchani, 433 U.S. at 571-72. The Court further emphasized: "It is also abundantly clear that Time, Inc. v. Hill did not involve a performer, a person with a name having commercial value, or any claim to a 'right of publicity.' This discrete kind of 'appropriation' case was plainly identified in the literature cited by the Court and had been adjudicated in the

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reported cases." Id. at 572 (citing Time, 385 U.S. at 383-85). The Zacchani Court then compared (i) the Time Court's assessment of the "false light" claim (the claim that the Time Court called a "calculated falsehood" claim, such as for defamation) with (ii) the plaintiff's claim for misappropriation of the fruit's of his property, and explained: "The differences between these two torts are important." Id. at 573.

Novell's heavy reliance on labels such as "injurious falsehood" thus seeks to obscure the appropriate analysis. The substance of SCO's claim for slander of title, under the facts of this case, plainly implicates the same state interest at issue in Zacchani. SCO's claim seeks to enforce not just any proprietary interest, and not only its proprietary interest in the UNIX and UnixWare businesses, but also its particular proprietary interest in the UNIX and UnixWare copyrights. SCO's claim is not one to redress injury to its "feelings or reputation." The Eighth Circuit's decision in Mueller v. Abdnor, 972 F.2d 931, 937 (8th Cir. 1992), in cogent fashion, reflects the same fundamental distinction between defamation of "land" and defamation of "an individual's reputation."1 SCO's claim directly concerns the "valuable, enforceable rights" that the Constitution empowered Congress to afford copyright owners. SCO is entitled to the full use of state law to protect all of SCO's interests in the rights and benefits of copyright ownership.

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C. Novell's Line of Argument, and Citations, Are Misplaced.

The authority Novell cites does not, at least not in any controlling or even persuasive fashion, favor the relief that Novell seeks with respect to the particular claim that SCO has brought here, with respect to the UNIX and UnixWare copyrights. The decisions arising from Bose Corp. v. Consumers Union, 508 F. Supp. 1249 (D. Mass. 1981), contrary to Novell's characterization, do not support Novell. Novell suggests(at 3), for example, that the district court held that "First Amendment applies to product disparagement claim," and that the Supreme Court affirmed that holding "in relevant part." Not so. The Supreme Court specifically declined to take any position on whether First Amendment protection "should be applied to a claim of product disparagement," because the Court did not need to reach the issue. Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 513 (1984).2

Novell's heavy reliance on the Tenth Circuit's decision in Jefferson is similarly misplaced. The Tenth Circuit there addressed the separate question — not implicated in Novell's motion — of whether a defendant should have full First Amendment protection (that is, immunity) where the plaintiff has brought suit on the basis of a statement of opinion, rather than a statement of fact. The court reasoned that where the defendant had not made a statement of fact, it was entitled to full First Amendment protection with respect to all of the plaintiff's claims that were based solely on the defendant's statements. Jefferson, 175 F.3d at 56-61. The court reasoned, in short, that it would not make sense to afford a defendant First Amendment immunity with respect to only certain of the plaintiff's claims based on the statements at issue,

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because however the plaintiff recovered against the defendant, the prospect of such recoveries would impose a chilling effect on the prospect of a market-place of opinions. Id. at 857.

The rationales and interests in that analysis are significantly distinct from the rationales and interests here. The relevant authority in that discrete area of First Amendment jurisprudence start from the premise that the First Amendment affords important protection for statements of opinion. Milkovich, 497 U.S. at 21 (citing authority). The rationale is that robust and even competing statements of opinion are important to the free discussion of public issues and public figures. Id.; see also Hustler Magazine v. Falwell, 485 U.S. 46, 50 (1988). It follows that when a plaintiff brings a claim based on the claim that is not verifiably true or false, the First Amendment affords the defendant maximum protection. Milkovich, 497 U.S. at 21. The Supreme Court has thus distinguished between statements of opinion and statements of fact, or between statements that cannot be proven false and those that can. Id. at 21-22. That is because the state has very little (if any) interest in having people publicly making false factual statements. Id. at 18 (citing authority).

Accordingly, in the key cases on which Novell relies, in assessing whether the defendant is entitled to First Amendment protection, the courts ask this, different, threshold question: Is the plaintiff bringing a claim based solely on the defendant's statements of opinion? If so, regardless of the particular tort under which the plaintiff has brought his claim, the claim implicates the foregoing rationale for applying First Amendment protections. That is not at issue here.3

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This Court's prior decision in this case, in contrast, reflects that the various claims of ownership here are objectively verifiable ones that can be disproven. (Order Denying Defendant's Motions in Limine No. 5 and 6 (Feb. 25, 2010).) Considering all of the foregoing, the Court will recognize how the fundamental analysis in Jefferson is inapplicable here. This case does not present the crucial consideration in that case that led the court to conclude that where the plaintiff has made "protected speech" the subject of his claims, it would not make sense — at least not with respect to the causes of action at issue in that case — to permit the plaintiffs to recover on any of them. The linchpin of the court's analysis was the need to avoid "the chilling effect on protected speech that might ensue if damages could be recovered on emotional distress claims for publications that were not provably false." Id. at 857 (emphasis added). On the plaintiff's antitrust claim, in turn, the court's concern was that the plaintiff's contention was that the publication at issue "itself constituted a violation of the antitrust laws," id. at 860, and the court saw no reason for federal antitrust law interests to trump First Amendment protections. These considerations and balancing of interests, at the risk of redundancy, are simply not at issue here.

II. THE NATURE OF NOVELL'S SPEECH DOES NOT WARRANT THE FIRST AMENDMENT PROTECTION NOVELL SEEKS

Commercial speech occupies a "subordinate position in the scale of First Amendment values." Ohralik v. Ohio State Bar Ass'n, 436 U.S. 447, 456 (1978). Accordingly, as Novell appears to concede, where a defendant's defamatory statements constitute "commercial speech," they are not entitled to the First Amendment protection necessary to require proof that the defendant acted with "actual malice." New York Times, 376 U.S. at 265-66 (making threshold determination that speech at issue was "editorial" rather than "commercial"); Procter & Gamble

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Co. v. Amway Corp., 242 F.3d 539, 547-59 (5th Cir. 2001) (declining to apply "actual malice" standard concerning commercial speech); U.S. Healthcare, Inc. v. Blue Cross, 898 F.2d 914, 928-39 (3d Cir. 1990) (same).

The main factors are whether the speech was contained in an advertisement, referred to a product, and was made with an economic motive. Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66 (1983); accord Proctor & Gamble Co. v. Haugen, 222 F.3d 1262, 1274 (10th Cir. 2000). A statement containing those elements, even if it also contains "discussions of important public issues," is commercial speech. Bolger, 463 U.S. at 67-68; accord Haugen, 222 F.3d at 1275. There is no general rule, in other words, that the "pure speech" and "commercial speech" in a single publication are "inextricably intertwined" such that they constitute only protected speech. Bd. of Trustees of the State Univ. of N.Y. v. Fox, 492 U.S. 469, 473-74 (1989). A press release may constitute an "advertisement." Neuralstem, Inc. v. StemCells, Inc., 2009 WL 2412126, at *5 (D. Md. Aug. 4, 2009).

Novell is in the Linux business and everything it has said regarding the ownership of these copyrights must be viewed as part and parcel of its economic interest in Linux. Novell's press releases on May 28 and June 6, 2006, were it issued the press releases to "gain credibility with the OpenSource community" and the press releases say that Novell is an "ardent supporter of Linux." Novell begins the first press release by explaining that it is "[d]efending its interests in developing services to operate on the Linux platform," and has a "leading proponent of open source" state that Novell had made "recent announcements to support Linux with NetWare services," a Novell product. Both press releases state that Novell "is a leading provider of information services" and specifically identify Novell's "Nsure™", "exteNd™", "Nterprise™", and "Ngage™" products. They address other subjects as well, but they were indisputably made

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with an economic motive, they refer to multiple products, and they seek to advertise their value and relevance to the subject matter otherwise addressed.

Novell's arguments against these facts (at 8-11) are that Novell was not proposing any commercial transaction; that any commercial aspects of its statements were "incidental" to protected speech; and that any corporation has an "economic motive" when it makes statements, and it cannot be that any time a corporation speaks it will be afforded the lesser protection for "commercial speech." SCO submits that these arguments are unavailing.

First, Novell included the multiple references to its multiple products in an effort to advertise and sell them. There is no other logical explanation for their presence. Among the particular products that Novell sought to sell, moreover, were ones directly related to the subject matter of what Novell contends was protected speech — namely, the question of whether SCO had the right even to claim that Linux infringes on the UNIX and UnixWare copyrights. Novell took care to state that it had made "recent announcements to support Linux with NetWare services," a Novell product.

Second, Novell obviously was not required to convey such information, and it ignores the distinct and prominent nature of the commercial components. To borrow the Supreme Court's language, "[n]o law of man or of nature makes it impossible" for a company to claim to own particular property without at the same time advertising its products. Fox, 492 U.S. at 475.

Third, SCO agrees that the courts must draw a line on what corporate speech does and does not constitute "commercial speech," but submits that in this case Novell seeks to draw that line in the wrong place. Novell did not have merely a general economic motive to do well as a company; it had a discrete and particular interest in offering products and services that directly related to the subject matter of the statements.

10 (14)

III. SCO'S PROPOSED VERDICT FORM IS APPROPRIATE TO DEAL WITH FIRST AMENDMENT CONCERNS NOVELL HAS RAISED

SCO recognizes that there is no controlling Tenth Circuit authority on the relationship of the First Amendment to a slander of title claim in this context. In these circumstances, SCO believes it is appropriate to structure the verdict form, and the jury questions, so as to avoid the need for any retrial of the case. This can be accomplished, as reflected in the verdict form SCO has proposed, by having a separate question on the issue of "constitutional malice," while requiring the jury (assuming it has answered other questions in the affirmative) to proceed to determine damages, regardless of how they answer the question on "constitutional malice." Accordingly, while Novell's motion should be denied, SCO does not oppose appropriate instructions and a verdict form so as to avoid the need for a retrial of the case on this ground.

CONCLUSION

SCO respectfully submits, for the reasons set forth above, that the Court should deny Novell's Motion to Determine that First Amendment Defenses Apply to Slander of Title and Require Proof of Constitutional Malice.

DATED this 5th day of February, 2010.

By: /s/ Brent O. Hatch
HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark F. James

BOIES, SCHILLER & FLEXNER LLP
David Boies
Stuart H. Singer
Edward Normand
Sashi Bach Boruchow

Counsel for The SCO Group, Inc.

11(15)

(Certificate of Service not transcribed, see PDF)

(16)

1 Novell's brief argument and citations (at 6-7) against the relevance of Mueller are of little moment. Novell first argues that Mueller acknowledges that First Amendment protection is needed to avoid inhibiting public discussion of public figures or public issues, but the court of course held that the claim for slander of title did not implicate any such concerns. If Novell means to argue that the Court must carefully examine the particular claim at issue in assessing whether First Amendment protection applies, rather than relying solely on labels, SCO agrees. Novell then cites two cases that address only claims for defamation. Paterson v. Little, Brown & Co., 502 F. Supp. 2d 1124, 1140-42 (W.D. Wash. 2007); Mast v. Overson, 971 P.2d 928, 929-32 (Utah Ct. App. 1998). The analysis in those cases, which are in any event subordinate to the Supreme Court's controlling precedent with respect to defamation claims, does not advance the argument on whether the First Amendment should apply to a claim for slander of title.
2 Novell then (at 3) cites Blatty v. New York Times Co., 42 Cal. 3d 1033, 1042-43 (1986), for the proposition that the First Amendment applies to a claim concerning the plaintiff's property, but Blatty relies on the district court's decision in Bose. In sum, in the face of the indisputably relevant Supreme Court precedent on the issues here, Novell asks this Court to place dispositive weight on a California decision interpreting a District of Massachusetts decision on which the Supreme Court declined to opine.
3 The exact same problem inheres in the other cases Novell cites, including the cases the court in Jefferson cited, which also concern the application of First Amendment principles that are entirely separate from the considerations at issue here. In Unelko Corp. v. Rooney, 912 F.2d 1049, 1057-58 (9th Cir. 1990), the court held that the plaintiff could not prove that the defendant had made false assertions of fact. In Henderson v. Times Mirror Co., 669 F. Supp. 356, 362 (D. Colo. 1987), the court held that the plaintiff could not prove that the defendant had made false assertions of fact. In South Dakota v. Kansas City Southern Industries, 880 F.2d 40, 50-54 (8th Cir. 1989), the court held that the defendant was immune under the Noerr-Pennington doctrine. In Eddy's Toyota of Wichita, Inc. v. Kmart Corp., 945 F. Supp. 220, 224 (D. Kan. 1996), the court held that the plaintiff could not prove that the defendant had made false assertions of fact.

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