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Day 3 of the Trial, Through the Eyes of Groklaw and the SL Tribune - Thompson & Chatlos
Wednesday, March 10 2010 @ 11:59 PM EST

Here's what the Salt Lake Tribune reports happened today at the SCO v. Novell trial, all of which it records as if it were all so. Let's see if it is, by comparing what is reported about the testimony with what we already know. Part of what Groklaw does is insist on checking facts. So, let's do that. And then I'll share with you what our reporter there today has to say.

I'll comment throughout, but feel free to add any links to further evidence in your comments. Starting with the opening paragraphs, today at the trial in Salt Lake City, the article tells us that there was testimony from Duff Thompson and Ed Chatlos:
The top two negotiators for Novell Inc. in its 1995 deal to sell the Unix computer operating system testified Wednesday their former employer believed it sold the copyrights to that software along with the entire Unix business.

Along with Tuesday's testimony from former Novell CEO and Chairman Robert Frankenberg, the Wednesday session bolstered The SCO Group's arguments that it, and not Novell, owns the Unix copyrights....

SCO's first three witnesses before a federal court jury were former Novell officers, including Wednesday's testimony from former Senior Vice President Robert "Duff" Thompson, who directed the negotiations to sell Unix, and Edward Chatlos, who represented Novell in the day-to-day talks.

I'm not so sure about that. Let's dig a little deeper so we can evaluate the testimony and from whence it comes.

Here's Ed Chatlos's Declaration in which he tells his story and here's how I described his words at the time back in 2004:

Note the strange phrasing in paragraph 9:
It was always my understanding and intent, on behalf of Novell, that the UNIX source code and its copyrights were part of the assets SCO purchased. I do not recall anyone else ever suggesting that Novell would retain any copyright relating to UNIX, nor was I present for any discussions, general or specific, during the negotiations that contradicted my understanding of the transaction described herein. None of my superiors at Novell ever informed me that Novell was not transferring the UNIX copyrights to SCO. Likewise, I never communicated to SCO in any way that the UNIX copyrights were not being sold to SCO. Nor am I aware of any instance in which anyone from Novell ever informed SCO in any way that the UNIX copyrights were not being sold to SCO as part of this transaction.
Let me parody it:
"None of my bosses ever informed me that the moon was not made of blue cheese. Likewise, I never told my neighbour that the moon was not made of blue cheese."

"At dinner time, I did not observe anyone stating or acting as if the the moon was not made of blue cheese."

Can you conclude from that that neither I nor my bosses ever said the moon *was* made of blue cheese? No, you can't. It could equally well have been the case that nobody ever mentioned the composition of the moon. Or to put it another way: why does he not state in his declaration: "I told [old]SCO that the copyrights were being transferred"?

I don't see him say that. He says that it was his understanding and his intent and that he didn't say the copyrights weren't being transferred, but that's not quite the same thing. Surely, if the matter of the copyrights were being discussed and he was the chief negotiator, he would have talked to oldSCO about it. In which case he could honestly say "I told SCO they were getting the copyrights." Why can't he declare that?

Maybe because we discovered at Groklaw that by January of 1996 he was working at AT&T, having left Novell. Here's an interview with Ed Chatlos that AT&T used to have on its site, but it is still available on Wayback, and you'll see from what he says that he clearly had been there more than a day or two. SCO's own description [PDF] of Chatlos's activities surrounding the APA say, "During the Novell-SCO negotiations, Mr. Chatlos met regularly with SCO representatives, sometimes several times a week, from June to September 1995." Given the dates of the APA's Amendment 2 in October of 1996, how can he testify to that? Obviously, he can't. The TLA and Amendment 1 were dated December of 1995, and he wasn't there for that either. So he was there in the early part of the negotiations and maybe even up to the end of the majority of the business discussions leading up to the APA itself in September of 1995, but as Novell will no doubt be pointing out, the day before the APA was signed, Novell decided not to sell the copyrights, because Santa Cruz didn't have enough money. Here are the minutes of the meeting on September 18, 1995, and oddly enough, the two claimed to be the chief negotiators were not invited to that meeting, though others involved were.

Judge Ted Stewart already ruled [PDF] on a Novell motion in limine [PDF] that Chatlos and several others could testify about the negotiators' intent behind the APA and Amendment 2, which seems odd, since he was long gone:

Such testimony is admissible. These witnesses have personal knowledge of the negotiators’ intent concerning the transaction, because they participated in the negotiations. Their testimony constitutes relevant extrinsic evidence of the circumstances in which the APA and Amendment No. 2 were drafted; of the negotiations that occurred leading up to the execution of the APA and Amendment No. 2; of the object, nature, and subject matter of the APA and Amendment No. 2; and of circumstances helping to explain the execution and meaning of Amendment No. 2. SCO Group, Inc. v. Novell, Inc., 578 F.3d 1201, 1211, 1217 (10th Cir. 2009). Their testimony is integral to helping the factfinder place itself in the same situation in which the parties found themselves in negotiating and executing the documents. Consistent with well-established California law, the Tenth Circuit has necessarily rejected the argument that only the testimony of the individuals who negotiated the language of the APA or Amendment No. 2 is relevant. Novell’s arguments go to the weight of the testimony of these witnesses, not its relevance.
I think he goofed with respect to Amendment 2, but in any case, the part where he talks about "weight" means how much credence to place in it. Given the above, I think you can weigh it yourself. Why did the judge rule this way? Because the appeals court, he wrote, specifically cited his testimony. That too was in error, I believe, since Chatlos was long gone before the story ended. But the most he can testify to is what he thought was going to happen. And that, in fact, is all of his testimony:
It was always my understanding and intent, on behalf of Novell, that the UNIX source code and its copyrights were part of the assets SCO purchased. I do not recall anyone else ever suggesting that Novell would retain any copyright relating to UNIX, nor was I present for any discussion, general or specific, during the negotiations that contradicted my understanding of the transaction described herein.
We're talking about copyrights transfers, where intentions and supposings don't legally count, but a clear writing does. Certainly, even if memories could top a writing, Chatlos wasn't there for any of the negotiating regarding Amendment 2. This judge didn't care about that, and his ruling seems to be that if someone was there for any part of the deal, they can testify about the intent of all of it, perhaps because of viewing the two documents as making up just one document in the end, but I do expect there will be an appeal eventually regarding his decision about that, and here's why, Novell's argument in its motion in limine no. 19:
Under Rule 602, “[a] witness may not testify to a matter unless evidence is introduced sufficient to support a finding that the witness has personal knowledge of the matter.” Fed. R. Evid. 602; Zokari v. Gates, 561 F.3d 1076, 1089 (10th Cir. 2009) (citation omitted) (affirming district court ruling excluding testimony of witness who lacked personal knowledge of matters relevant to trial). Under the personal knowledge standard, testimony is inadmissible if “the witness could not have actually perceived or observed that which he testifies to.” Argo v. Blue Cross & Blue Shield of Kan., Inc., 452 F.3d 1193, 1200 (10th Cir. 2006) (citations omitted) (“‘statements of mere belief’ in an affidavit must be disregarded”).

Moreover, a lay witness may not testify as to matters which call for a legal conclusion, such as the interpretation and effect of a contract or an amendment thereto. See, e.g., Evangelista v. Inlandboatmen’s Union of the Pac., 777 F.2d 1390, 1398 n.3 (9th Cir. 1985) (opinion of union chairman as to correct construction of collective bargaining agreement was inadmissible because it was a legal conclusion).

Mr. Chatlos lacks personal knowledge to testify as a lay witness about the intent and meaning of Amendment 2. Mr. Chatlos left his employment at Novell in January of 1996 – ten months before Amendment 2 was negotiated. (Ex. 19A (Chatlos Dep.) at 29:24-30:2; Ex. 19B (Chatlos IBM Dep.) at 134: 10-16). He admits, as he must, that he played no role in negotiating or drafting the amendment. (Ex. 19A at 41:9-18 (stating “I wasn’t party of that,” and that he left Novell before it was negotiated), 42:15-18; Ex. 19B at 49:13-21 (he was not involved in the negotiation of Amendment 2).) Accordingly, any testimony by Mr. Chatlos about the meaning of Amendment 2 is improper opinion testimony based on speculation and hearsay. (E.g., Ex. 19A at 42:19-43:11.)

So whatever Chatlos thought was supposed to happen, he can't really tell us what actually did happen, because he was either not told about the decision at the board of directors' meeting, or later, because he was gone from Novell.

Duff Thompson: As you know, Thompson is on the SCO board, or was. He made some money, I believe, on the stock since 2003, and I would imagine he stands to gain yet more if SCO were to prevail on the copyright ownership issue, since he still owns stock and has options on more as a director and under the Omnibus Stock Option Plan. I only mention it because SCO keeps identifying him as an ex-Novell employee, but in truth he's hardly unbiased, in that he has a stake in the outcome. He's SCOfolk. Interesting tidbit from the 1996 Santa Cruz press release announcing he'd be sitting on its board soon after the APA acquisition: he used to be with the BSA:

Mr. Thompson is a former chairman of the board of the Business Software Alliance, the principal software industry association dealing with software industry issues including copyright protection and public policy.
I really start to wonder how long this litigation lottery has been a gleam in someone's eye.

Let's get back to the Salt Lake City article, shall we? I'll skip a chunk where it provides background and we'll focus on the next part that drew my eye in particular:

But Novell did not claim ownership of the copyrights until 2003, after SCO sued IBM, asking for as much as $1 billion because IBM allegedly had used the copyrighted Unix to make the improvements to the competing Linux operating system.
You don't need to claim copyrights until someone else, in this case SCO, publicly challenges you. But as we have shown on Groklaw, SCO continued to distribute UnixWare with Novell copyrights for the years covered by the APA for years thereafter. So SCO itself told the world, as I view the evidence, that Novell retained the copyrights. So why would Novell speak out? When Novell's turn comes, after SCO is done, they'll be addressing that claim when they begin to put their witnesses on the stand, for sure. As Novell's attorney Sterling Brennan told the jury in his opening statement on the second day of trial, wait to form an opinion until you hear the rest of the story. That's good advice for journalists too, not just juries. Because Novell has lawyers who actually wrote up the APA and Amendment 2. SCO does not.

Back to the article:

Novell's opening to make that claim is the 1995 sales agreement, part of which could be read to say that the copyrights to Unix were not included in the sale.
The part is the section called "Excluded Assets", which read: "all copyrights." The article makes it sound like it's not a significant piece of the story, but it's why the Appeals Court said it is clear that the APA as originally signed did not include the copyrights. And in case anyone imagines Amendment 2 magically changed the excluded assets to give them to Santa Cruz, here's how the excluded assets section was changed to read:
All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the Agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies. However, in no event shall Novell be liable to SCO for any claim brought by any third party pertaining to said copyrights and trademarks.
Question for you: did Santa Cruz as a result get any more trademarks? No, it didn't. Extrapolate. And that's why Santa Cruz didn't run to the Copyright Office in 1996 and register any new copyrights.

The article:

But Thompson and Chatlos both said that section was meant to apply to Netware, a Novell networking program, and not to the Unix business.

"I assumed and I intended we were selling the copyrights, as well," said Thompson, who also testified that his orders from Frankenberg were to sell all of Unix, including the copyrights.

Except if it was supposed to mean that, they would have said in the excluded section, "all NetWare copyrights". But it didn't. It said all copyrights were excluded, and all means all. Back to the article:
One of Novell's arguments is that it retained the copyrights because Santa Cruz could not pay completely in cash for Unix, which it had bought from AT&T for more than $300 million a few years earlier.

Asked if that were true, Chatlos said "absolutely not. The deal I negotiated with SCO included the copyrights."

The deal he negotiated doesn't match the deal as written in ink on paper. And that is the piece the jury has to try to sort through.

Back to the article:

Part of the sparring between the legal teams -- led by Boies Schiller & Flexner of Fort Lauderdale, Fla., for The SCO Group ,and Morrison & Foerster of San Francisco for Novell -- is over Amendment No. 2 to the original sales agreement.

The amendment was added in 1996 and appears to be intended to fix the copyright issue in Santa Cruz's favor, and by extension SCO's. Novell has introduced as evidence the original sales agreement without the amendment, while SCO's evidence includes the amendment.

That is simply untrue. Here's where you can find Novell's Motion for Partial Summary Judgment it filed in 2006, with the APA and Amendment 2 attached as Exhibit 4. It's been there on Groklaw's page, as well as on our Contracts page all this time. Where do people come up with such stories? In my opinion, it's usually because they've been listening to SCOfolk tell things their way, without checking the facts carefully enough. But truth can't bend. Novell certainly did introduce Amendment 2 into evidence, so hopefully the Salt Lake Tribune will issue a correction so as not to mislead its readers.

The article:

Novell's trial strategy to this point has been to show -- time and again -- the actual wording of the original sales agreement with no mention of Amendment No. 2.
That's not true either. In his opening argument, Sterling Brennan mentioned Amendment 2. I don't know why there are these inaccuracies, but they come across as subtle digs at Novell, and since they are not factually true, perhaps it would be appropriate for the paper to examine their coverage to make sure it is not biased or inaccurate. And Groklaw is always available to journalists who wish to use us to find foundational facts. It's what we do, and it's a free service we have provided to journalists since 2003. Please feel free to make use of it.

And now, here's what our observer at the trial today says happened:

I am definitely a Groklaw addict (and I happened to attend the trial). Just not a good note taker.

Duff Thompson testified for most of the day and sang the same old SCO song that while he was at Novell he was in charge of negotiating the deal with Santa Cruz.

He (and Novell) always intended to transfer the entire Unix business and no one at Novell ever told him to hold back the copyrights. To do so would make "no sense whatsoever." The cross-exam by Acker was great. Thompson has 110,000 shares of SCO stock and undescribed options. He headed up the litigation committee that made the decision to sue Novell and IBM. His partner (Dan Campbell) also sits on the board and was part of the deal to finance this litigation. (I suspect this was in reference to the deal that was approved by the bankruptcy court, but no specific reference to the bankruptcy was made). Thompson claimed to "know nothing about his partner's personal investments."

Thompson also told Frankenberg he would be leaving Novell in spring 1995 (before he was tasked with negotiating the SCO deal). Acker asked him if he had "checked out" after he decided to leave Novell and Thompson kind of laughed and said something to the effect that "that is not how I would characterize it."

The Judge admonished Thompson to answer the questions asked, even though Acker never asked for the admonishment. I had to smile! It was clear to me and I think the jury that Thompson was trying to be evasive. Especially when Acker showed him an email that questioned the whole SCO source business concept. He began to have doubts about ever having seen it, even though his name was referenced as one of the recipients.

There was also some great cross about the fact that SCO's SEC filings (that Thompson had approved as one of the Board members), expressly called out the substantial risk to the SCOsource scheme, because of the outcry from the Linux community -- not because Novell claimed ownership of the copyrights, but because no one believed any Unix copyrighted code existed within Linux. It seemed the jury was very much engaged during the cross examination. And it became apparent that Thompson was SCO and a key to the entire SCO source licensing plan.

Ed Chatlos then testified that he knew for certain the copyrights were included as part of the deal. And the reference to Novell retaining "all copyrights" was "clear in his mind" as referencing only the Netware related copyrights -- his explanation -- because the schedule included lots of Netware related references. Ted Normand did the direct examination and tried to soften any bias issue by asking Chatlos about his wife who works for SCO and has a couple hundred shares and several thousand options.

The cross examination was quite short and I don't think really made any significant hits on Chatlos.

Tomorrow will be deposition video of Messman and then SCO's expert Davis will testify. Sorry my recollection is not too detailed, but next time I will try to take some notes. I was just having too much fun watching.

I thought we had no one at the court today, until after I had finished this article about the coverage in the Salt Lake Tribune. The two reporters we had assigned both had health issues, so I thought all we'd have was the mainstream media. But the best thing about doing a community project like Groklaw is that you never know who will be the one who steps up to the plate at just the right moment. And once again, the community came through.

Finally, Netcraft is reporting is down. I don't know why, but it's a good time not to try to go there. Perhaps it has to do with the Ralph Yarro loan going through? Or moving around the subsidiaries?

And we do have a volunteer for tomorrow. Thankfully. But if you can go too, please do!

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