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Week 2, Day 6 of SCO v. Novell Trial - The Mistrial Motion, Kim Madsen, Steve Sabbath, Darl McBride - Updated
Monday, March 15 2010 @ 09:44 PM EDT

Chris Brown attended the jury trial today for us in SCO v. Novell, and he has the details about the mistrial motion, the denial of the motion to allow evidence, and there was testimony today from Kim Madsen and Darl McBride and a deposition played of Steven Sabbath. The mistrial was related to the denial of Novell's motion to allow evidence. The judge said what SCO told the jury was inappropriate, and he merely warned SCO not to go "close to the line again." I'm sure SCO will mend its ways immediately.

Chris's report, Part 1:
Part 1: Denial of Novell's Motion to Allow Evidence, Witness Testimony of Kimberly Madsen

First discussed this morning, before the jury was brought in, was Novell's motion to allow evidence relating to SCO's statements during opening that Novell continues to slander SCO's title to this day. Judge Stewart denied the motion saying that the court believes SCO's statements made during opening were unwise and inappropriate, but do not open the door to allowing the other court's statements to be admitted. He believes it would be confusing to the jury to educate them on the factual history of the case. He admonished SCO to be careful not to come "close to the line" again.

Novell's Mr. Sterling Brennen then moved for a mistrial for the reasons outlined in their motion, and SCO's Stuart Singer requested the motion be denied. Judge Steward denied the motion.

Mr. Singer then reported that the plaintiff and defendant's jury instruction groups met together over the weekend and made progress, though no final instructions are ready. He believes they will be in a couple of days. He reported that SCO and Novell will not be able to reach agreement on jury forms and each party will be submitting their own to the court. Judge Stewart thanked both sides for their efforts in working together and ordered that they submit jury instructions by 5pm Wednesday. He wished to then provide the final version back to the parties on Friday so they can have the weekend with them.

Mr. Singer then reported that today will be the live testimony of Kim Madsen, deposition testimony of Steven Sabbath, and finally live testimony from Darl McBride.

The jury was brought in and SCO's Edward Normand called Kimberly Madsen to the stand. She testified that she started with SCO in 1990 (pronouncing SCO as Ess-See-Oh throughout her testimony, rarely using the name Santa Cruz Operations.

During her testimony SCO was used for Santa Cruz, and Caldera for The SCO Group). She remained with the company after the sale to Novell as it was renamed Tarantella. She then went to Cordiant (sp?), and then to Apple where she is currently employed as Sr. Contracts Manager. She supported Mr. Steve Sabath in his work on the sale of the Unix business from Novell to SCO. She was involved in the discussions that took place in New Jersey and California. She was involved in discussions with Burt Levine, Ed Chatlos, John Maciaszek, Wilson Sonsini folk, and others.

When asked what was being purchased she responded that Apple was purchasing... Mr. Normand: Apple?, Ms. Madsen: Sorry, SCO purchasing all assets. Were copyrights included? Yes, they were. No, there was no discussion where Novell would retain the copyrights. Yes, she would have remembered if they were being retained. Novell retained NetWare and SCO licensed back usage rights to Unix to Novell.

A document containing minutes of a SCO Board of Directors meeting of November 19, 1995 was shown to Ms. Madsen and admitted as exhibit 29. Named as present were Executive VP Doug Michaels, CEO Alok Mohan, the Brobeck firm, and Steve Sabbath. Mr. Normand highlighted a section referring to "Project Sleigh Ride." Ms. Madsen confirmed this was the internal code name for the acquisition. She confirmed Jeff Seebrook was VP of Strategic Planning and one of the lead negotiators. She said that copyrights were transferred but patents were not. She testified that copyrights are fundamental to business but patents were not important to SCO. She was a member of the transition team.

She was shown Novell exhibit (Novell N-5) of the Closing Checklist that was received from Wilson Sonsini, the law firm negotiating the APA on behalf of Novell and later corporate counsel to Santa Cruz. Novell's Mr. Jacobs requested a side-bar. The white noise was turned on, and Michael Jacobs, Ed Normand, and Sterling Brennen met with Judge Stewart at the end of the bench near his door to chambers. I could hear their voices without being able to make out any words, though a minute later the noise was turned up a little bit louder and I couldn't hear anything. The noise was as of an old analog television after the station had gone off the air, effective but not real annoying.

When Mr. Normand returned he addressed the jury saying that a few moments ago it was stated that Wilson Sonsini represented Novell at the APA and was then corporate counsel to SCO afterwards. There was no suggestion of this being inappropriate. Judge Stewart further clarified that there was a "firewall" and that the attorneys who negotiated on behalf of Novell were not those to serve as counsel to Santa Cruz.

Mr. Normand presented exhibit C-6, a letter dated Dec 14, 1995 confirming a grant of 6.1+ million of SCO stock to Novell. Ms. Madsen confirmed that this was part of the consideration for the APA, also that Novell retained part of the binary royalties, and sales threshold royalties. Mr. Normand asked if there was anything about withholding copyrights? No.

Then SCO exhibit 30, SCO's Annual Report. Reading page 3 middle column, where going forward SCO's ability to license Unix technology rights. Madsen affirms the language reflects the purchase in the APA. Asked about Amendment #2, no specific recollections of it, but yes generally. Not sure on it's statements on copyrights, but yes, they were required for the business.

Mr. Normand then presented SCO's SEC 10K for the period ending September 30th, 1996 as exhibit 521. Mr. Jacobs objected to the document as hearsay regarding the APA, and Mr. Normand said it presents SCO's state of mind. Judge Stewart overruled and said that Novell can explore on cross-examination.

In the 10K there is an event date in December included; Ms. Madsen states that while the report is for the period ending Sept. 30th, the SEC requires that should any significant activity occur during the preparation of the report, but before it is filed, that it be included. Mr. Normand draws attention to the bottom paragraph on page 57 with report of purchase. Ms. Madsen confirms that she understands that SCO acquired the copyrights in the purchase.

Ed Normand asked Ms. Madsen if she's familiar with a dispute that came up between SCO and Microsoft? She does, Microsoft required royalty payments from SCO regarding compatibility for Xenix with Microsoft. Mr. Normand presented a report to the European Union regarding anti-competition. Mr. Jacobs objected on hearsay, saying it's a report from SCO to a European regulatory body in which Novell was not involved. Mr. Normand states that it's course-of-business. Overruled.

Drawing attention to section 3.4, Mr. Normand highlights where SCO reports that they have now acquired ownership of Unix, that SCO needs no further license. They state that while Microsoft is "free to innovate" SCO, the copyright owner, must maintain compatibility with Microsoft. He notes that SCO and Microsoft settled the dispute. Ms. Madsen confirmed this.

Mr. Normand presents exhibit 199 dated in 1998, the settlement agreement. Novell's Mr. Jacobs objects, saying these are unilateral statements by SCO to which Novell was not a party. Overruled.

Ted Normand notes that in paragraph B of the recitals, SCO indicated it has acquired Unix System V. Ms. Madsen confirms that this text matches her understanding of the APA. The document was signed by Steve Sabbath. Asked if there was any discussion of Novell retaining the copyrights, she says No.

Ms. Madsen was then cross-examined by Novell's Michael Jacobs who brings a 6 inch thick folder to the podium. He reassures Ms. Madsen that she should not judge how long this will take based on the size of his folder. From the folder he removes a copy of her deposition transcript and hands it to her. He confirms that she joined SCO in the early 1990s and she corrects to 1990. He asks her if SCO already had a version, or flavor, of Unix called OpenServer under license from Microsoft and Novell (through AT&T). She confirms they did, although had reservations about the licensing relationships. Mr. Jacobs asks wasn't it a substantial business with 1000 employees and $200 million in annual sales? Yes, perhaps at its peak. And that Santa Cruz was acquiring the entire Unix business from Novell? Yes.

He presents her SCO exhibit 163, an internal SCO announcement from CEO Alok Mohan to all employees. She doesn't recall it specifically, but expects she would have received it. Mr. Jacobs notes that the highlighting on the document he provided was made by SCO. He reads where it indicates that SCO was receiving the entire Unix business. He asks if that implies that all transferred? Yes, it does. He reads where it says in Mr. Mohan's announcement that SCO is the owner of the UnixWare product line and additionally that SCO manages the Unix licensing business prior to UnixWare 1.0 SVRx. Mr. Jacobs asks her if that's her understanding, No, it's not her understanding that SCO was simply managing.

He shows page 42 of exhibit D11, Caldera's 10K made after the purchase. (Note that this is Caldera's 10K, not Santa Cruz's.) Mr. Normand objects based on foundation with this witness, and on best evidence rule. Judge Stewart asks if Novell has another witness or can establish foundation with a different witness. Mr. Jacobs say he will, but has a question for this witness. Objection is overruled but directs that Novell must lay foundation. Mr. Jacobs reads a sentence describing agency relationship of Caldera where 95% of royalty stream goes to Novell and 5% to Caldera. She disclaims knowledge of it.

Mr. Jacobs provides her a copy of the APA and directs her attention to 4.16b and reads the part where at the seller's (Novell's) sole descretion it may direct buyer to amend, etc. Ms. Madsen says that does not reflect her understanding of the agreement. She says it is limited to the royalties. She says she remembers Novell's concerns about SCO's financial state and wanted to protect the binary royalty stream and reflected that in the deal. Discuss "deal" and "concerns" verses the language in the contract. That lawyers have concerns then they write down what they mean in the contract language.

Mr. Jacobs asks her if, when reading this language in 1995, did she remember it meaning Novell could assign rights under SVRx to someone else? No.

Michael Jacobs asked if this is an agency relationship like with a real estate agent, where they could fire the agent if it wasn't performing? No.

He reads from section 4.16a regarding administering license revenue. He then reads Mr. Mohan's statement again from his announcement about managing license revenue. He asks Ms. Madsen if his statement is inconsistent with 4.16a/b from the APA? No, it's not inconsistent.

He asks if the buyer is making royalty payments to the seller? Yes.

He notes schedule 1.2b, royalty schedule. Discussion of thresholds and 1.2a product list payments for UnixWare. Royalty-bearing products? Yes. She sees it but no recollection.of discussion of intent. Pressed again, "I don't remember what the intent was."

SCO will be making upgrades, derivatives, etc? Yes. Mr. Jacobs notes Section 4.1.8 where part of intent was that SCO was to develop a merged product. That buyer's product roadmap was developed by Novell and SCO. She has no knowledge of roadmap. Judge Stewart asks how much longer Mr. Jacobs has to which he replies about 25 minutes more. He then called a 15-minute recess.

On return, Mr. Jacobs questioned Ms. Madsen if, day to day, she provided guidance regarding interpretation of the agreement? Yes.

He notes exhibit X-5, the "Operating Agreement." She has recollection of it. Its effective date is the APA close date of Sept. 6, 1995. He reads its provisions for product and channel strategy including how the existing product labels are to change. Mr. Jacobs shows a SCO UnixWare CD (taken from Mr. Hatch's table, and bearing the distinctive SCO Unix blue and yellow tree logo) and asks "This is the way it was distributed? By CD?" Ms. Madsen takes the CD and laughs, saying it's been a while since she's seen that, but yes, it was one of the ways. She's not sure if it was the only way, it might also have been available for download. Mr. Jacobs, though, confirms that the UnixWare product was distributed as packages with CDs. He reviews several products SCO was to sell.

He asks her if he recalls Mr. Normand asking about the IBM buyout dispute and Amendment X, exhibit I-8? Mr. Normand states that's incorrect he didn't ask about amendment X. Mr. Jacobs asks Ms. Madsen if she is familiar with the IBM, SCO, Novell amendment X to Soft 0015 w/IBM?

Earlier on a question of Mr. Jacobs where he'd asked her if a document was saying this or that, Mr. Jacobs had stated "It's not a trick question. If I'm going to ask you a trick question I'll raise my hand up and tell you." On this question, Mr. Jacobs raises his hand and says "Hands up" and reads amendment X including part where Novell retained certain rights. No, she says, retained *some* rights, but it doesn't identify which rights.

"Hands up again" (I'm sure he's doing this for the jury's benefit rather than Ms. Madsen's) -- Section 1.1a from purchase agreement, what Novell would sell, and be sold again, and what would be retained? What, exactly, do you remember versus what you believe must have happened based on the documents and reconstruction of what transferred? Ms. Madsen answers, both, no bright line between the two.

Mr. Jacobs asks if she understands included/excluded assets and how the excluded assets schedule is more important, or trumps, the included assets. She opines that it's not more important than the included assets, it's more of exceptions to the included assets. He asks if she, in the course of her work with contracts, is familiar with the legal phrase "notwithstanding the foregoing?" No. He defines it.

He asks her if she was present during the final week of negotiations? Yes, she was. At Brobeck's offices in Santa Cruz. She recalls the APA packet transferring between the two parties, but no specific recollection of the excluded assets schedule. She said they were working to get it all done before a deadline.

What was that deadline? She said there was a time crunch because it needed to be done before Novell's Board of Directors meeting. "Hands up" Confirms again that she had no specific recollection of reading excluded asset schedule and thinking to herself "that must be excluding the NetWare copyrights." No recollection? She repeated, that she had no recollection.

Mr. Jacobs says that Mr. Normand asked, at the end of his direct examination, if SCO required the Unix copyrights for business? Yes. Mr. Jacobs then asks about them sitting around the table in Palo Alto. He confirms that Brobeck is a big intellectual property law firm, top notch. And sitting there at the table is Brobeck, Sonsini, Novell, SCO, and across the table comes the table of excluded assets excluding copyrights and no one notices? Yes, that's right. Not Brobeck? Not Sonsini? Not Sabbath? No. He asks "and copyrights are not in the included assets table either?" No, it was understood that they were transferred.

Mr. Jacobs asks, SCO was in the Unix business for 12 years of operating a successful business without the copyrights? Yes.

He then gives an alternative scenario that this is an acquisition of another flavor of Unix. Isn't that an explanation? No. He tries to introduce a question about if she has knowledge of Mr. Sabbath's deposition statement directly contradicting her. Objection by Mr. Normand. Sustained.

Mr. Jacobs then says that over the next several months attention was paid to the included/excluded assets schedule which resulted in amendment 1? Yes. He confirms the copyright exclusion was not changed. No, it wasn't.

He asks, her superior Mr. Sabbath, and Wilson Sonsini overlooked it? They blew it? No, she doesn't want to say her former supervisor "blew it," but that it (the contract language) could be clearer.

Mr. Jacobs asks if she rejects the explanation that copyrights won't be needed because this is just another flavor of Unix? Yes, it's not correct.

He repeated question about the copyrights to which Ms. Madsen adamantly stated that copyrights were overlooked, that had they (SCO) seen it as excluding the Unix copyrights, it would have been changed.

Mr. Jacobs asks Ms. Madsen if she's aware that Mr. Sabbath made a deposition statement directly contradicting her? Objection by Mr. Normand. Mr. Jacobs told the judge that it was his understanding that statements outside the courtroom could be used to impeach the witness. Mr. Normand, it was his understanding no. Objection sustained.

Mr. Jacobs brought attention to the APA provision granting a license back to Novell. Rights to use the derivative/merged product? Yes. He asks that the license would be to what's in the included assets less the excluded assets. She disputes included/excluded assets. Some back and forth about what Novell would license back, all versus new.

He then asks her about SCO's 10K and she confirms that no one at Novell Legal reviewed the statement regarding SCO acquiring Unix. She likewise confirms that no one at Novell Legal reviewed SCO's statement of ownership made to the European Union in the Microsoft dispute.

SCO's Mr. Normand, on redirect, was speaking pretty fast and it was hard to take notes on it. He uses the same UnixWare CD that Mr. Jacobs had and asks that he purchased it, there would be a contract between him and SCO? Yes. Walking over to Mr. Hatch he hands him the CD and asks, but if I just give this to Mr. Hatch you have no contract. Can you sue me? Yes. Can you sue Mr. Hatch? No. Would you need copyrights to pursue Mr. Hatch? Yes.

Regarding Mr. Mohan's email announcing the acquisition of Unix, did you understand this as obtaining Unix copyrights? Yes. He reads the bottom of letter saying SCO is the leading provider of Unix. He says a press release was included with the letter. He highlights where it says SCO obtained Unix technology. Yes, that's her understanding of what was obtained. He refers to APA section 4.16b and 4.16a regarding royalties and asks what her understanding of the payments to Novell were to be after the APA. She says it was to be stock, royalty stream, and threshold level royalties.

He asks if contracts are always clear? No. Are they then amended? Yes. Once they're amended is the original still relevant? No.

He asks if Novell could have amended, directed, etc. anything in contract, what effect would that have? She answers that it would render the entire contract meaningless. Mr. Normand asks, How so? She said they could have amended all of it & resold the Brooklyn Bridge.

Mr. Jacobs asks for a sidebar to discuss recalling Ms. Madsen in the future. They do so. Afterwards Judge Stewart asks Mr. Normand if he has anything more for her and he says no. Judge Stewart then asks Ms. Madsen about what inconvenience it would be calling her again. She indicated she has two children missing school and an infant in the hall. She said her employer would not be happy with her coming back. Judge Stewart says she would not be called for a number of days and she can return to California, but that she can likely expect to be called back.

Mr. Normand than asks for another sidebar to discuss further after having heard her responses. They do so again. The judge then asks her if she has a flight at 3pm today? Yes. He asks her to stay around but it'll at least be by 1:30pm.

Next: Testimony of Mr. Sabbath by deposition.

You know, while we await part 2, may I just point out that all this testimony about how impossible it would be to run a business without copyrights flies in the face of something former SCO CEO Darl McBride told SCO's customers, partners and the SEC?

Darl McBride told the world in a letter to partners and customers right after the Utah District Court first ruled on summary judgment in 2007 that Novell retained the copyrights that SCO didn't need the copyrights to run its business. He filed the letter in an 8K with the SEC. And you know Darl told us he never lies to the SEC. Here's what Darl told them:

This ruling has no impact on SCO’s ability to continue to develop and support all versions of UnixWare and OpenServer as well as the recently announced OpenServer 6M and UnixWare 7M as well as our new mobility products. It has no impact on your ability to sell, service, support and develop to any of our UNIX operating systems
No impact. SCO could continue to develop and support ALL versions of UnixWare. What? Without owning the copyrights? And with an implied license only? An implied *exclusive* license, I believe he had in mind. What might that mean, class? I'm marking my paper that it means you don't need to own copyrights to run a software business. Feel free to copy my answer.

Santa Cruz began its business with Xenix, the copyrights to which belonged and belong to Microsoft. It also developed OpenServer for years and years without owning the copyright. I think Red Hat has a successful business also, now that I think of it, and they don't own copyrights on most of what they offer. For that matter, Novell's SuSE is a software product, the copyrights of which do not belong to Novell.

Here's Kim Madsen's deposition, in case you can't get enough.

Chris's Report, Part 2, Steve Sabbath's Video Deposition:

The trial continued with Mr. Singer calling Steve Sabbath by deposition. Then a video started of Mr. Sabbath's deposition edited to be just various questions and their answers with the various attorney objections removed. It's my understanding that the deposition was taken as part of the IBM case. There was no commentary or remarks made by SCO counsel during this video; it just played straight through. The way it was edited made it seem somewhat disjointed. The jury definitely didn't seem as focused on it as they were during the live testimony of Ms. Madsen.

The questioner's voice seemed to be Mr. Normand's and I'll report it as such, but I don't recall any statement of who it was.

Asked who worked on the agreement, Mr. Sabbath indicated it was Jeff & Jim on SCO's side. He said SCO was purchasing the entire business including intellectual property. He said the copyrights were going with the assets. He said schedule 1.1b looks to him to apply to NetWare. He said SCO owned everything and could copy the source code as it saw fit.

Mr. Normand asks if it has come to your attention that Novell claims to have retained the copyrights? Yes, I don't see where they're coming from or what it's based on. Did Santa Cruz subsequently ask to transfer copyrights? No. Was it your understanding that SCO would have to ask that they need to be transferred? No. Do you recall anyone from Novell saying they would retain copyrights? No.

Mr. Normand asks if he played any role in the sale to Caldera? Yes, pretty much the same role as when SCO bought it. What was being transferred to Caldera? The entire business, what we obtained from Novell.

Mr. Normand reads declaration #5 from Mr. Sabbath's written declaration regarding Novell's purported right to waiver of intellectual property rights. Mr. Sabbath stated that it is not consistent with 4.16 of APA. SCO would not have agreed to the APA if that's what it means. Asked about Ms. Madsen, he states that she was his #2 with regard to negotiating the APA. She reviewed documents sometimes even without him reviewing them, played an important role, or even lead, on Amendment 2 and Amendment X. She was exceptionally good at what she did.

Regarding declaration 6, the Unix copyrights came with the product. All copyrights? Yes. This ended the video portion, but Mr. Normand states that there were a couple of points that failed to get into the video edit and asked the court for permission to read them aloud and was allowed to.

Mr. Normand then read Amendment 2: "exclude all copyrights and trademarks." Copyrights required to enter into new SVRx? No. If Novell were retaining copyrights, would you have heard about it? Yes. Were copyrights required to run the business? Yes, my gosh, how could you not? You need them to enforce your rights to your software.

Judge Stewart then called a 20-minute break.

After returning, and before the Jury was brought back in, there were more discussions. Judge Stewart said that he read as much as he could during the break of Mr. Sabbath's declaration and said that on its own it rebuts Ms. Madsen and he sees no need to bring her back. Mr. Jacobs wishes to do so in front of the jury and read paragraphs from his declaration that include his contradictions.

Mr. Jacobs states that Mr. Sabbath had the declaration in front of him during his deposition and referred to it. Therefore the jury should be able to see that document as it would be in court.

Judge Stewart asks doesn't Novell have him saying as much verbally during the deposition? Mr. Jacobs admits that they did not have him read his declaration aloud during the deposition. Judge Stewart says Novell may not read it aloud to the jury and that he's not going to make up for what counsel failed to do during the deposition.

The jury was then brought in and Novell's deposition cross-examination video was played. I believe it was Mr. Jacobs asking the questions on the tape and I will report it as such, but I can't be sure.

Asked by Mr. Jacobs if Mr. Sabbath reviewed his declaration, he said Yes, not necessarily the documents, for example the APA. Why? He said he wasn't that interested.

Mr. Jacobs reads a portion of the declaration wherein Mr. Sabbath states that his declaration is truthful. Mr. Sabbath says that the declaration was "quick and dirty done over the phone before the holidays" that "it's close enough for government work" and that it's "not correct in every point."

Mr. Jacobs asked if what was being sold was described in the 1.1a included assets and 1.1b excluded assets. Mr. Sabbath answers that what was being sold is in 1.1a/b plus "clean up memos." Asked about section 1.16 license back, anticipated the tech licence agreement and if a license back would give Novell license to code SCO's coders wrote? Yes.

Mr. Jacobs asks Mr. Sabbath if he understands what perjury means? Yes. Mr. Jacobs asks him to explain it to the jury to which Mr. Sabbath offers a description. Mr. Jacobs then asks him why he didn't review the documents. Mr. Sabbath said he was "lazy" and didn't review the two inches of documents. Said he didn't know that your (Novell's) case would turn on the minutiae of the agreement.

Mr. Jacobs asks, if Novell had a right regarding SCO's future source code rights to SVRx. Yes.

Referencing Amendment 2 exclusion "except for copyrights and trademarks owned by Novell...," Mr. Jacobs asks if creation of derivative work can be done by license and doesn't require copyright? (I missed his response. And later, I heard during a break the court reporter questioning SCO of what was said, that he "swallowed his words" at the end. Though I didn't hear SCO's response to her either).

Next, Testimony of Darl McBride

So, two SCO witnesses who totally contradict each other. Perfect. That's what happens when you don't bother to read contracts but yet recall perfectly 15 years later what it said, even what it should have said when it doesn't so say. Hence the question about perjury.

Here's Amendment X, for anyone new. Here's Steven Sabbath's Declaration in the IBM and the Novell cases, dated from 2004. And here's his declaration [PDF] in the IBM case in 2003. And here's part of what the Hon. Dale Kimball wrote about Mr. Sabbath in his August 10, 2007 ruling, that the jury is not going to be allowed to know about:

During negotiations on Amendment No. 2, SCO attempted to effectuate a transfer of the copyrights of UNIX and UnixWare, but Novell rejected the proposal. Decl. Allison Amadia at ¶ 6, 8, 10. During the summer of 1996, Steve Sabbath, Santa Cruz’s General Counsel, telephoned Allison Amadia, in-house counsel for Novell, about amending the APA. Id. ¶ 6. She testifies that Sabbath stated to her that the original APA explicitly excluded copyrights to UNIX and UnixWare and that Santa Cruz wanted to amend the original to give Santa Cruz those copyrights. Id.

Amadia had not been involved in the original deal. After her conversation with Sabbath, she reviewed the APA and contacted Novell’s outside counsel, Tor Braham, to gain his understanding of the transaction. Id. ¶ 7. Through these efforts, she learned that ownership of the UNIX and UnixWare copyrights did not transfer to Santa Cruz under the APA. Id.

Sabbath later sent Amadia a draft proposal revising Schedule 1.1(b) of the APA to read: “All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of this Amendment No.2, which pertain to the UNIX and UnixWare technologies and which SCO has acquired hereunder. . . .” Id. ¶ 8, Ex. 1. Novell rejected the proposed amendment. Id. ¶ 10. Amadia told Sabbath that while Novell was willing to affirm that Santa Cruz had a license under the APA to use Novell’s UNIX and UnixWare copyrighted works in its business, Novell would not transfer ownership of any copyrights. Id.

Chris's Report, Part 3, Darl McBride's Testimony:
Part 3 - Testimony of Darl McBride:

Mr. Singer calls Darl McBride to the stand. After being sworn in Mr. McBride provides a brief history including his employment at Novell, IKon Office Solutions (though mentioned by business, not name), Franklin Covey, some startups, and Caldera/SCO Group.

Mr. Singer cites SCO exhibit 94, the May 2003 letter from Novell's CEO Jack Messman, sent by fax and postal mail. Calls attention to the page 2 statement that SCO is not the owner of the Unix copyrights. What was your reaction to reading that? Shocked.

Mr. Singer states that this was also part of a Novell press release. He shows the press release and highlights where Novell states the copyrights were not conveyed to SCO, that contrary to SCO's assertions, SCO does not own the copyrights. What was the effect on SCO? Mr. McBride states that there was an immediate effect that day, their stock dropped 25% that day, that the statement achieved a lot of press. He had to go to New York to meet with their largest shareholders to reassure them that SCO owned the copyrights. Then while in NY he received a call from his secretary saying "You've got to see this." It was Amendment 2.

He said it cleared up a lot of questions he'd had. He then called Novell's Jack Messman on June 5th. Jack reiterated on the phone that Novell owns the copyrights.

Darl then said that Amendment 2 shows SCO owns the copyrights. Jack got animated and asked if Darl is trying to trick him into saying Novell owns the copyrights? Did Darl know all along about amendment 2? Jack asked him to fax Amendment 2 to him right away. After Jack read it he asked Darl "So you have the copyrights, what do you want?".

Darl said to 1) send out a retraction letter and 2) asked did IBM have anything to do with the letter? Darl said that Jack was evasive and when pressed finally said he won't discuss that point further without a lawyer. and Darl asked for damages. Jack asked, What damage? Darl replied about the stock falling. Jack was upset with asking for damages and Darl reports that was the end of the call.

Mr. Singer asked what Darl did the next day, Darl replied that he sent a letter to Jack Messman. This was June 6th, 2003. Mr. Singer then reads SCO's letter in its entirety. Mr. McBride says that as a result, Jack Messman authorized a press release. Letter from Novell's LaSala to SCO "for your information Novell has issued a press release in regards to Amendment #2" Mr. Singer reads the first paragraph of the press release and asks Mr. McBride his reaction. Relieved, and thankful that the response was within 24 hours.

Mr. Singer notes the IBM litigation. Mr. McBride confirms that SCO started discussions with IBM in March regarding terminating AIX rights, that in June the 100-day cure period was nearly up.

Mr. Singer notes exhibit 672, June 9th, 2003 letter from Jack Messman to SCO. Darl testifies that IBM took a substantial part of code and placed it in Linux to help Linux "grow up." Mr. Singer then reads paragraph from the letter directing SCO to waive any rights against IBM. Darl states that this was a three-day ultimatum. When asked by Mr. Singer, Darl replies that SCO did not waive their rights.

Mr. Singer then notes exhibit 675, a June 12th, 2003 letter from Novell to SCO. Reads where it states that SCO failed to waive their rights and hereby Novell waives their rights. Mr. Singer asks, Did you take this to be Novell forcing you? Yes. Judge Stewart then interjected, saying the other side failed to do so, but I'll admonish you not to ask leading questions.

Mr. Singer then notes a June 26th, 2003 letter: "SCO's statements are simply wrong. We acknowledge..." Darl called it the "Retraction Letter." In it Novell uses the word acquire instead of transfer. That in their June 6th press release Novell said transfer. This letter says SCO acquired where the former said "certain copyrights did transfer." He states that Novell is "Flip Flopping."

Mr. Singer then shows exhibit 105, an August 4th, 2003 Novell letter and notes the second paragraph which reads in part "we dispute SCO's claim to these copyrights" and third paragraph. Asks Mr. McBride, What was your reaction? "Flip Flopping," he said "Jack told me 'You got the copyrights, what do you want?', now it's 'unless and until SCO identifies a copyright SCO requires...'"

Mr. Singer asks, What effect did Novell's statements have on SCO's business? Mr. McBride: Devastating effect, December 22nd, 2003 is the end of SCO's fiscal year... the first full year of SCOsource. Novell announced that day that it had filed copyright registrations and reaffirmed its ownership of Unix on the day of SCO announcing record-breaking revenues. SCO's stock should go up on such news, but it tanked. Mr. Singer introduces exhibit A24, report 1st paragraph, December 22nd SCO press release SCO's announcement of earnings.

Mr. Singer then reads Novell's press release of December 22nd, 2003 where they report copyright registration and ownership. He asks Mr. McBride what the effect was? Darl reports it was the killing of the SCOsource business. As a result SCO was unable to complete anymore SCOsource licenses.

This completed Mr. Singer's direct of Mr. McBride and Judge Stewart recessed for the day and released the jury. Then, after the jury had departed, he remained to discuss issues. Novell to file something (motion? declaration?) regarding declaration of Steve Sabath. It seemed it was something of a formality to get something on the record. Also SCO noted they have depositions from the IBM case they may wish to use. They report that Novell objects on grounds they were used in IBM. SCO is to file a motion.

And court then stood in recess until 8:30 Tuesday morning.

If it's true that he said that the December 2003 press release marked the end of SCOsource and that SCO couldn't get any more licenses after that, it's inaccurate information. EV1, for example, signed up in March of 2004. And here's how they got EV1 to sign on, if you are curious. It's the Declaration of Robert Marsh, who headed up EV1 and then later provided a helpful declaration to IBM describing exactly what SCO told him to get him to sign on the dotted line. Interestingly he testified like this:
15. I was told by Mr. Langer or others at SCO that SCO had already signed up several licensees, whose identities could not be disclosed because of confidentiality provisions. I was further informed that numerous other Linux customer or users were entering into SCOSource licensing arrangements, leading me to believe that EV1 ultimately would be just one of many licensees.
So, did SCO lie to Mr. Marsh? Or were there others interested? If so, is what McBride now testifies to accurate? So much shifting sand.

Here's Darl McBride's deposition [PDF], and here's his testimony in the first bench trial, day 2, April 30, 2008. And here's the Jack Messman letter to Darl June 9, 2003, then the June 12th letter. His May 28, 2003 letter is exhibit 36 [PDF], the first one in that composite PDF, and in the same PDF, as exhibit 37, you'll find Darl's Declaration, which says Darl contacted Novell, not the other way around.

And since SCO now seems to want to include materials from the IBM litigation, in case they succeed -- and with this judge do you doubt it? -- here's where you can find most of the exhibits from that litigation.

And one more thing about paralegals, which is what Kim Madsen is. Paralegals in most states that I know of are not allowed to work without the supervision of a lawyer. So when Sabbath testifies that she was such a whiz he sometimes let her do all the work without reviewing her work, that might be so, but if it is true, it would be admitting to something that isn't supposed to happen, last I looked.

Update: A comment raises an interesting point:

As I read that it looks like he did not know about Amendment 2 when the original claims by him/SCO were made to the public. It was when he was in NY reassuring the shareholders that he got a call from his secretary saying "you have to see this" and that item being amendment 2....

Given that the appeals court have already said that the APA prior to Amendment 2 is unambiguous in *NOT* transferring the copyrights that implies the claims of title were made without knowledge of Amendment 2 for Darl/SCO ... and therefore against the facts as known at the time and slanderous and fraudulent as a result... or am I missing something here? After all Darl would never lie to the Jury - right?


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