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To read comments to this article, go here
Novell files Offer of Proof Re Prior Inconsistent Declaration of Sabbath
Tuesday, March 16 2010 @ 07:49 AM EDT

Novell has filed a Notice of Filing of Offer of Proof Regarding Prior Inconsistent Declaration of Steven Sabbath. It is making a record that SCO was allowed to present testimony in direct examination that Novell knew was contradicted by deposition testimony, but then Novell couldn't tell the jury about it, because of rulings by the judge.

I gather Novell has noticed what you have, that the judge's ruling was not fair to Novell.So they are making a record, listing very thoroughly why the deposition is allowable under the rules, how they would have used it to rebut SCO's witnesses, and precisely how the materials are contradictory. This may be related to the discussion we heard about yesterday, where it was discussed if Ms. Madsen would have to return. It surely will be part of any appeal, should it prove necessary. But the judge can simply change his ruling, solving the issue.

Here's the Novell filing:

03/15/2010 - 801 - NOTICE OF FILING of Offer of Proof Regarding Prior Inconsistent Declaration of Steven Sabbath filed by Defendant Novell, Inc.. (Attachments: # 1 Attachment-Novell Trial Ex. Y23)(Brennan, Sterling) (Entered: 03/15/2010)

I have never seen that happen before, where you are not allowed to impeach a witness by referring to a prior deposition where the witness said something very different from what he says on the witness stand. Here's what our reporter, Chris Brown, says happened yesterday:
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 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....

[Steve Sabbath testifies.] 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....

[Darl McBride testified.] 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.

Here is the filing, with the only change being I didn't chop up the charts with page numbering.

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

Sterling A. Brennan (Utah State Bar No. 10060; E-mail
David R. Wright (Utah State Bar No. 5164: E-mail)
Kirk R. Harris (Utah State Bar No. 10221; E-mail)
Cara J. Baldwin (Utah State Bar No. 11863; E-mail)
[address, phone, fax]

MORRISON & FOERSTER LLP
Michael A. Jacobs (Admitted Pro Hac Vice; E-mail)
Eric M. Acker (Admitted Pro Hac Vice; E-mail)
Grant L. Kim (Admitted Pro Hac Vice; E-Mail)
Daniel P. Muino (Admitted Pro Hac Vice; E-Mail)
[address, phone, fax]

Attorneys for Defendant and Counterclaim-Plaintiff Novell, Inc.

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

THE SCO GROUP, INC., a Delaware
corporation,

vs.

NOVELL, INC., a Delaware corporation,

Defendant.

___________________

Case No. 2:04 CV00139

NOVELL'S OFFER OF PROOF
REGARDING PRIOR INCONSISTENT
DECLARATION OF STEVEN
. SABBATH

Judge Ted Stewart

______________________

On March 15, 2010, SCO called as a witness Kimberlee Madsen, a paralegal working for Steven M. Sabbath at the Santa Cruz Operation ("Santa Cruz") in 1995 and 1996. SCO was permitted on direct examination to question Ms. Madsen as to whether several out-of-court statements in documents of which she was not the author comported with her understanding of the transaction between Santa Cruz and Novell in 1995. However, Novell was not permitted on cross examination to question Ms. Madsen as to whether statements made under penalty of perjury in a declaration of Mr. Sabbath, her superior in 1995, comported with her understanding of the same transaction.

Novell also intended to read to the jury portions of Mr. Sabbath's declaration during the playing of his videotaped deposition testimony. These portions are prior inconsistent statements that impeach the videotaped testimony of Mr. Sabbath that was displayed by SCO.

Pursuant to Federal Rule of Evidence 103(a)(2), Novell makes this offer of proof regarding the December 22, 2003 declaration of Steven M. Sabbath, marked as Novell Ex. Y23 and attached for reference, setting forth the evidence the jury would have heard had Novell been permitted to proceed as set out above. The statements at issue within Mr. Sabbath's December 22, 2003 declaration are admissible under Federal Rule of Evidence 801(c) as, consistent with the Court's holding allowing similar questioning by SCO, the statements would not have been used with respect to Ms. Madsen's testimony to establish the truth of the matters asserted, but to establish her understanding of the transaction between Santa Cruz and Novell, thus they are not hearsay. The portions of Mr. Sabbath's 2003 declaration that Novell intended to read to the jury during the playing of Mr. Sabbath's videotaped deposition testimony are admissible as non-hearsay under Federal Rule of Evidence 801(d)(1)(A), as Mr. Sabbath unequivocally lays the foundation for the declaration in his deposition, the declaration is flatly inconsistent with the very deposition testimony presented by SCO to the jury, and the declaration was given under oath subject to penalty of perjury.

1

A. Testimony of Kimberlee Madsen

On direct examination, SCO was permitted to repeatedly question Ms. Madsen regarding the content of out-of-court statements that she did not draft. These documents were all accepted into evidence and published to the jury. Ms. Madsen was asked whether various statements within these documents comported with her understanding of the 1995 transaction between Santa Cruz and Novell.

By the same token, Novell intended to ask Ms. Madsen questions regarding the content of the declaration of Steven M. Sabbath. Mirroring SCO's direct examination, Novell would have asked Ms. Madsen whether various statements within Mr. Sabbath's declaration comported with her understanding of the 1995 transaction. Used for this purpose, the statements are not hearsay under Federal Rule of Evidence 801(c). As of 1995, Mr. Sabbath had roughly fifteen years more experience in the legal industry than did Ms. Madsen. Mr. Sabbath was the General Counsel of the company at which Ms. Madsen was a paralegal. Mr. Sabbath was Ms. Madsen's direct superior, including in the very transaction at issue. If the question "does this statement comport with your understanding" is relevant as posed by SCO regarding out-of-court statements in legal and regulatory filings not drafted by Ms. Madsen, certainly the same question as posed by Novell regarding statements made under penalty of perjury by Ms. Madsen's direct superior in the transaction at issue is relevant.

If Novell had been permitted to question Ms. Madsen consistent with what was permitted of SCO on direct examination, Novell would have cross-examined Ms. Madsen regarding the following statements in Mr. Sabbath's declaration, each of which is relevant to challenge a particular area of Ms. Madsen's understanding to which she testified.

2

Area of Madsen Testimony Ex. Y23 Portion Novell Intended to Use in Cross-Examination
Santa Cruz acquired UNIX and UnixWare businesses. "Initially, Santa Cruz was interested in purchasing both of [the UNIX and UnixWare] businesses. However, the royalty stream associated with the UNIX System V software licensing business led to a total valuation for both businesses that Santa Cruz could not afford. Therefore, Santa Cruz proposed that Novell retain the legacy UNIX System V licensing business and Santa Cruz purchase only the UnixWare business. Under this proposal, Santa Cruz would administer the collection of royalties under the UNIX System V license agreements and pass through these royalties to Novell for a fee." (Ex. Y23 10).
Santa Cruz acquired all right, title, and interest, including copyrights. "Under the Asset Purchase Agreement, Novell retained significant UNIX-related assets following the sale. For example, Schedule 1.1(b) of the asset purchase agreement provided that much of the UNIX System V intellectual property would not be transferred to Santa Cruz by listing the following items as "Excluded Assets": V. Intellectual Property: A. All copyrights and trademarks, except for the trademarks UNIX and UnixWare. B. All Patents."
(Ex. Y23 11).

"It is my understanding, based upon my review of Plaintiff's amended complaint, that Plaintiff claims to have acquired all right, title and interest in and to UNIX System V operating system source code, software and sublicensing agreements, together with copyrights, additional licensing rights in and to UNIX System V, and claims against all parties breaching such agreements. I understand that Plaintiff also claims to control the right of all UNIX vendors to use and distribute UNIX System V. I believe that these claims are incorrect. As described above in relation to the Related Agreements and Amendment No. 2, Novell retained certain rights under the UNIX System V licensing agreements, as well as certain UNIX System V intellectual property as described above."
(Ex. Y23 29).

Section 4.16B must be read in a more limited fashion than its plain language dictates in light of the intent of the agreement. "Although Amendment No. 1 made several changes to Section 4.16, it did not impose any new limits on Novell's ability, at its sole discretion, to amend, modify, supplement or waive any rights under, or assign any rights to, the legacy UNIX System V license agreements in any manner or respect. Furthermore, I am not aware of any provision in the Asset Purchase Agreement, or any amendment thereto, that imposed on Novell any obligation to preserve the confidentiality of the UNIX System V source code for the benefit of Santa Cruz."
(Ex. Y23 13).
Copyrights were required for the business and essential to the transaction. "As discussed above, the fundamental business deal reflected in the Asset Purchase Agreement was that Santa Cruz would acquire Novell's UnixWare business and Novell would effectively retain the legacy UNIX System V licensing business. My understanding was that the language in Amendment No. 2 quoted above was intended to implement this business deal with respect to copyrights and trademarks. So far as I know, neither Santa Cruz nor Novell ever identified the specific copyrights or trademarks for which a transfer of ownership was `required' for Santa Cruz to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies. I do not know whether Novell ever executed an instrument of assignment to transfer ownership of specific copyrights or trademarks to Santa Cruz, nor do I know whether such an instrument was required in order to effect the transfer."
(Novell Ex. Y23 26).

"I believe that Santa Cruz assigned little, if any, of the value of the acquisition to any copyrights that it might have acquired from Novell."
(Novell Ex. Y23 28).

5

B. Testimony of Steven Sabbath

In addition to its questioning of Ms. Madsen as detailed above, Novell intended to read to the jury portions of the 2003 declaration of Mr. Sabbath as prior inconsistent statements to impeach the videotaped deposition testimony that was shown to the jury by SCO. Used for this purpose, the statements are not hearsay under Federal Rule of Evidence 801(d)(1)(A). 10, 11, 12, 13, 23, 26, 28, and 29 of the attached Novell Ex. Y23 would have been read to the jury. Each of these paragraphs was stated in a declaration by Mr. Sabbath under penalty of perjury and directly conflicts with the videotaped deposition testimony of Mr. Sabbath presented to the jury by SCO.

Sabbath Deposition Testimony Displayed by SCO Ex. Y23 Portion Novell Intended to Use to Impeach
"We were buying the entire business, including the intellectual property."
(Sabbath 2-12-07 20:5-9)

"[C]opyrights were going with the assets."
(Sabbath 2-12-07 24:24).

"Santa Cruz proposed that Novell retain the legacy UNIX System V licensing business and Santa Cruz purchase only the UnixWare business." (Ex. Y23 10).

"Under the Asset Purchase Agreement, Novell retained significant UNIX related assets following the sale. For example, Schedule 1.1(b) of the Asset Purchase Agreement provided that much of the UNIX System V intellectual property would not be transferred to Santa Cruz...."(Ex. Y23 11).

"It is my understanding...that Plaintiff claims to have acquired all right, title and interest in and to UNIX System V operating system source code, software and sublicensing agreements, together with copyrights, additional licensing rights in and to UNIX System V, and claims against all parties breaching such agreements. I understand that Plaintiff also claims to control the right of all UNIX vendors to use and distribute UNIX System V. I believe that these claims are incorrect. As described above in relation to the Related Agreements and Amendment No. 2, Novell retained certain rights under the UNIX System V licensing agreements, as well as certain UNIX System V intellectual property as described above."
(Ex. Y23 29).

Agreed with 2004 declaration in which he stated, "I understand that IBM has argued that Section 4.16(b) of the APA gave Novell the right to require Santa Cruz to waive any breach of the intellectual property protections provided in the SVRX licenses. That argument is contrary to the intent of paragraph 4.16(b) as I understood it."
(Sabbath 2-12-07 67:9-25).
"Section 4.16(b) of the Asset Purchase Agreement included the following language providing that Novell would have the right, at its sole discretion, to amend, modify, supplement or waive any rights under, or assign any rights to, the UNIX System V license agreements . . . . Since Novell would be retaining the right to receive the royalties under the UNIX System V licenses, it was agreed that Novell also would retain certain rights to control the contractual relationships with the licensees."
(Ex. Y23 12).

"Although Amendment No. 1 made several changes to Section 4.16, it did not impose any new limits on Novell's ability, at its sole discretion, to amend, modify, supplement or waive any rights under, or assign any rights to, the legacy UNIX System V license agreements in any manner or respect."
(Ex. Y23 13).

"Furthermore, since the process set out in Amendment No. 2 applies only in the context of a royalty buy-out, Novell has the right, at its sole discretion, to direct Plaintiff to amend, modify, supplement or waive any rights under, or assign any rights to, any `SVRX Licenses,' as defined in the amended Asset Purchase Agreement, without complying with the process set out in Amendment No. 2 (and, if Plaintiff fails to do so, to take such action on Plaintiff's behalf) . . ."
(Ex. Y23 23).

Confirmed that he reviewed and approved 2004 declaration in which he stated that "Amendment Number 2 was intended to confirm, among other things, the parties' intent that SCO would obtain ownership of the UNIX copyrights under the APA."
(Sabbath 2-12-07 208:20-209:5).
"Novell would effectively retain the legacy UNIX System V licensing business. My understanding was that the language in Amendment No. 2 quoted above was intended to implement this business deal with respect to copyrights and trademarks. So far as I know, neither Santa Cruz nor Novell ever identified the specific copyrights or trademarks for which a transfer of ownership was `required' for Santa Cruz to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."
(Ex. Y23 26).

"I believe that Santa Cruz assigned little, if any, of the value of the acquisition to any copyrights that it might have acquired from Novell."
(Ex. Y23 28).

DATED: March 15, 2010

Respectfully submitted

By: /s/ Sterling A. Brennan

WORKMAN NYDEGGER
Sterling A. Brennan
David R. Wright
Kirk R. Harris
Cara J. Baldwin

MORRISON & FOERSTER LLP
Michael A. Jacobs, pro hac vice
Eric M. Acker, pro hac vice
Grant L. Kim, pro hac vice
Daniel P. Muino, pro hac vice

Attorneys for Defendant and
Counterclaim-Plaintiff Novell, Inc.

9


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