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Week 3, Day 13 in SCO v. Novell - Jones, Messman, DeFazio, Braham - Updated
Thursday, March 25 2010 @ 01:17 AM EDT

Today at the SCO v. Novell trial, Novell called Gregory Jones, and then SCO called Jack Messman as a hostile witness. His deposition was played in part earlier, but this was Mr. Messman testifying live. Then the Michael DeFazio deposition video was played. And then Novell called Tor Braham. Only two more days, and then it goes to the jury.

One of our reporters in the courtroom today, Chris Brown, tells us though that we can expect a Rule 50 motion being filed by Novell tonight, asking for a directed verdict.

Chris's report, part 1, and you might want to open this page as well, because some of the emails referenced are there, listed as exhibits:

Part 1 - Initial Matters, Testimony of Greg Jones

Before the jury was brought in, Judge Stewart heard initial matters starting with the dispute over Tor Braham's testimony. He will testify today or in the morning. Judge Stewart said he is mindful of SCO's decision not to depose him before, but he will allow him to testify and that he be deposed. Novell said they will be able to do so this afternoon. The deposition shall be limited in scope and to one hour.

Mr. Singer said that overnight Novell produced 30 documents they had withheld, SCO believes, unfairly and that producing them this late is prejudicial. Judge Stewart seemed annoyed, but will allow the documents. I'm not sure I heard correctly, as I believe SCO has been in possession of the documents but that, Novell did not list them as trial exhibits as they considered them irrelevant. They may relate to the Tor Braham testimony.

Judge Stewart said he was almost disappointed that the jury instruction objections were timely filed... by 30 seconds. He joked he was starting to look forward to being able to ignore them. He scheduled a Jury Instruction Conference for tomorrow, March 25th, at 3pm.

There was discussion of the time again today. Previous time discussions used amounts of time used, but today it was time left. Novell has about 4 hours and some, and SCO 3 hours 15 minutes. The two sides' time count was different due to differences in how to time some things, such as sidebars. However, the two sides chose to split the difference to come to the time they have.

In light of the short amount of time left, Novell asks that regarding Mr. Messman's live testimony, he not cover questions already asked in his deposition, but that the pertinent items from his deposition be given to the jury as is. Judge Stewart conditionally allowed this. He stated that Mr. Messman may be questioned on the general areas discussed in the deposition, but he doesn't want SCO to ask the same questions over again. The deposition is to be redacted before it goes to jury.

Judge Stewart says that one juror (who's name and number I will omit) has a vacation planned for this weekend to Las Vegas. He said that yesterday she was quite distraught and crying because she thought deliberation would go so long that she would not be able to make it. The other jurors suggested they not deliberate over the weekend, but return on Tuesday in order for her to take her vacation and not have to rush back. Judge Stewart asked counsel if this would be acceptable or if they would prefer to name her the alternate juror and release her. After some short discussions by each side amongst themselves, it was generally stated that "a happy juror is a good juror" and asked that she be told words to the effect that "it will be taken care of" and that she may take her vacation. The parties did not want to commit necessarily to either course, but that since both would likely work for her she should be told right away to alleviate her concern. Both sides said that the jury continuing deliberations on Tuesday would be OK.

The jury was brought back in, and Judge Stewart addressed the specific juror and told her that they may continue deliberations on Tuesday and asked if that would resolve her concerns. She said it did. He asked the jury as a whole if their would be any hardship in doing so. They all said they could. They all seemed happy and the juror was quite relieved. Had they not been in the courtroom, I got the feeling there might have been a group hug.

Novell's Mr. Erik Acker calls Greg Jones to the stand. [PJ: Here's his deposition as pdf.] He states he's been in-house counsel for Novell since 1992.

He first met Darl McBride in 1995 at Novell while both worked with Novell's business in Japan, until Mr. McBride left. He next heard from him on October 10th, 2002 when Darl called him. He told Greg about what he'd been doing since leaving Novell and said that he'd become CEO of Caldera about three months previously. Mr. McBride told him about the expense of the SVRx royalty collection business and said it's not cost-effective, that it costs more to collect the royalties than the five percent they're paid. He talked about how Caldera believes Linux is infringing Unix. Mr. McBride pointed out that copyrights were excluded in the APA and that he thought it was a clerical error.

There were subsequent calls. The next one was from Joanie Bingham, assistant to Mr. McBride. She'd left a message for him so he called her back. Mr. Jones sent an email to recounting the substance of the call. It was entered as Novell exhibit G11. [PJ: It is perhaps this email from Jones to Jim Lundberg, Joseph LaSala, Patrick McBride, and Ryan Richards.] Ms. Bingham had an assignment from Mr. McBride to research the transfer and requested access to Novell files. Mr. Jones told her he'd have to call Mr. McBride.

Mr. Jones did so and the substance of the call was put in an email from Mr. Jones dated November 20th, 2002 and entered as exhibit K11. [PJ: I think it may be this exhibit, an email to Lundberg and LaSala on that date.] Mr. Jones reported that Mr. McBride wanted to research the agreement. He repeated that Linux users were infringing SVRx and said something to the effect that he wished to use the agreement information to bring claims against them. He wished to enlist Novell to assist him in this. Mr. Jones said that it's a sensitive issue as it would involve possibly confidential information and 3rd party litigation. Mr. Jones said he'd get back to him. Mr. Jones then brought it to the attention of Carl Ledbetter and Chris Stone. Both told him they were not interested in getting involved.

Mr. Jones subsequently talked to Mr. McBride and contemporaneously documented it in another email dated December 4th, 2002. [PJ: I think this is the email.] He told Mr. McBride that Novell was not interested. He testified that Mr. McBride was persistent and tried to convince Mr. Jones that it was in Novell's interest in order to protect the SVRx royalty stream. Mr. Jones reported he'd told Mr. McBride no because it takes manpower to research, sensitive third-party litigation, and that Novell had customers using Linux they didn't want to alienate. Mr. McBride though was persistent and asked him, Who's making these decisions? Since Mr. Ledbetter and Mr. Stone were both in executive management, he told him the decision was made at the highest executive level.

Mr. Jones said SCO's Chris Sontag contacted him some time in February and subsequently received email from Sontag. The email sent from Chris Sontag to him is dated February 20th, 2003. Mr. Jones' response, with Chris Sontag's original email, were entered as exhibit V12. The side letter attached to the email, also dated February 20th, 2003, was sent as a result of the February 19th phone call. Mr. Jones said Novell had previously rejected the request for documents and research, and that Chris Stone had said they were wanting to change the copyright. Mr. Jones had said on the 19th call that if Mr. Stone wants to send something for Novell to evaluate to go ahead. The side letter is what Mr. Stone sent in response to that. Mr. Jones replied by email that he'd have to have a business person examine (Mr. Jones inside counsel to Novell). Mr. Jones said they'd take a look at it and get back to him.

The side letter, dated February 20th, 2003 was admitted as Novell exhibit I31. Mr. Jones repeated it is the proposal SCO is making to Novell. Mr. Sontag was proposing to clarify the intent of the parties that, all rights, title, interests, and copyrights were intended to be part of APA 1.1a "Included Assets."

Mr. Jones had understood from the APA that copyrights were excluded assets. Reading further in the side letter, it asks that they be removed from the Excluded Assets. When asked if Chris Stone had said no to the letter, SCO's Ted Normand objected (privilege?) and sustained. On Mr. Acker's subsequent question, Mr. Jones said he'd told Mr. Sontag that the proposal had been rejected.

Mr. Jones confirmed he'd later seen an unsigned copy of Amendment 2 and that he participated in assigning to someone else the task of looking for an executed version, but he didn't find it. Mr. Jones said he first saw a signed copy on June 6th, 2003 after SCO found and faxed a copy to Novell and that Novell subsequently found a signed copy in Novell's tax department's files. Asked questions about filing practices, Mr. Jones said that such documents normally would be in their own files, not in the tax department. He said the tax department might review such documents, but normally it's not the place to file it.

Mr. Acker asks if Novell had registered the copyrights to Unix, and Mr. Jones said they had, and they paid $9,540 to do so. Exhibit U45, the copyright registrations, were produced. [PJ: You can find them here, on Novell's website.] Mr. Jones said the latest version of Unix that Novell filed copyright registration for is Unix System V release 4.2MP. He indicated this was the most recent version existent before the APA was executed.

Novell's exhibit X23 and SCO's exhibit 756 were referred to, and Mr. Jones said in relation to them that after Novell got the registrations they subsequently, on December 22nd, 2003, posted on their website that they'd obtained these registrations along with correspondence Novell had had with SCO.

Mr. Acker referred to SCO exhibit 756, a press release from Novell dated January(?) 2004 announcing indemnification for their own Linux users. By this time Novell had acquired SuSe and reiterated in the announcement that Novell believed they still owned the copyrights. Mr. Jones said they'd put the documents on their website due to public concern and to put people on notice of Novell's position.

Mr. Acker asked if Mr. Jones had reviewed the June 9th, 2004 ruling. [PJ: Here it is.] Mr. Normand objected to the reference, and Judge Stewart expressed his concern. Mr. Acker asked Judge Stewart to let him lead, and he was allowed to proceed. He asked if Mr. Jones had reviewed the rulings from August 10th, 2007 and the one from 2009. [PJ: Here's the 2007 order, and the court of appeals ruling in 2009.] He said he'd reviewed all of them. Mr. Acker asked if there was anything in these rulings that were inconsistent with Novell's assertion that it still held the copyrights. Mr. Jones said they do not.

Mr. Normand cross examined Mr. Jones. On being asked, Mr. Jones said he is familiar with the 10th circuit ruling. Mr. Normand asked if he understands that a ruling in this case could determine that Novell does not own the copyrights, to which he replied he does.

Mr. Normand asks if Novell has a joint defense agreement with IBM, and Mr. Jones said they do. Do they have a commonality of interest? Yes. Did it start prior to 2004? Mr. Jones says he doesn't know for the agreement. Mr. Normand asks if IBM contacted Novell in May 2003? Yes.

Mr. Normand asked if Mr. McBride believed (the placement of copyrights on the excluded list) was a clerical error? Yes. He believed the intent was that copyrights were included? Yes. Did you tell Darl that Novell owned the copyrights? In effect I did, he told me they were excluded and I agreed.

On an internal email of December 4th, 2002, you reported that you did not tell Mr. McBride about Novell's Linux plans? Answer: That's correct. I'm a lawyer for Novell and am appraised of confidential business plans and withheld the information appropriately.

Mr. Normand referred to the last page of Novell exhibit I21 and asked if Mr. Jones saw the unsigned copy of Amendment 2 in 2003? Yes. Mr. Normand asks, It was an important letter? Answer: It was relevant. Q: And you looked for it? A:I was involved in assigning someone to do so.

Q: Novell's copyright registrations were filed after SCO filed for them?

A: Yes.

Mr. Normand shows SCO exhibit, SCO's copyright registration and asks, Are you aware that filing a registration does not indicate ownership?

Mr. Jones answers (facing the jury), Yes, the fact that SCO filed a copyright registration does not indicate ownership. (Reporter's comment: This is probably the closest I've come to laughing out loud during testimony.) [PJ: SCO's copyright registrations can be found here, on Groklaw's Contracts page.]

Mr. Normand shows an exhibit and refers to line 16 and 20 (2008 trial) and asks, Was your testimony at trial that Novell claimed ownership of UnixWare?

Jones: No. [PJ: Mr. Jones's testimony at the earlier bench trial can be found here on Groklaw.]

Mr. Normand reads from trial that Novell has not claimed ownership of Unix and UnixWare.

Mr. Jones states that all Novell intended to claim ownership to were Unix at the time of the APA.

Mr. Acker on redirect asks Mr. Jones, Did Mr. McBride convey to you that if Novell assisted SCO, then SCRx revenues would go up?

Jones: Yes.

Acker asks further, He conveyed that it would slow migration from Unix to Linux?

Jones: Essentially, yes.

Mr. Acker, And Mr. McBride said the APA excluded copyrights?

Jones: Yes.

Mr. Normand on re-cross asks, You found an unexecuted Amendment 2?

Jones: Yes.

Q: And you did not tell SCO?

Jones: Correct.

Mr. Normand has no further questions, but Mr. Acker stands and asks Mr. Jones, You're not in the habit of sending copies of unexecuted documents to heads of other companies? Mr. Jones answers, definitely not.

Judge Stewart asks, You're aware you just used your third? Mr. Acker replies, Yes, I just used my third. (Judge Stewart had, on a previous day, told counsel they only get the opportunity for one "third serving" in the trial.)

Mr. Jones was released. End of Part 1. Part 2 is SCO calling Mr. Jack L. Messman as an adverse witness (which, all things considered, was probably a poor decision)

I'll be adding further reports as we get them done, so check back soon.

Chris's report, Part 2:

Part 2 - Testimony of Jack L. Messman

SCO's Mr. Stuart Singer called Jack L. Messman as an adverse witness as the final witness for SCO's case in chief.

Mr. Messman took the witness stand, and Mr. Singer referred to SCO exhibit 525, a Novell press release dated May 28th, 2003, and asked, You approved this for release?

Messman: Yes.

Mr. Singer continues, Does it state Novell, and not SCO, owned the copyrights?

Messman: Yes.

Q: Why this day?

Messman: It's when it was ready to be released.

Mr. Singer asks, Had you been told by Mr. LaSala that he was looking for a signed copy?

Messman: Correct.

Q: Did you ask Wilson Sonsini for a signed copy?

Messman: No, he said he has people under him that do that sort of thing.

Mr. Singer asks, Did you direct them to?

Messman: No.

Q: Did you believe it would hurt SCO to release?

Mr. Messman says he didn't know.

Mr. Singers asks, You didn't believe it would hurt SCOsource?

Messman: No, we believed there was no Unix in Linux.

Q: You believed that a statement coming from the seller of the copyright would have special force and effect?

Messman: I don't know. We owned the copyrights, we were the only ones who could have made the statement.

Q: What would you have done if AT&T stated they still owned Unix? (The subsequent questions didn't get far, as Mr. Messman stated that since AT&T had sold everything, it was a hypothetical and he therefore didn't know.)

Mr. Singer refers to Mr. LaSala's press release that indicates that Amendment 2 appears to transfer copyrights and, when questioned, Mr. Messman said he supported it. Mr. Singer asked if he had known of an unsigned copy of Amendment 2 for several weeks? Yes, but it does not have effect until signed.

Mr. Singer asks if Mr. Messman recalls "anything happening" between June 6th and August 4th?

Messman: No.

A break was called. After the Jury departed, Judge Stewart asked if counsel has anything for him.

Novell will be filing a Rule 50 motion for directed verdict tonight. Both SCO and Judge Stewart opined that it will be interesting and Novell agreed.

Mr. Singer asked to introduce two figures from Novell's 10K that they failed to introduce during the testimony of Mr. Jones due to misunderstanding what was meant by Judge Stewart when he said, regarding the 10Ks, to see how it "plays out." Mr. Brennan said Novell will stipulate to the admission of SCO exhibit 552, the 10K, if redacted, but SCO will only be able to make use of them during their closing statements.

Mr. Brennan brought up the testimony by Mr. Jones where he believed that SCO had, again, "opened the door" by asking about a prior trial. Judge Stewart did not believe that it was SCO who first mentioned it, but Novell's witness. Judge Stewart said he would make a statement to the jury that there was a trial in this case earlier, but on different issues. (Reporter's comment: The trial did not cover copyright ownership or slander of title, those had already been ruled on by summary judgment).

The jury returned, and Judge Stewart made a statement to the jury that, during examination of Mr. Jones, reference was made to a prior trial in this case. That trial was on different issues. Do not draw any conclusions...

Mr. Singer then asked Mr. Messman again if he recalled anything happening between June 6th and August 4th?

Mr. Messman answered saying he doesn't recall anything happening between those dates.

Q: Did you authorize Novell to file (copyright registrations?) after August 4th registration?

Messman: Yes. On Mr. Singer's question if he was aware SCO had registered, Mr. Messman said he was aware SCO had registered their copyrights on top of AT&T's registrations.

Mr. Singer asked Mr. Messman why (Mr. LaSala's made the announcement) on Decmeber 22nd?

Messman said he doesn't know.

Mr. Singer puts up a large poster board facing the jury containing a calendar of 2003. It had at least two dates circled, but possibly 4. It was otherwise blank. Mr. Singer indicates the dates of SCO's earnings announcements are circled. He recites the dates, including May 28th and December 22nd. Mr. Singer asks if Mr. Messman is aware of how important earnings announcements are to a publicly traded company? Yes, Messman answers. Mr. Singer asks if it was only coincidence that the two announcements by Novell just happened to fall on SCO's earnings dates. Mr. Messman said, Yes.

Mr. Singer asks if Mr. Messman was following SCO stock prices?

Messman: No.

Mr. Singer then plays their clip 8 from his video deposition testimony page 56 line 20 to page 57 line 3:

Q: Were you subsequently aware that SCO's stock price declined 30 percent after that?

A: SCO's stock price was going up and down.

Mr. Singer asks, Were you aware the stock price was going up and down?

Messman: I was aware, but I wasn't following it.

Mr. Singer refers to SCO exhibit 756 and "Novell's unique rights," he reads "... as previously confirmed by Novell..." and asks Mr. Messman if he approved it?

Messman: Yes.

Mr. Singer asks if Mr. Messman is aware that Chris Stone made a statement in March 2004 at an open source conference where he said, "We still own Unix?"

Messman: Yes, I was aware that he addressed trade groups, and we still owned Unix.

Q: How long was this before you sent Mr. Stone away from Novell?

Messman: We sent him to Harvard for a few weeks. I don't recall the dates.

When asked, Mr. Messman gives his history starting with obtaining a degree in chemical engineering from the University of Delaware in 1962 through working for SafeGuard (Scientific, Inc). He said while at Safeguard he was sent to "Novell Data Systems" to shut it down, but that while there and talking to some people, he came to believe that instead the company should be re-capitalized and Mr. Messman came onboard to run the company and to hire his replacement, Ray Noorda.

Asked, Were you on board in 1995, he answers that he was.

Mr. Singer referred to Novell's exhibit Z3, minutes of a board of directors meeting on Monday, September 18th, 1995 and asked Mr. Messman if there was discussion of the APA?

Messman: Yes.

Q: Was it approved?

Messman: Yes.

Q: Is there a discussion of copyrights?

Messman: It was important that copyrights were not included... I insisted that copyrights be excluded. It was a key part of the deal that they be excluded.

Q: In the May 28th press release it states that Novell owns the Unix copyrights. Why did you do that?

Messman: Mr. McBride was making claims that Linux infringing Unix, that end users, not just companies must pay. People were calling Novell, the press was calling.

Mr. Singer asks, Do you recall your telephone conversation with Mr. McBride in June?

Messman: Yes, it was in the evening. I don't normally answer the phone, but no one else was there, so I answered. It was Mr. McBride asking, "Do you have it?" I asked, "What?" He says, "Amendment 2" He was quite animated. So he faxes it over. He then called back and asked if he has it yet? Yes. During the call Mr. McBride also asked if he's talking with IBM. Mr. Messman answered to the effect that they're often talking to IBM; they're a big technology company.

Q: At any point during the conversation did you make any statement that you believed SCO owns the copyrights?

Mr. Messman answers adamantly, "None, whatsoever!"

Q: Are you positive?

Messman: Yes.

Q: Did you work with SuSe Linux?

Messman: I worked mostly with the investors.

Q: Did IBM invest?

Messman: Yes, at my recommendation. He reports he'd just purchased SuSe for $110 million and was seeking affirmation from the market for his stock holders. He called IBM and asked if he would give comfort to them. The person at IBM asked in what form? Mr. Messman told him $50 million. Mr. Messman said he didn't want Novell investing in SuSe because he wanted Novell to keep its 100% ownership, so the investment was in Novell. Mr. Messman said the SuSe deal closed a couple months before the IBM investment.

Q: Did IBM's investment have anything to do with SCO?

Messman: No.

Mr. Singer refers to SCO exhibit 754, and asked, Mr. Bradford sent this to you three days before the board of directors meeting?

Messman: Yes. It's described as a term sheet and reference is made to the first two items listed. [PJ: I believe this is the Term Sheet referenced.] It says, Novell transfers to Santa Cruz Unix and UnixWare... and have a license back... Mr. Messman is asked if there is anything on this about copyrights?

Messman: No.

Mr. Singer then refers to Novell exhibit Z3, (the minutes of the September 18th, 1995 board meeting)[PJ: Here they are.] "Proposed sale..." It's a summary of discussion, asked to read 3rd paragraph and continue to the next page. He reads it and is asked, Is there any reference to copyrights? No reference, the only reference is in the resolution, Novell retains all patents, trademarks, and copyrights.

Q: Is there a license back to Novell?

Messman: Yes, of all being sold.

Mr. Singer continues, The copyrights not retained in the term sheet only three days before, they're not in the discussions summary of the board meeting, but they're retained?

Messman: Yes, correct. Copyrights were the most important thing discussed.

Mr. Singer refers to a press release from 1995, the "Joint press release," and reads, Novell buy... stock... When asked to confirm, Mr. Messman said something to the effect that that isn't what it is. Mr. Singer asks, Any reason to believe it's not a joint press release? Mr. Messman answers, I don't believe this is a joint press release.

Mr. Singer continues, Would Mr. Frankenberg be in a position to know if this is a joint press release?

Messman: He was in a position to know what the deal was.

Mr. Singer asks, On June 12, October, and February, you are aware Novell directed waiver?

Messman: Correct.

Mr. Messman was then released (there was no examination by Novell.)

End of Part 2. Part 3 will be the deposition testimony of Mr.Michael DeFazio

Here's Chris's report, part 3:
Part 3 - The deposition testimony of Michael DeFazio

Novell's Mr. Michael Jacobs called Michael DeFazio by deposition. The excerpts of his video deposition are played. Not being certain of the questioner I will use "Novell."

Novell asks, Were you the head of the (missed)? [PJ: Mr. DeFazio's Declaration in the IBM litigation reveals that he was Otis Wilson's boss, so "head of the organization responsible for product management, marketing and licensing terms and conditions for the Unix System V operating system from 1984 until 1995" first with AT&T, then with USL, and finally with Novell, "the head of the overall AT&T organization responsible for the UNIX software, including product management, marketing and licensing".]

DeFazio: Yes.

Q: Did you remain with Novell, continuing to work with Unix?

DeFazio: Yes, to oversee Novell's responsibilities with regard to Unix. He then describes some of his responsibilities and other positions.

Q: Did you meet with Mr. Frankenberg and Doug Michaels to discuss the sale to Santa Cruz?

DeFazio: Yes.

Q: Is it fair to say you were the executive within Novell most knowledgeable on Unix? Yes.

(There's a set of questions regarding his becoming aware of intent to sell Unix and formation of a team to negotiate.)

Mr. DeFazio indicates that the team head was Mr. Ed Chatlos. All Mr. DeFazio's subsequent time was spent working on aspects of the deal, but mostly he was working with Novell architecting the details. He says he cannot say how many hours, but it was his prime job during this period.

Novell asks, On September 19th, 1995 Novell entered into APA with Santa Cruz?

DeFazio: Yes.

Q: Did Novell retain anything, had Novell retained substantive rights?

DeFazio: Yes, we had two Unix businesses, and we sold one.

Q: Two businesses?

DeFazio: A UnixWare business and a Unix SysV source licensing business. The source code was the first business; we sold source code rights. The UnixWare business was Novell's own Unix distributed in binary form. Originally we planned to sell both businesses.

Q: Is that what happened?

DeFazio: No, the total business was valued too high for Santa Cruz. There was an idea by Doug Michaels to only sell the "going forward" UnixWare business.

Q: What value combined?

DeFazio: About $800 million.

Q: What was the value to the source code business?

DeFazio: The majority of that was, but I don't recall the exact fraction.

Most of the UnixWare value was "future projected" business. He describes how, in effect, this worked well for both parties. It reduced the price for Santa Cruz, making it affordable, and for Novell it shed 90 percent of the cost of the business but retained significant value in the SVRx royalties in that 95 percent of the royalties would flow to Novell and 5 percent to Santa Cruz.

Novell asks, Do you recall the 4.16B provision?

DeFazio: Yes. The examiner refers to page 24 of the APA and a section is displayed alongside the video. The examiner reads section 4.16B aloud, then asks what the intent was?

Mr. DeFazio responds, When we decided to sell one business and retain the other... I provided guidance that for the future revenue stream we would have to bulletproof the deal. He said something to the effect that this language was crafted by the negotiators to protect it in response to his request to bulletproof it.

DeFazio: No, it was written to retain rights, to bulletproof the revenue stream. He said he didn't discuss the copyrights transferring. He says something to the effect that the copyright issue was in the details. He said he was at a high level, that he was not aware of a lot of the details.

Novell asks, Are you aware IBM bought a fully paid up, irrevocable license?

DeFazio: Yes.

Q: Is it your understanding that Novell had rights to waive without anything being protected?

DeFazio: He answers to the effect, Yes, the right to take action to protect the revenue stream.

On cross examination, I believe the voice was that of SCO's Mr. Normand.

Mr. Normand asks, Are you familiar with Amendment 2 to the APA?

DeFazio: Aware.

Q: Aware, but not involved in Amendment 2?

DeFazio: Correct.

Q: Are you familiar with the 1996 amendment?

DeFazio: Correct.

Q: The document in front of you, that you have been reading from during this deposition, is that your declaration?

DeFazio: Yes.

Q: Someone else did the initial drafting?

DeFazio: Yes.

Q: Was it IBM?

DeFazio: Yes.

Q: Would Mr. Chatlos have an understanding of the intent?

DeFazio: Yes.

Q: Who else?

He lists several people including Ty Mattingly.

Q: Mr. Chatlos had prime day to day?

DeFazio: Yes, principal.

Mr. Normand asks about the two Unix business being bifurcated before sale. He asks something about Unix in UnixWare. Mr. DeFazio replies that UnixWare was the latest and greatest version of Unix.

That's the end of Mr. DeFazio's testimony. Judge Stewart calls a break.

End of part 3. In Part 4 Mr. Jacobs calls Tor Braham.

And here's Chris's final report of the day, part 4:
Part 4 - Testimony of Tor Braham

Following the break, Novell's Michael Jacobs calls Tor Braham to the stand.

Mr. Braham indicates that he was the lead negotiator for Novell on the APA and is with the outside legal group.

When asked, he stated that he's been a partner with Wilson Sonsini and has been primarily doing mergers and acquisitions since the mid 90's. He said that Novell was one of his biggest clients and one of his firm's biggest clients. He said that the name partner Mr. Sonsini was on the board of directors of Novell. He reports that by the 90's he had worked on eight or nine mergers and acquisitions with Novell.

Mr. Jacobs asks, Who were you working with at Novell?

Braham: Primarily David Bradford, Novell's General Counsel and lead voice representing Novell. He reports he did work with others though, including Jim Tolonen. He says that Mr. Tolonen resided out on the west coast, so he was meeting with him a bit more. He also worked with Mary Burnside(?) and extensively with Mr. Bradford and Larry Sonsini. He says Mr. Bradford is who he would get the best, ultimate, direction from.

Mr. Jacobs refers to exhibit H2 and Mr. Braham identifies it as the "Agreement and Plan of Reorganization and Merger" of USL from AT&T. He says it was structured as a "reverse triangular merger" for tax purposes and that he worked on it.

Mr. Jacobs asked how it was different from the asset purchase with Santa Cruz. Mr. Braham says that in the Novell-ATT transaction, Novell acquired USL the corporation. It's simpler to buy an entire business compared to an asset deal where you have to go asset by asset. The Novell-ATT deal wasn't simple, but it was simpler. He said the Novell-ATT deal closed on April 12, 1993 for $300 million.

Mr. Jacobs says that two and a half years later Novell is selling it. What changed that led to the sale?

Mr. Braham replies that it was in Novell's interest to prevent Microsoft from having too much dominance in the market. He said the purchase was part financial but also to be a good shepherd of the Unix business. Once Novell bought it they found they couldn't invest enough resources to make it successful, to develop it, or to market it.

He was asked something about who his team consisted of when negotiating the APA. His answers included Aaron Alter, Shannon Wisenet, and for resources he used Don Bradley and Larry Sonsini. Q: Who were your Santa Cruz counterparts?

(Reporter: I missed the main name, but he mentioned also Scott Lester, Jeff Higgins.)

Q: And on Novell side?

Braham: Bradford, very credible and dispassionate voice on what Novell's (business direction is). Sometimes in acquisitions you have people who are working for the seller but who will be acquired. Have to be careful with those because their interest may not be aligned with the seller.

He testifies further, Along the course of the transaction it was determined Santa Cruz did not have the resources to buy the entire business. They had limited cash, limited market capitalization.

Q: So how was the deal structured to deal with this?

Braham: Novell got just over 16 percent stock of Santa Cruz. The amount is limited by SEC requirement that above a certain amount it requires stockholder approval. For that there must be a proxy and audited financials. Novell did not have audited financials for just the Unix business. To do so would require perhaps a year for audit, proxy, shareholder approval. So it was limited to about $50 million of stock. There were certain provisions for future royalty on the UnixWare. Novell retained the Unix business, or the economics of the business.

Q: SCO would have some role?

Braham: Yes, an agent to collect royalties from these older businesses. We were transferring the physical manifestation of the Unix business, and it seemed appropriate to have Santa Cruz be the agent.

Mr. Jacobs refers to a September 16th, 1995 draft of the APA with handwritten notes. Mr. Braham says the handwritten notes on the draft are his. Mr. Jacobs draws attention to section 4.1.6 and asks, What's going on?

Mr. Braham replies, Regarding the core Unix business, it would stay with Novell. He says he's making clear they would only act as Novell's agent, that they needed Novell's agreement for new SVRx licenses, that SCO is only an agent and if they don't perform, Novell could step in.

Mr. Jacobs: Define 'agent'. Mr. Braham does so. He says this section was Novell's attempt to protect itself.

Q: Did Novell restrict itself in any way? (Mr. Braham interprets the question substituting SCO) Yes, SCO was constrained by ... Mr. Jacobs asks, Was Novell limited? No.

Mr. Jacobs produces Novell exhibit V3, another draft of the APA (unknown date). Again he draws attention to section 4.1.6 and asks Mr. Braham to read aloud the box at bottom. He does so, "In the event that buyer shall fail to... seller has right to take action on its behalf." Braham said it was intended to be crystal clear that Novell retained the Unix business and Novell can take control.

Mr. Jacobs asks about other buyouts. Mr. Braham said HP was on the agenda. Novell believed them to be the best party to develop 64-bit architecture of Unix. It was very important to Novell that they be able to retain rights to allow HP to develop (64-bit Unix) for the betterment of Unix in the marketplace.

Mr. Jacobs asked how the Santa Cruz negotiation worked sitting around the conference room. Would the company executives be sitting there?

Braham: No, the executives wouldn't be there all the time. They would tell the negotiators their position, but the negotiators would do the negotiations with one being the sole, lead, voice of the company.

Mr. Jacobs refers to Novell exhibit D4, a September 18th, fax from Aaron Alter to Brobeck. He refers to the 3rd page, a "rider" about bankruptcy. He asks, What drove inclusion of that language? Mr. Braham answers that there was a concern that SCO might not remain solvent. Their was desire that the intellectual property remain away from bankruptcy and stay with Novell. It was believed that this would protect it from the bankruptcy court. Mr. Jacobs points out that the date is September 18th, a day before the 19th, and asks, So there was back and forth right up until the deal?

Braham: Yes.

Mr. Jacobs shows Novell exhibit Y3, a fax from Shannon Wisnend to Burt Levine at Novell. It is a draft dated September 19th, 1995. Mr. Jacobs refers to schedule 1.1(a) intellectual property section, included assets, and 1.1(b) intellectual property section, excluded assets. He asks Mr. Braham, the copyright is an excluded asset?

Braham: Correct.

Q: How did it get excluded?

Braham: We negotiated for it.

Mr. Jacobs asks, At the direction of?

Braham: Novell, David Bradford. We were unwilling to transfer copyrights, and they were willing to buy the business without copyrights.

Q: How would it work?

Mr. Braham answers, they have the physical ownership, the people, disks, computers with software. They, in essence, had a license to it and they have copyright to what they develop.

Mr. Jacobs asks, How does that compare to other businesses that develop Unix?

Braham: They all get the same foundation, and they build their own Unix on top of it. (I believe he also said that UnixWare was their version).

Mr. Jacobs asks, in relation to 1.1(a), included, and 1.1(b), excluded, about the phrase "notwithstanding the foregoing." Mr. Braham replied, Sometimes you have two lists that might be ambiguous or overlap. So you have "magic language" that tells that one trumps the other. He says that the excluded list trumps the included list.

And the phrase in 1.1(b), "All copyrights and trademarks..." Mr. Jacobs asks, Did Santa Cruz have opportunity to review beforehand?

Braham: Yes.

Q: Santa Cruz had competent counsel?

Braham: Yes.

Q: Any doubt they understood your intent?

Braham: No.

SCO's Mr. Singer cross-examines Mr. Braham asking if he's heard of Amendment 2?

Braham: Yes.

I think the next question was, Did you work on it? and answer, No. Then I think Mr. Singer started to ask something about it and Novell's Mr. Jacobs objected. He asked the court that there be no lawyer to lawyer debate of the language. Judge Stewart agrees, but said he will see how it plays out.

Mr. Singer shows the exhibit, Amendment 2, and points out the included and excluded assets language from the amendment. He asks Mr. Braham if the amendment language replaces language in original with language in Amendment 2, and if it is as if the original language does not exist anymore?

Mr. Braham answers, Correct.

Q: Is copyright a way of showing ownership?

Braham: It's one way of showing ownership.

Singer asks, The original APA included "All rights and ownership" and "All Unix and UnixWare?"

Mr. Braham says he sees it but answers about needing to read in entirety.

Mr. Singer asks if "...without limitation" is a term of art?

Braham: Yes, it enables the ability to give a list that may be, but not necessarily is, complete.

Mr. Singer indicates he's done for the day. Judge Stewart recesses court.

After the jury leaves, he asks about the schedule for tomorrow. Mr. Brennan points out that when Novell asked SCO for who they have on their witness list for tomorrow, they provided a list of 7 witnesses. He says Novell still has witnesses too and given the time left Novell believes SCO's answer is a bit unfair. Mr. Singer then tells the judge that a couple of them are unlikely to be called (Sontag and Tibbitts) and the others are conditional on who Novell calls. He says he's still not sure, based on Novell's representations, who they will call tomorrow. He says they'll call Botosan if Novell calls Musika, etc.

Judge Stewart says it will all work out with the time (limit). The parties agreed.

Court was recessed until 8:30 Thursday.

End of report for the day.

That's the end of Chris's report, but we had two others in the courtroom today. Here's cpeterson's account, with his impressions:
First item up today was about a distressed juror. It seems she has planned (and revealed this in voir dire) a vacation for the coming weekend, to extend into Monday. The jury, looking at the pile of evidence they have to go through, does not think they will complete deliberations on Friday afternoon. So they, as a group, brought it up with Sandy Malley, Judge Stewart's assistant / clerk / jury liason / doer of things that need doing. (Her title is "courtroom deputy".)

Judge Stewart brought the matter to the attention of counsel, along with two suggestions: designate the young lady as the alternate juror, and release her from duty at the start of deliberations; or, if the jury is unable to reach a verdict on Friday, allow them to recess until Tuesday. Both sides thought either way would be agreeable; Judge Stewart picked the second path. He said he'd inform the jury as soon as they were brought in.

Brennan for Novell suggested it might be better to inform that juror privately; Judge Stewart said no because a) the decision affects the whole jury, and b) they are a close-knit group.

Indeed, when he described the plan and asked if they would be okay with it, they endorsed it heartily and the juror in question got at least one hug and several high fives from her fellow jurors.

(If anyone has been hoping for bickering & in-fighting among the jury, I think they're going to be disappointed.)

Clock status to start the day: Novell 4:07 remaining, SCO 3:13. The two sides arrived at these numbers by equally splitting their "inexplicable differences".

Jury instruction conference set for Thursday at 3:00 PM. (Judge Stewart: "I see you got the material I requested in by the deadline. I was actually hoping you'd be 30 seconds late so I could turn it down, but since you got it in, we'll have the conference." - much laughter)

Novell requested that since Jack Messmann's testimony had already begun in the form of his deposition, they would like SCO's questioning to be restricted from covering the items which had already been covered. Judge Stewart denied the request. He told SCO that he'd prefer not to spend the day sustaining "asked and answered" objections, then told Novell that he felt that SCO was "well incented" to make economical use of their time.

Judge Stewart asked if Novell would be making a Rule 50 motion. Mr. Brennan stated that they would, and that it "certainly will be interesting". Judge Stewart responded, laughing, "Oh, I have no doubt of that." However, the two sides stipulated that Novell would be making said motion, and that both sides would be taking several appeal-protection steps, without actually going through those motions in the courtroom at the point where SCO rests their case after questioning Mr. Messmann. This will help to preserve precious time during the trial.

First witness up on the stand today: Greg Jones, Novell's in-house counsel since 1992.

Mr. Jones gave a history of his contacts with Darl McBride and others at SCO. Mr. Acker did the direct. As usual, I'm going to leave out most of the detail here, which will be forthcoming from others' notes. I do want to mention a highlight during Mr. Normand's cross-examination. Mr. Normand was questioning Mr. Jones about a telephone conversation with Darl where Jones had information, or claimed to, about the status of the copyrights, but didn't reveal that to Darl.

"So you were not straight with Darl McBride in your phone call?" asks Normand.

Jones: "I think that is an unfair characterization," responded Jones.

Normand doesn't care how Jones wants to characterize it, he just wants an answer. Yes or no. Were you straight with Darl?

Jones: "I am answering your question. As a lawyer, it is not my duty to hand out company confidential information to whoever calls and asks for it."

Normand had no ready response for that.

Jack Messmann's long-awaited testimony begins with Mr. Singer on direct. He is, indeed, economical in questioning, proceeding quickly to his favorite demonstrative: the 2003 calendar. (I haven't been at very many trial days, but every time I've been there, Singer has been accusing one or more people of being the person who maliciously selected May 28 and December 22 as the dates for the press releases. I know the old saw about pounding on the facts, or the law, or the table - but there should be something in there about if you only have one fact, don't beat the poor thing to death.)

On cross with Mr. Acker, Mr. Messmann gave a very interesting history of Novell, how they came to acquire SuSE, and how it happened that he requested that IBM make a $50 million dollar investment in Novell.

Michael DiFazio was the next witness, by video deposition. I believe Mr. Marriott for IBM was the attorney conducting the questioning. DiFazio turned in a very strong performance in talking about the negotiation of the APA. He mentioned that the deal, as originally conceived, had a valuation of $800 million dollars. He said that it looked like the deal wasn't going to work, until Doug Michaels of SCO came up with the "great idea" of splitting off the Unix source code business, allowing the copyrights and royalties to stay with Novell.

Another point that he made was that much of the verbiage of the APA was "bullet-proofing" the deal, so that there would be no "loopholes" whereby SCO could avoid paying the royalties.

The cross-examination portion was rather confusing to me. I had a hard time trying to identify the points SCO was driving at. On reflection, it seems that they wanted to suggest that a) IBM had helped prepare DeFazio's declaration, and that b) DeFazio had worked with Ed Chatlos. (OK, credit where due - Chris noticed the second item, and it seemed right to me when he mentioned it. I didn't notice it independently, though.)

The final witness of the day was Tor Braham. (He says it's "pronounced like 'Graham', except with a B." However, to replicate the sound he gives it, I'd say "bray-um" - with a long 'a'.)

I have to admit to a little disappointment with Mr. Braham's testimony. It's one of the things I've been looking forward to for a long time now, so I had probably built up expectations too high.

Tor tended to ramble at first. During Mr. Jacob's direct, he gave long, meandering answers about his background, legal firms he had worked for, and how mergers and acquisitions were done. Mr. Braham also has some very distracting habits, such as removing and replacing his glasses, which, combined with his lack of focus, seemed to almost drive the jury batty. Fortunately, Judge Stewart came to the rescue. He told Mr. Braham that he realized there was a lot of information he could give, but that we were very short on time and so we needed his answers to be as economical as possible. Things sped up then, and the jury was able to focus better.

He covered why Novell had gotten into the Unix business in the first place, said that Novell could better fill the role of "good shepherd" that Unix needed better than AT&T, and that Novell's aim was to insure there was an option to Microsoft.

He also discussed the time period and process of producing the original APA. Mr. Jacobs showed Mr. Braham a draft of the APA, and asked him about some of the language.

In section 4.16, Mr. Jacobs asked about the term "sole discretion". Why was that put in? For "avoidance of doubt", says Mr. Braham. It makes it possible for Novell to protect itself in case SCO "were to go off the reservation".

Then on to the "notwithstanding the foregoing" - what is that? It's magic language, says Mr. Braham. When you have two parts of your contract that might possibly bump into each other with a contradiction, this is the magic language that you use to guarantee which part wins.

Then it was Mr. Singer's turn for cross. I have no more reason to be disappointed in Mr. Braham's testimony, as this part was an absolute gem.

Mr. Singer only had about 10 minutes remaining for today's testimony, and he wanted to leave the jurors with a great impression. He starts out with a question about Amendment 2 (which draws an objection; overruled on grounds that Mr. Jacobs had asked about Amendment 2 as well - Jacobs had asked, "So that the jury is clear, you were not involved in Amendment 2, correct?" "That is correct." "OK, so we won't be talking about that.").

Singer makes the point that the operative language of the contract must include Amendment 2, and the language of the contract without it is of no effect. Mr. Braham responds yes, it must be read as an integrated document.

Then Mr. Singer proceeds into the APA, and picks up on the paragraph where the ownership rights "without limitation" are granted. He asks about the meaning of the terms "without limitation". Braham responds that it is a way to make a listing complete, without necessarily exhaustively specifying the list to completeness.

Singer then insists that "without limitation" must include the copyrights. Braham says no, five paragraphs later there's an overriding paragraph specifically about intellectual property which excludes copyrights.

Singer says "I'm not talking about five paragraphs later. I'm talking about this paragraph."

Braham re-uses much of Singer's phrasing and responds that the language of the first paragraph is of no effect without the other paragraphs. It must be read as an integrated document.

At that point, time was up for the day. I think it left a strong end-of-day impression on the jury, but likely not the one Singer was hoping for.

We had a third reporter today in the courtroom, Losat, and here are the things that he particularly noticed:
Here's my report from the trial today. I have lots of notes and will for the most part just transcribe them. I didn't catch every word but did capture most of the questions and answers. Questions and answers are paraphrased, not generally exact wording.

When I entered the courtroom about 8:35, there was some ongoing discussion about 100 pages of Novell material and SCO hadn't done a related deposition. SCO is to depose tonight.

Judge Stewart commented that they made the deadline -- barely. He was hoping it would be 30 seconds late so he could ignore it. (Some laughter)

There was a stipulation/agreement on time remaining. SCO had reckoned they had more time left than Novell thought SCO had. Mr. Normand suggested that the difference may relate to side-bar time. In any event, both parties had agreed to split the time. (I didn't catch the exact times, but Novell had 4 hours and something while SCO had 3 hours and something.)

Novell stated they don't want SCO revisiting Messman material that was covered by deposition testimony played in court. SCO (Singer) said it was because Messman was not available first week and that the subjects Novell wanted off-limits amounted to everything in the case. Acker for Novell asserted that SCO made its choice between deposition 1st week of trial or in person later and shouldn't have it both ways. The judge stated that Acker's description is correct but said he was not going to preclude areas. (Door is open to asked-and-answered objections as it unfolds.)

SCO wanted to add some exhibits. Novell protested that they weren't allowed to admit 8K's. Judge Stewart stated he will not admit new exhibits at this late date.

Novell outlined their expected witnesses: Greg Jones (in-house counsel), Messman; DeFazio deposition; Tor Braham (if possible based on time). SCO wants to use 10K exhibit during examination. Acker says they should do it the old fashioned way -- see what the witness says.

Judge Stewart brought up the issue of a juror with vacation plans (known at time of voir dire). She'd been distraught thinking she wouldn't be able to go on her vacation if the jury hadn't finished deliberations Friday. Option 1: skip Monday: jury would resume Tuesday if they can't finish Friday. Option 2: use the alternate juror. SCO wanted to discuss the impact. Novell wanted to decide now. Brennan: a "happy juror" is a good juror. The judge gave SCO a few moments to discuss then stated the first option was acceptable. The judge indicated he'd inform the juror. SCO suggested this be done privately, but Judge Stewart indicated it affected the whole jury.

The jury was brought in, and Judge Stewart explained they would reconvene on Tuesday if they don't finish Friday. The other jurors were in agreement, and the juror with the vacation was satisfied.

Novell called Jones, who is sworn in.

If I remember right, questioning was by Acker.

Q: (background/role question)

A: In-house counsel since '92; involved with engineering / product development people.

Q: Have you met McBride?

A: Yes. Met via Novell Japan. Coworkers.

Q: Contact with McBride in 2002?

A: In the fall, October 10. Telephone call initiated by McBride.

Q: And before then?

A: Not since mid 90's.

Q: Topic of October 10 call?

A: McBride updated on his career: CEO SCO. Discussed how SCO is collecting royalties for Novell and retaining 5%, which is not cost effective -- costs more to collect than they get to keep. Stated that Linux users may be infringing. McBride brought up the APA and indicated that it excluded copyrights. They stayed with Novell and were not transferred to SCO. He thought this must be a "clerical error." McBride has pointed out where in the APA copyrights were excluded.

Q: Did you agree it might be a mistake that the copyrights were excluded.

A: I did not agree that it was a clerical error.

Q: Did you have subsequent communication with SCO?

A: Joanie Bingham (assistant to McBride) called.

Q: Did you call Bingham back?

A: Yes.

Q: Did you document the call in email?

A: Yes.

Q: Exhibit G11. Do you recognize?

A: Yes.

Q: What is it?

A: Email about the conversation with Bingham.

Q: Read or tell us about it.

SCO objection: lack of foundation for reading.

Judge: only read if he needs memory refresher.

Q: (something about do you remember / what do you remember)

A: She wanted access to our files... An assignment from her boss (McBride), some kind of IP tracking. USL to Novell transfer tracking. I told her I'd call Darl to discuss.

Q: You'd call McBride?

A: Yes.

Q: Did you?

A: Yes.

Q: (something like: did you record the conversation in an email?)

A: Yes.

Q: Exhibit K11. Recognize?

A: Yes. Email of Nov. 20.

Q: Substance? (Objection about not reading from the email)

A: McBride wanted to research IP rights SCO had in UNIX to pursue end-users of Linux. He talked again about royalties: people might be moving from Unix to Linux. If we stop that, more royalties would go to Novell. McBride suggested that Novell might be interested in helping. I told him this would be sensitive -- possible litigation with third parties. I'd need to get back with him.

Q: What were your next actions (internal)?

A: Write the email we just saw; told Ledbetter and Stone; inquired if any interest in supporting SCO.

Q: Were they interested?

A: No.

Q: Exhibit R11. Recognize it?

A: Yes.

Q: What is it?

A: Dec. 4 2002 report about the conversation.

Q: Substance?

A: Followup with Darl: Novell won't support this. Darl can be very persistent. He advocated the benefit to Novell. I let him know several reasons why Novell won't support this.

Q: What reasons?

A: The revenues may not happen. Sensitive: may involve litigation with third parties. Cost of doing due diligence. Novell customers that use Linux: customer relations are more valuable than potential increase in SVRX revenues.

Q: Did you ever agree it was a clerical error that copyrights did not transfer?

A: No.

Q: How did SCO react when told Novell won't support (the SCOSource plan)?

A: "Who made the decision?" (McBride would contact them.) I told him it was made at the highest executive level. Darl would "revisit the topic."

Q: (something about further contact with SCO regarding copyrights)

A: Yes. Contacted by Chris Sontag.

Q: When?

A: Mid February. Maybe Feb. 20.

Q: Subsequent email?

A: Yes.

Q: Exhibit V12. Recognize?

A: Yes.

Q: 2 emails?

A: Yes.

Q: Date?

A: Feb. 20.

Q: Did you respond the next day?

A: Yes.

(Move for admission. No objection. Admitted.)

Q: Sontag wrote "side letter to clarify." Does that help you place the date of the call?

A: Yes. Feb. 19.

Q: (background/describe)

A: The APA left the copyrights untransferred. SCO wants them, wants to change that. Novell not going to do research for them. If you can send a letter one time, I'll look into it and get back with you.

Q: Is that the "side letter"?

A: Yes.

Q: You wrote "need to work with business people" What do you mean?

A: I needed to take Sontag's request to the appropriate executives / management.

Q. Exhibit I32. (some delay finding it. redacted portion of SCO 615) Is this the side letter?

A: Yes.

Q: This is a proposal SCO was making?

A: Correct.

Q: Proposing ... "letter clarifying intent" (to / not-to transfer copyrights)?

A: Correct.

Q: (reading from exhibit, presumably) "We wish to clarify the following" ... "all right, title, and interest" ... "were intended to be part" of the transferred assets. You understood copyrights were not included?

(objection: calls for legal conclusion.) [I don't recall any ruling on the objection]

Q: (reading from letter again(?)) ... "no right title ... were intended to be excluded"

A: That was contradictory with the APA. Copyrights were "here".

Q: "Here"?

A: "With Novell" -- they wanted them to be with SCO.

Q: What did you do?

A: I reported to Stone, who did not accept the proposal.

(Objection: move to strike. Something about privilege. Sustained)

Q: Did you get back with Sontag?

A: Yes.

Q: What was your response?

A: No, Novell does not accept the proposal Q: Had you seen the unsigned Amendment 2 to the APA?

A: Yes.

Q: How did this happen?

A: We reviewed documents and found unsigned Amendment 2.

Q: Did you try to find an executed Amendment 2?

A: A member of the legal department was tasked to find it.

Q: Found?

A: No.

Q: Where were documents like this maintained?

A: Legal department files and offsite archive.

Q: Looked there?

A: I'm sure.

Q: Did you ever see a signed copy?

A: Yes, June 6, 2003.

Q: How?

A: SCO found and faxed it.

Q: This is the first time you'd seen a signed Amendment 2?

A: Yes. 2003. First time.

Q: Was a signed copy subsequently located at Novell?

A: Yes.

Q: Where?

A: Tax department.

Q: Is that the usual place?

A: Not usual. Tax department may review agreements, but it is not the usual place to store them.

Q: Did Novell file copyright registrations?

A: Yes.

Q: Exhibit U45. Recognize?

A: Yes, Novell copyright registrations.

Q: Are these for the latest version of Unix?

A: Unix SVRX 4 MP

Q: That version was in existence prior to closing of the APA?

A: Yes.

Q: That was the most recent version prior to the closing of the APA?

A: To my knowledge, yes.

Judge Stewart: Are you offering U45 for admittance? Acker: Yes, stipulated. SCO: also stipulated to admit similar document for SCO.

Q: (something about exhibit to refresh jury's memory) [I noticed at this time that jury members were shifting, stretching; some were taking notes.]

A: (describes copyright registrations (that they're available on web site)) Q: Exhibit 756.

A: It's a press release from Novell telling customers about Novell buying SUSE Linux. Novell has indemnification. We believe we are the rightful owner of the copyrights.

(Motion for admission of SCO 756. No objection)

Q: Copies of correspondence between Novell and SCO on Novell web site?

A: Novell put copies of the correspondence on its web site.

Q: Why?

A: [SCO's claims] had become a matter of great public concern. Very public. Novell's position was to be transparent.

Q: Were SCO's letters included, too?

A: Yes.

Q: These documents remained on the web site over the next 5-6 years?

A: Yes.

Q: Did you review ruling from this court on this subject?


Acker: The court ruled we could go here.

Judge Stewart: Go ahead.

Q: Did you review it?

A: Yes.

Q: Was there anything in the ruling that was inconsistent with Novell's assertions?

A: No.

Q: Anything that was inconsistent with Novell's assertions?

A: No.

Q: Anything in (didn't catch which prior ruling/motion was being referred to) that was inconsistent with Novell's assertions?

A: No.

Acker: All I have, your honor.

Cross examination by Normand.

Q: You understand why we're here. Potential to change rulings. This has no effect on Novell's leaving of the information on the web site?

A: Correct.

Q: There was a joint defense agreement between Novell and IBM (against SCO)? Novell and IBM have common interest.

A: There is a joint defense agreement.

Q: Discussion (not clear to me from my notes whom it was with) in Spring 2003?

A: Yes.

Q: Include copyrights?

A: Yes.

Q: Exact language?

A: I don't recall exact.

Q: You understand McBride thought it was a clerical error [that copyrights were not transferred]?

A: Yes.

Q: In none of the emails did you assert that Novell owned the copyrights?

A: There was no need to.

Q: You never said to Darl that Novell owned the copyrights?

A: In effect, I did.

Q: You told him that but didn't record it in your email?

A: Correct.

Q: You didn't know who owned the copyrights when McBride called [originally]?

A: At that moment, I didn't have an understanding.

Q: You did not mention Novell's own interest in Linux?

A: Correct.

Q: You weren't "straight" with him?

A: Not a fair question. I'm a lawyer for Novell, apprised of confidential business plans. I'm not able to report [such things]. It would be inappropriate.

Q: You withheld?

A: It would be inappropriate.

Q: Darl suggested there could be more money for Novell?

A: Yes, more royalties or royalties not declining as rapidly.

Q: Exhibit I31 (last page admitted). Sontag sought to "clarify"?

A: Yes, "clarify".

Q: By this time, you had seen the unsigned Amendment 2?

A: I'm not sure about the date.

Q: I thought you said [referring to direct, presumably]

A: I don't believe so.

Q: [You'd seen unsigned Amendment 2] at some time in the next month or two?

A: Yes.

Q: You took no personal effort to find [an executed Amendment 2]?

A: I gave the task to someone with experience in such tasks.

Q: You don't know the exact effort?

A: I know he looked through boxes.

Q: Did you contact the negotiators of the agreement [outside counsel]? A: I don't know.

Q: Novell registered copyrights?

A: Yes.

Q: These were filed after SCO filed copyright registrations?

A: Correct.

Q: SCO copyright registration exhibit (admitted subject to Acker's subsequent review). Recognize?

A: Yes, that's what it is [SCO's copyright registration].

Q: You've seen some of SCO's registrations before?

A: Can't be sure, seen so many documents related to this case.

Q: You (or Novell) understand that copyright registration doesn't mean you own the copyrights?

A: Yes.

Q: Your view is Novell has publicly claimed to own Unix copyrights?

A: Yes.

Q: Including UnixWare copyrights, correct?

A: That I'm not following you on.

(SCO lawyers scramble around to find documents (including at Novell table).)

Q: Read lines 16-20 (from 2008 file)

A: Yes.

Q: Having looked, do you acknowledge that Novell has claimed to own UnixWare copyrights?

A: No, it wasn't clear to me from the APA what was included at a given time. I thought we worked through -- I was stating it as a question.

SCO: Your honor, may I read the question and answer into the record?

Judge Stewart: Yes.

SCO reads.

A: Not ultimately my recollection.

Q: Novell in its answer has claimed ownership of Unix and UnixWare copyrights?

A: No.

Q: (Reads from complaint/answer)

A: Not familiar with the statement, not familiar with the exhibits attached. Not familiar with how the term UnixWare is being used. The APA, we've attempted to be faithful to that. That's all I -- all Novell's -- ever intended to dispute -- what's excluded in the APA.

Q: Do you have any reason to think Novell's statements [in the answer to the complaint?] weren't the truth?

A: No.

Q: Novell publicly claimed to own Unix copyrights?

A: Yes.


Q: In the conversation with McBride in the fall of 2002, McBride said Novell could make more money?

A: Generally.

Q: Explain.

A: Darl was saying basically some SVRX customers might be moving to Linux. If SCO stops that, revenues will stay up.

Q: SCO's licensing campaign would prevent migration to Linux?

A: Yes.

Q: What made you think McBride understood the copyrights were excluded?

A: He directly told me. Showed me the language in the APA.


Q: You understand the APA has been amended?

A: At least 2 times.

Q: The operative language of the copyright exclusion amended?

A: By Amendment 2.

Q: You told SCO you found the unsigned amendment 2?

A: No.

Q: Yet it was relevant?

A: Yup.

Q: It was related yet you didn't tell?

A: Correct.


Q: Do you normally share unsigned agreements?

A: No.

Judge Stewart [referring to his previous comment about getting 3rd helpings only once (and Novell saving it)]: You just used up your third. Acker: I used it up. (Throws hands up.) (Some laughter in the court, including from me.)

Singer's adverse witness: Messman

Judge Stewart explains to the jury Messman's presence.

(Singer carries in a large chart that looks like a calendar.)

Judge: 10 minutes until break.

Q We informally met at deposition. Jury has heard excepts from deposition. Back to May 28 (sco 525): press release. Familiar?

A Yes.

Q You approved it for release?

A Yes.

Q At that time, press release stated Novell not SCO owned the copyrights?

A Yes.

Q Why was it released on that date?

A It's when we got the work done.

Q May 2 to May 28 is a long time. Why?

A Thinking it through.

Q Have you thoroughly read the APA?

A Glanced at it. I was part of the board at the time of the agreement. I had read it after that board meeting.

Q Know about Amendment 2?

A Yes, unsigned. If it's unsigned, it doesn't exist.

Q Aware...? [sorry, missed what --I speculate it's search for signed Amendment 2]

A Yes

Q Did you query outside counsel?

A No, people at Novell were responsible for the search.

Q Did you ask SCO?

A No, *I* didn't.

Q Did you direct someone else to?

A No.

Q You could have sent it to SCO privately.

A Could have.

Q Didn't.

A Correct.

Q You knew it would hurt SCO.

A Didn't know. Telling Novell's side.

Q Did you believe it would hurt them?

A I don't know.

Q Wide press release distribution?

A Yes.

Q Believe it would hurt SCOsource?

A No, didn't know what it was all about.

Q SCOsource was the reason for the press release?

A Not the reason.

Q Nothing to do with it?

A Not the reason.

Q Understood SCO hadn't proven infringement?

A Yes.

Q You knew a statement from Novell ' the former owner of Unix ' would have more effect than a statement from someone else?

A Just stating truth.

Q You understand the difference between getting the story out vs. making false statements?

A Yes.

Q If AT&T claimed they still owned UNIX (at time of USL purchase)?

A Hypothetical.

Q You wouldn't be upset?

A They wouldn't have the right to say that.

Q Do you think your intent in supporting Linux justifies telling a falsehood?

A No.

Q Press release. Recognize? You approved?

A Yes.

Q You stated Amendment 2 'appears to support' [SCO's position that copyrights transferred]?

A Yes.

Q LaSala worked with you on this press release?

A It was his press release; I worked with him.

[There was a question I didn't fully get here about expecting general counsel interpretation to match press release, I think; it was answered in the affirmative.]

Q And counsel had the unsigned Amendment 2 (for some time before that)?

A I don't know how long.

Q Press release says the amendment 'appears to support'. You approved this?

A Yes.

Q Novell's trying to back away from that?

A Not trying to back away -- trying to clarify what 'appears' meant.

Q (what changed?)

A Novell did the research and doesn't believe the copyrights transferred.

Q Anything different come to light between June 2004 and Aug 2004?

A I don't recall.

Q Aware of anything between June 6 and Aug 4?

A No, don't recall.

Q You authorized Novell to go public with the Aug 4 letter? [may have missed an answer]

Q That was not published?

A Correct.

(Break announced, jury removed)

Matter of intent by Novell to file Rule 15 motion.

Singer 'can only imagine what will be in it' (Laughter in the courtroom) Novell promises it will be interesteding. (More laughter)

Novell wants the jury told that trial testimony was from a trial between SCO and Novell about different trial where Novell prevailed and the decision was not reversed. Brennan stood and addressed the judge passionately about his client, the accusations, 215M damages, and pointed out that SCO 'speculates' 'its way'. The judge stated he will instruct the jury that it was a different trial on other matters (or some

such). SCO wanted to recall Jones (I think it was) or otherwise establish foundation for admitting the 10K. Novell decided it could be admitted on stipulation, no new questions needed. (SCO wants to use it for closing arguments -- health of Novell, related to punitive damages.)

Jury brought back in. Instructed by Judge Stewart something like 'that trial didn't have anything to do with the issues you are deciding'.

Singer resumes.

Q Was there any new information between June 6 and Aug. 4?

A Not aware of any.

Q As far as you know?

A Don't recall.

Q The two press releases have completely different conclusions.

Objection: argumentative.

Q Are you aware that some copyright registrations by AT&T were transferred to SCO?

A No, I thought they stayed with AT&T.

Q Aware SCO registered copyrights?

A Aware SCO filed registrations 'over the top of AT&T'

Q You didn't go public about this?

A No. Q You approved the Dec. 22 press release?

A Yes.

Q Why this date?

A Don't know.

(Singer shows his big calendar poster)

Q As an officer in a public company, you know earnings are required to be reported 4 times a year on specific dates?

A Yes.

Q May 28 press release contained first claim of ownership?

A Yes.

Q It's a coincidence that's the same date as the earnings report?

A Was coincidence.

Q Dec. 22 date?

A LaSala wanted to put the info out; I approved the info, but not the specific date.

Q There were only 2 statements, correct?

A There was a number of letters; I don't know how many were made public.

Q Press releases. Only the 2?

A Can't recall.

Q Aware of any others?

A No.

Q Assuming there were only 2, is it a coincidence?

A Assuming only 2, it was a coincidence.

Q Were you following SCO share prices?

A No.

Q You were aware the stock was going up and down?

A I knew the volume of SCO press releases was going up and down, not aware of stock.

Q Referring to deposition: question about SCO stock price decline following Novell press release, answer was something like 'going up and down based on what Darl said; can't recall where it was on any given day'

Q Aware it was going up and down?

A Aware but not following it.

Q Jan. 2004 approved announcing Linux indemnification?

A Yes.

Q Exhibit 756. Recognize?

A Yes.

Q Novell's rights include copyright registrations: consistent with Novell's position?

A Yes.

Q Chris Stone statements Mar 2004 at open source conference. Aware?

A Aware

Q Aware that he stated that 'we still own Unix'

A Yes. True statement. Doesn't bother me.

Q When did Stone leave Novell?

A Went to Harvard for a while, probably 9 months till he left

Q Was he asked to leave Novell?

A No.

Cross by Acker:

Q Education/background

A 1962 first degree etc.

Q With Novell since its start?

A Tells history of Novell: 'We ought to shut it down'; orderly liquidation planed; planning for terminations, ran across 3 programmers from BYU; convinced parent company [SafeGuard I think he said] to recapitalize; get new Novell business off the ground and hire his replacement: Noorda, who deserves the credit for building Novell.

Q What was the 3 BYU programmers' project?

A NetWare.

Q After Noorda was CEO, were you still on the board?

A I was off for about a year, rejoined before Novell's IPO.

Q Exhibit Z3 (?) Minutes of board of director meeting Sept 18 '95.

A Yes. I was present.

Q APA discussed?

A Yes.

Q Meeting where APA was approved?

A Yes.

Q Discussion about copyrights?

A Yes. It was important that they not be included. SCO was a fledgling company, worried revenue stream at risk; copyrights and patents stay so Novell could resume business if SCO failed.

Q (important topic?)

A It was a key point of the deal.

Q May 28 2003 press release (aware of it?)

A Yes

Q Why (was it made)?

A Marketplace for Unix and Linux was bombarded with statements by McBride that were untrue. That end users should have to pay license. Open source people, not paying for anything - free software. People calling Novell.

Q To protect Novell's interests?

A Affirmative.

Q Did you have meetings with McBride?

A 1 meeting, 1 phone call

Q Describe

A Late one night, I answered the phone, which I don't normally do. It was Darl. 'Have you got it?' What? 'Amendment 2'. A few comments, don't remember. Hang up. Received fax of Amendment 2. McBride called again. 'Now do you have it?' It took 3 or 4 months for SCO to find it. 'Have you talked to IBM?' No. Just got it. Darl was agitated. (Don't know him well enough to say whether he was angry.) I then called my general counsel.

Q (Was there anything said in the conversation that SCO owned the copyrights?)

A No.

Q Any doubt in your mind?

A None.

Q Letter [not sure what letter]

A We thought it was wrong. Best way to go: put the information out and let people make up their own minds.

Q (Novell had plans to acquire SUSE)

A Yes

Q Why?

A There was a great deal of concern in the market. How to solve: acquired a Linux company. SUSE became available. WE bid. (VCs owned SUSE). We did the due diligence and closed 1st or 2nd week of Jan 2004.

Q IBM purchased $50M of shares in Novell?

A Yes. My suggestion. We took $210M risk on SUSE. I called the bigger players. Bill Zeifer IBM exec (dealt with on regular basis). Novell wants some 'comfort'. 'What form?' Not buy part of SUSE, Novell wanted to own 100%. Invest in Novell. 'How much?' 50 million. A week or two later: 'OK.' Closed late March / early April 2004.

Q Events of 2002-2003 relating to IBM: any involvement with regard to SUSE deal?

A No connection.

Redirect by Singer

Q Exhibit 754. Memo Bradford sent you and entire board of directors. Recognize?

A Didn't remember it, but sure I got it (since it went to board of directors)

Q Take a look. Information regarding SCO deal. Item E. Terms sheet. Transfers/retained. Novell to SCO: Unix & UnixWare technology assets. Retained: all patents, license-back, Tuxedo and other unrelated products. Are copyrights on the list?

A Not on *this* list

Q Minutes of the BOD meeting. 'Proposed sale of Unix' Summarizes discussion?

A Yes

Q Summary of discussion. Read paragraphs. Any reference to copyrights?

A Not in the first 3 paragraphs

Q In 4th?

A No

Q Only reference is in resolution. Summary 'transfer Unix technology assets'. Only reference to copyrights: 'Resolved: Novell will retain all copyrights.'

A Correct

Q There was a license-back?

A Yes. Of stuff being sold.

Q Excludes NetWare

A Yes

Q (something about copyrights not in the lists presented to the board, why was it discussed?)

A Prerogative of the board to change

Q Terms changed?

A The board was very concerned. 'Fledgling company' Need to retain copyrights.

Q Distinct recollection that copyrights were not to be transferred?

A It was a specific point of discussion, as the resolution shows.

Q You didn't remember anything other than patents and copyrights?

A Must be true

Q Let's read.

Objection. Confirmed. Already. Judge: don't show it.

Q: Only this? [only remembering about patents and copyrights]

A Yes, because it was the most important thing covered

Q Press release of Sept 20 '95. SCO agreement to purchase Unix business. Novell received 6.1M shares of SCO. Quote from CEO of Novell. Any reason to dispute this is the joint press release?

A I don't think it's 'joint'


Judge Stewart: not appropriate to comment on statement by others in press release.

Q Was Frankenberg in position to know?

A Yes

Q (reading) 'acquired ' IP'

A I see that.

Q Timing of IBM investment March/April, correct?

A That's when it closed.

Q There was a commitment in Dec 2003?

A Could be

Q Novell took action to waive claims?

A Yes

Q (something about 3 dates, first of which was Jan 2004)

A Not sure about 3rd. First 2 correct.

Q Novell didn't need the $50M to buy SUSE?

A Correct, didn't need the money, needed commitment

Q All that happened at the same time? [waiver and commitment for investment, I think]

A Didn't.

Q Aware of IBM asking to waive?

A Not aware.

No further questions.

And here's the rest of his day's impressions:

Q APA intended to transfer copyrights?
A No. APA retained copyrights -- a way the team crafted the words to implement bullet-proofing.

Q That's your understanding based on reading of APA?
A 2 things: reading APA; its not being discussed

Q Responsibility of Chatlos if there was discussion?
A If there had been an impasse, it would have been escalated to me.

Q It was not an impasse, there was no escalation?
A Correct

Q Chatlos would have been the one [negotiating/drafting the details(?)]?
A Yes

Cross portion of deposition started.

Q If Novell retained copyrights, why did Novell need a license back?
A More of a legal question

Q From a business perspective?
A We retained rights to do something in the future. Copyright was to bullet-proof for revenue stream. License let Novell take something to market. Irrespective of source business.

Q If bullet proof, why need license?
A Bullet-proofing revenue stream. License gave Novell rights to take into marketplace.

Q Aware IBM fully-paid in mid 90's?
A '96

Q If that's the case, what need for Novell to waive source code rights for fully paid license?
A Ask Novell the need. It's consistent with the rights. Not commenting on the motivation.

Q Novell have the right to modify/cancel provisions of SVRx agreements without connection to royalty stream?
A Novell if they felt... could take actions. This right is part of the bullet proofing. SCO couldn't interfere.

SCO's counter designations in the deposition.

Q Your fees paid?
A By Novell

Q Your declaration (of 2003), drafted by?
A IBM after meeting with me.

Q After sale, work focused on broader strategy?
A Yes. Post-unix networking strategy -- still responsible for Unix-related activities.

Q Knowledge of Amendment 2?
A I have understanding.

Q No personal knowledge?
A No

Q Amendment X?
A No

Q Who requested declaration?
A At conclusion of meeting, Marriott or [someone else from IBM] ... I would agree if someone else did the draft.

Q Discussed APA?
A Yes

Q Chatlos would have strong understanding?
A Yes

Q Anyone have a better understanding?
A Certainly I, Frankenberg, outside counsel. Chatlos in top-tier understanding.

Q No knowledge of Amendment 2?
A Correct

Q Still employed?
A Yes

Q Is it fair to say Chatlos had the primary day-to-day on negotiation?
A Yes. Ed was the principal negotiator

Q Understanding Amendment 2 had ...
A Not involved

Q Would have ' if it had substantial ' [missed parts of the question]
A Would have if escalated. Apparently not.

Q 2 Unix businesses bifurcated?
A Yes

Q One was source licensing?
A Yes

Q Retained by Novell?
A Yes

Q Licensing of source code or just royalty from binaries?
A Primarily royalty, when there's a need for source, Novell gets something. But by far, most revenue is binary royalty.

Q Existing licenses?
A Correct

Q Other business is UnixWare?
A Called UnixWare ... binary product. Unixware also latest source code. What we transferred was that current technology

Q Intent to transfer IP of Unix program through APA?
A Yes to extent part of that business (UnixWare)

Q Important part of UnixWare business?
A Yes

Q [negotiating or drafting(?)] team?
A Ed was leader, people from finance, internal legal, outside legal

Q Ed had detailed understanding?
A Think so, don't know if he knows every piece.


After break, discussion about rebuttal witness list, I think. (Before the judge returned). Novell: 'you can just give us your whole witness list' (sarcasm). SCO replied 'We're nicer than that' (Laughter).

DeFazio (Deposition testimony played in court)

Q (background)
A Head of Novell Unix business

Q After sale of Unix business, still involved in Unix at Novell?
A Made sure Novell completed work. Other Novell responsibilities

Q Other responsibilities?
A Always manager, assumed licensing responsibilities, Unix business development, USL/Novell consolidation, Executive VP, General Manager of Unix in Novell

Q Met Frankenberg or [someone] to discuss sale to SCO?
A Yes, July '95, perhaps June

Q You were the most knowledgeable executive?
A Correct

Q How much time negotiating?
A Met [3 executives], agreed to pursue sale. With Chatlos and Mattingly, met with SCO in Santa Cruz. High-level agreement reached. Team headed by Ed Chatlos to put together the details. Most of my time was spent on aspects of the deal, architecting the deal. Timelines, personnel issues (400 people were working in the Novell Unix business). Can't give number of hours spent. Was primary job. Strong team of people, lawyers.

Q Sept '95 APA?
A Yes

Q Understanding on retained rights? (Existing license business, including IBM & Sequent)
A Novell retained rights. There were 2 Unix businesses. Sold SCO 1 of them.

Q Novell retained 'significant substantive rights'?
A Yes

Q Novell retained 'significant assets'?
A Correct

Q Important intellectual property and significant substantial rights (applicable to IBM & Sequent licenses)
A Correct

Q Who negotiated
A Ed and I

Q How many Unix [can't read my own note for this word]?
A UnixWare and legacy system V source licensing

Q What is System V?
A Original source licensing. (compared to UnixWare: binary for intel x86 into marketplace.)

Q Initially, was SCO interested in both businesses?
A Original idea was both

Q What happened?
A Value Novell placed on the combination was much, much larger than SCO could pay. So, too expensive (whether SCO agreed with the valuation or not). Why not buy the going-forward UnixWare business while Novell retains the licensing - Unix source licensing royalty stream. Idea would allow us to get to agreement: what SCO could afford.

Q Value of combined businesses?
A 800M

Q Portion attributable to the source licensing business?
A Certainly majority but don't recall specific fraction

Q How did Novell respond to Sco's proposal?
A Personally liked ' complimented SCO ' 'good for me'. Good for Novell: substantial payment ($100M) and maintain source legacy business. Much of UnixWare value was projected growth. Present value much smaller. Novell keeps 80-90% of the revenue (compared to the original combined revenue) while shedding expenses.

Q Novell received royalties on Unix source licensing (including IBM & Sequent)?
A Yes. The way it was implemented, SCO kept some to administer it.

Q Novell retained significant assets?
A Correct

Q Recall APA 4.16(b)?
A Yes

Q Exhibit 8 to declaration - p24. Take a minute to refresh.
A Yes

Q 4.16(b). SCO shall not, no authority, to amend licenses without prior authorization from Novell. Novell can waive. If SCO doesn't do it, Novell will take the action on SCO's behalf.
A Yes

Q Intent?
A High-level: retain/sell split. APA is 150-200p work. Not involved in drafting but provided guidance. Protect the royalty stream. 'Bullet proof' to maintain Novell's business. No loopholes. The team used their ideas to achieve 'bullet proofing.'

Q APA intended to transfer copyrights?
A No. APA retained copyrights - a way the team crafted the words to implement bullet-proofing.

Q That's your understanding based on reading of APA?
A 2 things: reading APA; it's not being discussed

Q Responsibility of Chatlos if there was discussion?
A If there had been an impasse, it would have been escalated to me.

Q It was not an impasse, there was no escalation?
A Correct

Q Chatlos would have been the one [negotiating/drafting the details(?)]?
A Yes

Cross portion of deposition started.

Q If Novell retained copyrights, why did Novell need a license back?
A More of a legal question

Q From a business perspective?
A We retained rights to do something in the future. Copyright was to bullet-proof for revenue stream. License let Novell take something to market. Irrespective of source business.

Q If bullet proof, why need license?
A Bullet-proofing revenue stream. License gave Novell rights to take into marketplace.

Q Aware IBM fully-paid in mid 90s?
A '96

Q If that's the case, what need for Novell to waive source code rights for fully paid license?
A Ask Novell the need. It's consistent with the rights. Not commenting on the motivation.

Q Novell have the right to modify/cancel provisions of svrx agreements without connection to royalty stream?
A Novell if they felt' could take actions. This right is part of the bullet proofing. SCO couldn't interfere.

SCO's counter designations in the deposition.

Q Your fees paid?
A By Novell

Q Your declaration (of 2003), drafted by?
A IBM after meeting with me.

Q After sale, work focused on broader strategy?
A Yes. Post-Unix networking strategy - still responsible for Unix-related activities.

Q Knowledge of Amendment 2?
A I have understanding.

Q No personal knowledge?
A No

Q Amendment X?
A No

Q Who requested declaration?
A At conclusion of meeting, Marriott or [someone else from IBM]. I would agree if someone else did the draft.

Q Discussed APA?
A Yes

Q Chatlos would have strong understanding?
A Yes

Q Anyone have a better understanding?
A Certainly I, Frangenberg, outside counsel. Chatlos in top-tier understanding.

Q No knowledge of amendment 2?
A Correct

Q Still employed?
A Yes

Q Is it fair to say Chatlos had the primary day to day on negotiation?
A Yes. Ed was the principal negotiator

Q Understanding Amendment 2 had ...
A Not involved

Q 2 Unix businesses bifurcated?
A Yes

Q One was source licensing?
A Yes

Q Retained by Novell?
A Yes

Q Licensing of source code or just royalty from binaries?
A Primarily royalty, when there's a need for source, Novell gets something. But by far, most revenue is binary royalty.

Q Existing licenses?
A Correct

Q Other business is UnixWare?
A Called UnixWare - binary product. Unixware also latest source code. What we transferred was that current technology

Q Intent to transfer IP of Unix program through APA?
A Yes to extent part of that business (UnixWare)

Q important part of UnixWare business?
A Yes

Q [negotiating or drafting(?)] team?
A Ed was leader, people from finance, internal legal, outside legal

Q Ed had detailed understanding?
A Think so, don't know if he knows every piece.


After break, discussion about rebuttal witness list, I think. (Before the judge returned). Novell: 'you can just give us your whole witness list' (sarcasm). SCO replied 'we're nicer than that' (Laughter).

Novell calls Tor Braham.

Q Your role?
A Head of outside counsel

Q (background)
A (background)

(Judge Stewart asked Braham to speak slowly for the recorder (especially for law firm names).)

Q Types of work in mid 90s?
A M&A, some IPO, IP licensing

Q Relationship with Novell as of '95?
A My biggest client, one of firm's biggest clients. My mentor, Mr. Sonsini, is on Novell BOD. Close relationship. I knew Novell well, 8 or 9 prior transactions (M&A) for Novell

Q As outside counsel, what understanding did you gain about a company?
A Get to know 'moving parts': people, business - learn how decisions are made within a company; people, strageties, objectives, and how to 'navigate'

Q Who interacting with at Novell? Taking direction from whom?
A David Bradford: interaction and direction. Also Jim Tolonen (CFO). (He's on the west coast; met more often.)

Q 8-9 deals, worked with David?
A Yes, and [name not caught (starts with S)]

Q Describe role of Bradford
A He's the one I'd get instruction from - tradeoffs. He was negotiator, me the implementer

[question about a document (acquisition of unix from at&t), admitted (Exhibit H2(?))]

Q Familiar with Unix?
A Over the years Unix was well known - other operating system or collection of operating systems. Alternative to Microsoft. I learned about Unix through client and from the press. USL purchase from AT&T was first deal.

Q Form of transaction?
A Acquisition of USL -- stock for stock transaction (tax reasons and historical reasons -- 'triangular merger') -- subsidiary of AT&T merged with newly-formed subsidiary of Novell.

Q Complexity: whole company purchase vs asset purchase?
A Simpler to buy while company that a business unit. Asset deals are complex. 'How do we share ...' for each item. Could be a building, sometimes down to the desktop. It's a lot of work going asset by asset. It's also possible to have confusion.

Q [USL purchase by Novell was] Simpler type: acquisition of everything?
A Yes. Not simple, but simpler.

Q Value?
A 300M

Q Feb '93; 2.5 years later, Novell wants to sell to SCO. What changed?
A Novell's interest in Unix: variety of purposes -- financial, strategic. Novell had an important role in the industry -- networking. It's important for Microsoft not to have too much control. OS, networking, & applications as a package -- Microsoft dominance diminishes NetWare. Novell to become good shepherd to the Unix collection of OSes. Non-Microsoft. There was the feeling that AT&T was not in the best position to manage Unix, feeling Novell would be a good home. Felt by Novell and AT&T.

Q Explains inbound transaction.
A Yes

Q Then what?
A Novell found it wasn't in the best position to market and develop UnixWare. It has other products. For the intel offering, which competes more directly with Microsoft, they wanted a better home to aggressively market Unix. This would be good for Novell.

Q Your understanding gained through SCO deal?
A Yes

Q How does outside counsel get involved in a transaction like this?
A In the Novell case, a month to 6 weeks before the deal, while it's 'crystallizing'. Relatively early.

Q Involved in APA?
A Yes

Q When (intense effort)?
A last week or so before announcement. (It was 15 years ago.) There was a 'forced march', remembered clearly

Q You have a picture in your mind of the place?
A Picture in my mind of the conference room, the people in the room, long days & weekend. Exact timeframe very hard after 15 years.

Q Who at the firm was responsible?
A Primarily myself & associate [didn't catch name] and Shannon Whiznet [spelling?]. Tax lawyer Don Bradley behind the scenes. Sonsini for consult if needed.

Q Who for SCO?
A Ed Leonard (Senior partner), Lester (younger partner), Jeff Higgins (associate)

Q M&A deal roles & agendas?
A David Bradford lead negotiator, decided tradeoffs. Whole range of people involved in Unix business with Novell -- good people. Important to the Unix business, 'but'. Questions of which people will move over to the new owner. Conflict of interest. These people are Seller's employees but will become Buyer's employees. Their interests are not necessarily in the best interest of the seller.

Q At the client, who were you accountable to?
A David Bradford.

Q Specifically with regard to the APA, what was your role?
A Represent Novell -- what Novell wanted to accomplish; be their primary mouthpiece, negotiate for them; draft contract along these lines, supervise subordinates in drafting; report to Novell; get best deal for Novell; protecting interests according to instructions.

Q [missed question]
A SCO didn't have the resources to buy all. Small company, struggling, perception that its business was under pressure & potentially not viable at all long term. Stock price suffering, limited cash, limited market capitalization. Couldn't afford business Novell spent 300M for.

Q So how to make it work?
A Novel got 16% of SCO stock (NASDAQ rule limits to 16% without its own shareholders approval, requires proxy statement with audited financials for business to be acquired ' not possible with unix business ' would take a year). [The 16% of SCO stock had] approximately $50M value. Beyond that, royalty arrangement: SCO was required to develop merged product and pay royalties to Novell (based on market goals). Perhaps most important: Novell retained the economics of the non-unixware unix business. Carved down to what SCO could afford -- UnixWare flavor.

Q About retained portion ' as deal was presented, sco would have some role.
A Yes Q What?
A Agent to manage collection of royalties. Reason: physical people transferred to SCO.

Q Exhibit U3 APA w/ Tor's writing on it. Recognize?
A Yes (Admitted)

Q Typed date is Sept 16 '95. Handwriting. 3 days from execution.
A I believe that's correct, yes.

Q Does that refresh your memory as to when the forced march occurred?
A This was the middle of that.

Q p27 (originally said p26. The witness and the court had trouble finding p27 because the pages are out of order, p27 before p26. (Counsel for both sides knew this.)) Section 4.16: what's going on? What can you tell from the handwriting?
A 4.16 is the key provision that embodied the deal of the Unix business as compared to the UnixWare business (IBM, Sequent, Sun,HP) that business remained with Novell. My writing: make very clear they didn't have right to change licenses; they were to act only as agent, and if they didn't Novell could step in and do it on their own.

Q Concept of agent is something you learn in law school?
A Yes

Q What is it?
A If you own / have rights, you can appoint someone to represent you, negotiate on your behalf ' [used example of real estate agent likely familiar to jurors] ' You can limit the scope of power you give an agent. Agents get commission typically, SCO got its 5% of royalties.

Q What if not satisfied with agent?
A You can terminate. But if he's bought a buyer, you can't just terminate. 'Tail.' Agent works for and at the pleasure of principal: fiduciary duty ' work for you not himself.

Q [missed it]
A Novell was negotiating an agent relationship.

Q In drafting you did in 4.16, did it restrict Novell? [I'm pretty sure question was 'Novell' but witness answered as if question as 'SCO']
A SCO was limited in what they could do

Q Did Novell limit itself in any way?
A It did not. That 'sole discretion' is put in here for avoidance of doubt

Q Of what?
A Whether Novell had complete rights to control

Q Exhibit V3. (APA draft) Your handwriting?
A Yes


Q V3 draft APA with handwriting?
A It is

Q Section 4.16 in this draft - read aloud handwriting.
A In the event that buyer shall take any such action seller right to take any action ... [sounded like the wording that ended up in the agreement]

Q Intent?
A If SCO didn't do what it was supposed to do as our agent, Novell can step in. Intends to give us the rights to do that 'crystal clear rights to step in' if SCO goes off the reservation.

Q Aware Novell entered into buyouts?
A Yes. Not sure about past but always possibility (IBM, Sequent, HP). Ability to do buy-outs is something we were very interested in preserving.

Q HP -- [didn't catch the question]
A HP was working on 64-bit architecture. It was believed HP was the best to develop 64-bit unix. (Analogy: 6 cylinder vs 12 cylinder cars.) Licenses for Unix: not simple 'use it' -- they developed their own software/flavor. HP was developing 64-bit. We wanted to allow HP to do so.

Q [missed]
A Each side funnels their aspirations and fears into their people, funnels down to single voice: sco: Brobeck, Flyer; Novell: me. (The negotiating room referred to as 'the war room')

Q People on your team, exchanged drafts with Brobeck team?
A Email / fax drafts.

Q Exhibit D4?
A Fax (or email) sending language to a subordinate [there was a tangent about whether it was fax or email, how fax was used if writing on it because PDF was not common. Judge Stewart asked him to answer as directly as possible, time being short] (Admin D4)

Q Sent to someone on your team?
A Yes

Q 3rd page, rider, bankruptcy
A Yes

Q What was the concern?
A Question of risk of SCO going bankrupt/insolvent. Can't be sure how IP will be handled in bankruptcy. Language intended to prevent uncertainty about assets in case of bankruptcy.

Q Exhibit Y3 (p3)-- Shannon Wiznet's name?
A Yes

Q Faxing to [missed name]?
A Yes

Q On your team?
A Yes


Q Fax from Shannon Wiznet to Burt Levine?
A Yes

Q Draft Schedule 1.1A, 1.1B?
A Yes

Q Intellectual property section of 1.1A set it?
A Yes

Q 1.1B V 'all copyrights are excluded'
A Yes

Q How did this come to be?
A We proposed it, negotiated for it; it was agreed upon.

Q Who's direction?
A Novell's

Q Rationale?
A Protect Novell's interests -- bankruptcy, Unix business (core economics) -- the deal we negotiated. We were unwilling to transfer copyrights. They were willing to acquire without copyrights.

Q Did you get push-back?
A May have been, don't specifically recall

Q How to run business without copyrights?
A Physical disks, people with understanding, essentially it had license to use it to build new product. They would have copyright in the new developments. Its improvements were its copyright.

Q Compare to other vendors of unix flavors
A License to their flavors, build on ' everybody starts with foundation; they build their house on ' they sell the house, what is actually theirs.

Q Involved in Amendment 2?
A No

Q Exhibit A1 ' APA as executed Sept 19 '95. Section 1.1A purchase and sale of assets.
A Yes

Q 'Notwithstanding the foregoing'
A 1.1A list of assets going to SCO. 1.1B assets excluded. Sometimes schedules overlap. The language clarifies that one trumps the other. Example, maybe confusing in Schedule A but Schedule B is clear. 'Notwithstanding the foregoing' on B makes it clear that B trumps A. This language I remember clearly 15 years later.

Q 'All copyrights and trademarks' excluded?
A Yes

Q Did SCO have opportunity to review?
A Yes

Q Did SCO have skilled counsel?
A Yes

Q Capable of understanding your intent?
A No doubt whatsoever

(nothing further)

Cross by Mr. Singer:

Q You've heard of Amendment 2?
A Yes

Q It changed the schedule of excluded assets?

Objection: Amendment 2 not in scope of direct

Judge Stewart: You asked about involvement.

Novell: fine if only asking about involvement

Judge Stewart (to Singer): asking about 'lawyerly view' or just involvement?

Singer: not sure where it will go

Q Amendment 2: 'shall be revised to read' -- so the original text no longer exists?
A Yes

Q New operative language?
A Yes

Q Excluded copyrights language replaced?
A Not sure (properly executed?)

Q Assuming properly executed (otherwise Novell would have raised that point long ago) -- language replaced?
A Yes

Q Not involved in drafting/negotiating of Amendment 2?
A Correct

Q Back to APA. Is copyright a way of indicating ownership of software
A One of the interests related to software or source code (not only one)

Q Such as ownership of tangible media?
A yes

Q Another is copyright
A Correct

Q assets -- understood assets sold?
A Yes

Q 'All rights of ownership .. included all versions of both unix and unixware'
A Yes but you have to read it with another paragraph

Q Paragraphs stand alone. You don't have to read each in.
A Sometimes you do. Broader/narrower

Q All rights... including source code?
A Yes

Q List of products 'include without limitation.' That's a term of the art?
A Yes

Q What's it mean?
A If not on list, it doesn't necessarily mean the list is complete

Q Meaning 'at least the following but maybe more'?
A Correct

Q 'all rights and interest' ('ownership' to use your language)
A I believe the IP clause has to be read. In the absence of the IP section, I'd agree. But since that's dealt with separately, it's probably referring to the tangible media etc.

Q You're saying 'all right' doesn't include copyright?
A correct

End of examination. Jury is dismissed.

Novell asks SCO for list of final witnesses. SCO not helpful -- need specific information of who they'll call if time permits.

Singer intends to call Johnson if Bradford testifies. Haven't heard direct.

Judge Stewart: You do know what's in his report.

Acker: List of 7 not helpful.

Judge agrees but 'doesn't know how to help'

Singer: Won't call Sontag or Tibbitts. Unless...

Judge Stewart: I will not allow you to call them unless you can make a convincing argument - *clear* and convincing argument. Singer indicates he'll make sure of that before he tries.

This concludes my day as an amateur court reporter.

And finally cpeterson is reading everyone's reports also, and he adds some material that explains something puzzling. Remember when reporters mentioned that they didn't hear the judge rule on an objection? Here's what happened:
In the notes of Mr. Jones' questioning by Mr. Acker, there is a point where SCO objects, but no further mention of the objection is made - not sustained or overruled. I thought that would be a good scene to explain. Judge Stewart has multiple flat-screen monitors on his desk. Two pretty much in front, one around to his left, and one at the far end of the desk on the right. When the judge is sitting upright, he looks over the monitors; but if he's doing something on the computer, or if he's resting his head on his hand, just the top of his head shows over the screens. The gap between the two screens lines up with the position of the podium.

He often will prop his head on his hand while listening, usually reading along on his monitor with whatever testimony is going on. Right elbow on desk, chin on thumb, two fingers up along right temple.

The first objection came in, Stewart rules that the objection is sustained. When the second objection comes in the same as the first, Stewart leans his head a couple of inches to his right, still head-on-hand, and makes eye contact with Acker through the gap between the monitors; smiles, and just makes a little wave of the fingers by his temple.

That's a "Sustained"; it's happened multiple times, and it won't show up in the transcripts.

Chris, however, indicates he thinks it is verbal, but only loud enough for the participants to hear, and the recorder. We'll find out for sure when the transcripts arrive, but I suspect Chris has to be right, in that the appeal depends on knowing how each objection is decided.

And he adds some color to the dispute about the 7 witnesses SCO might call:

At the end of the day yesterday, after the jury left, the two sides covered some issues. One of the issues was about remaining witnesses. Mr. Brennan stood and told the judge that he had exchanged lists with SCO's counsel of who remained to be called. Mr. Singer's list had been of *seven* witnesses SCO wished to call on the last day. That is not helpful, says Brennan. Singer's response was that they didn't know yet who they would need to call in rebuttal, so they had to keep their options open. So it was possible that two of the witnesses wouldn't be called.

Singer's tone was very reasonable, and conciliatory; but he was quite elusive about making any commitment to trim the list. Judge Stewart thanked Singer for remaining flexible on the situation and said that the court would "play it by ear."

Brennan looked like he was getting steamed. Eric Acker, seated next to him, reached up and poked Brennan in the hip - kind of an open handed, three-fingered push toward his seat. Brennan looked down at him; Acker shook his head and gestured for Brennan to sit down.

The way the judge gives almost all the breaks to SCO and almost none to Novell is hard to watch without getting steamed. Unless you are SCO, I suppose. They're probably enjoying it.

Update: The minutes from PACER:

03/25/2010 - 841 - Minute Entry for proceedings held before Judge Ted Stewart: Jury Trial held on 3/25/2010. Outstanding issues are resolved out of the presence of the jury. Testimony heard, rebuttal witnesses called, and exhibits admitted. Both sides. The jury is released until tomorrow morning. Attorney for Plaintiff: Stuart Singer, Edward Normand, Brent Hatch, Attorney for Defendant Sterling Brennan, Eric Acker, Michael Jacobs. Court Reporter: various. (slm) (Entered: 03/30/2010)

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