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To read comments to this article, go here
Annotating SCO's Findings of "Fact" and Conclusions of Law - Want to Help?
Friday, April 23 2010 @ 02:31 PM EDT

I have been quietly working on a project that I now realize would be more fun and more effective if we do it together, annotating SCO's proposed Findings of Fact and Conclusions of Law [PDF]. We were all stunned to read what they filed with the court, and I thought about historians someday reading this document and imagining it to be 100% accurate. I don't think it is, and so I have begun linking to contradictory evidence from SCO itself and to other materials that can be helpful to anyone someday wishing to know what happened. Would you like to help me?

Update: There is a statement from Novell in the Salt Lake Tribune:

"Novell disputes SCO's characterization of the evidence presented at trial and SCO's characterization of the jury's conclusion," Ian Bruce, Novell's director of public relations, said in an e-mail. "As such, Novell believes SCO's requested relief is not supported by the evidence or the jury's conclusion." In its court filing, Novell said "SCO's claim for specific performance has been mooted by the jury's verdict and should be rejected on that basis alone."


If you'd like to help, here are some steps you might find helpful:
1. Please post any comments from the previous article again here, so I have them all in one place;

2. Reread the evidence from SCOfolk in the earlier bench trial before Judge Dale Kimball, so any jarring elements can be noted (you can use search, looking for the word day, then go to the earlier links) and you might include orders from Judge Kimball, which you can find on the Novell Timeline page;

3. Consider also the filings SCO submitted to every court so far, as any contradictions found there also would be helpful in analyzing this document. The main Timeline summary page is a good jumping off point for that.

You can also rely on your memory, of course, to get started, or technical knowledge, but please provide links to substantiate what you post, if you can. If you can't, post anyway and someone else will pick up the baton. I'll continue to work on this also, bit by bit. It's actually a lot of fun, in the sense that puzzles are fun. This project is a lot like working on a jigsaw puzzle. For example, when I first read it, I noticed how often SCO writes about the SCO v. IBM case. I didn't notice that in their earlier filings or in reading about the SCO v. Novell jury trial, so one question in my mind that I'll be interested in researching is, is SCO introducing materials that did not appear in the trial? I don't know the answer yet, but I am familiar with SCO's M.O. over the years, so I think it's at least worth asking the question and searching for the answer.

Keep in mind that Findings of Fact are supposed to be where the judge writes a list of facts established at trial, so a proposed Findings from a party is not supposed to be for extraneous interesting theories or suppositions or new arguments from the party submitting it. Here's Novell's competing proposed Findings of Fact and Conclusions of Law, for contrast.

Here's what I've done so far, my comments in blue text inside brackets, and while currently this is a page in flux, I'll put an update noting when it is done:

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

Brent O. Hatch (5715)
[email]
Mark F. James (5295)
[email]
HATCH, JAMES & DODGE, PC
[address, phone, fax]

David Boies (admitted pro hac vice)
[email]
Robert Silver (admitted pro hac vice)
[email]
Edward Normand (admitted pro hac vice)
[email] BOIES SCHILLER & FLEXNER LLP
[address, phone, fax]

Sashi Bach Boruchow (admitted pro hac vice)
[email]
BOIES SCHILLER & FLEXNER LLP
[address, phone, fax]

Attorneys for Plaintiff, The SCO Group, Inc.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC., by and through the
Chapter 11 Trustee in Bankruptcy, Edward N.
Cahn,

Plaintiff/Counterclaim-Defendant,

vs.

NOVELL, INC., a Delaware corporation,

Defendant/Counterclaim-Plaintiff.

____________________________

SCO'S PROPOSED FINDINGS OF FACT
AND CONCLUSIONS OF LAW

Civil No. 2:04 CV-00139

Judge Ted Stewart

________________________

TABLE OF CONTENTS

TABLE OF AUTHORITIES ......................................................................................................... iv

INTRODUCTION .......................................................................................................................... 1

FINDINGS OF FACT AND CONCLUSIONS OF LAW.............................................................. 2

I. JURISDICTION AND VENUE ......................................................................................... 2

II. BACKGROUND ................................................................................................................ 2

III. THE JURY VERDICT ................................................................................................... 3

IV. THE UNIX BUSINESS.................................................................................................. 7

A. The Business of Licensing the UNIX Source Code........................................................ 7

B. SCO's Purchase of the UNIX Technology and Business. ............................................ 10

C. SCO's UNIX-Based Business Since the Amended APA. ............................................ 13

V. NOVELL'S OBLIGATION TO TRANSFER THE COPYRIGHTS............................... 15

A. Specific Performance Pursuant to Amendment No. 2. ................................................. 15

1. Novell's Obligation to Transfer "Required" Copyrights. ......................................... 15

2. The UNIX and UnixWare Copyrights Are "Required."........................................... 19

B. Specific Performance to Effectuate the Parties' Intent. ................................................ 25

1. The Prospect of Inadequate Transfer Documentation. ............................................. 25

2. The Parties Intended to Transfer the Copyrights. ..................................................... 27

VI. NOVELL'S RIGHTS UNDER SECTION 4.16(b) ...................................................... 47

A. SCO's Claims Against IBM.......................................................................................... 48

B. The Scope of Novell's Waiver Rights with Respect to "SVRX Licenses." ................. 52

C. The Covenant of Good Faith and Fair Dealing............................................................. 65

1. The Governing Law. ................................................................................................. 65

ii

2. Novell's Waiver Actions Violate the Implied Covenant. ......................................... 66

3. Novell's "Waivers" Are Invalid and Unenforceable. ............................................... 69

VII. Novell's Affirmative Defenses Fail. ............................................................................. 70

A. Substantial Performance. .............................................................................................. 70

B. Unclean Hands. ............................................................................................................. 72

CONCLUSION............................................................................................................................. 74

iii

TABLE OF AUTHORITIES

Cases

Aguilar v. Millot,
2007 WL 1806860 (Cal. Ct. App. June 25, 2007) .................................................................... 71

April Enterprises, Inc. v. KTTV,
147 Cal. App. 3d 805 (Cal. Ct. App. 1983) ........................................................................ 65, 66

Badie v. Bank of Am.,
67 Cal. App. 4th 779 (1998) ......................................................................................... 66, 69, 70

Bewick v. Mecham,
26 Cal. 2d 92 (1945) ................................................................................................................. 16

Blackburn v. Charnley,
117 Cal. App. 4th 758 (2004) ............................................................................................. 15, 26

Boghos v. Certain Underwriters at Lloyd's of London,
36 Cal. 4th 495 (2005) .............................................................................................................. 60

Bosetti v. U.S. Life Ins. Co. in City of New York,
175 Cal. App. 4th 1208 (2009) ................................................................................................. 68

Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc.,
2 Cal. 4th 342 (1992) ................................................................................................................ 66

City of Hollister v. Monterey Ins. Co.,
165 Cal. App. 4th 455 (2008) ................................................................................................... 69

Davis v. Blige,
505 F.3d 90 (2d Cir. 2007)........................................................................................................ 23

De Anza Enters. v. Johnson,
104 Cal. App. 4th 1307 (2003) ........................................................................................... 15, 26

DVD Copy Control Ass'n v. Kaleidescape, Inc.,
176 Cal. App. 4th 697 (2009) ................................................................................................... 26

Flying J Inc. v. Comdata Network, Inc.,
405 F.3d 821 (10th Cir. 2005) .................................................................................................. 42

Frankel v. Bd. of Dental Examiners,
46 Cal. App. 4th 534 (1996) ..................................................................................................... 70

iv

Gruenberg v. Aetna Ins. Co.,
9 Cal. 3d 566 (1973) ................................................................................................................. 71

Hadden v. Consolidated Edison Co. of N.Y., Inc.,
34 N.Y.2d 88 (1974) ................................................................................................................. 72

Haynes Trane Serv. Agency, Inc. v. Am. Std., Inc.,
573 F.3d 947 (10th Cir. 2009) ................................................................................................ 3, 4

Home Design Servs., Inc. v. B&B Custom Homes, LLC,
Civil Action No. 06-cv-00249-WYD-GJR, 2008 WL 2302662 (D. Colo. May 30, 2008) ...... 73

Homebridge Mortg. Bankers Corp. v. Vantage Capital Corp.,
2008 WL 5146957 (S.D.N.Y. Dec. 5, 2008) ............................................................................ 72

In re ISOs Antitrust Litig.,
989 F. Supp. 1131 (D. Kan. 1997)............................................................................................ 73

ITOFCA, Inc. v. Megatrans Logistics, Inc.,
322 F.3d 928 (7th Cir. 2003) .................................................................................................... 28

Leo F. Piazza Paving Co. v. Found Constr., Inc.,
128 Cal. App. 3d 583 (1981) .................................................................................................... 63

Lexington Ins. Co. v. Travelers Indem. Co. of Ill.,
2001 WL 1132677 (9th Cir. 2001) ........................................................................................... 63

MacDonald v. Lawyers Title Ins. Corp.,
1996 WL 114719 (4th Cir. 1996) ............................................................................................. 63

Major v. W. Home Ins. Co.,
169 Cal. App. 4th 1197 (2009) ................................................................................................. 68

McClain v. Octagon Plaza, LLC,
159 Cal. App. 4th 784 (2008) ................................................................................................... 69

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster,
454 F. Supp. 2d 966 (C.D. Cal. 2007) ...................................................................................... 73

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.,
454 F. Supp. 2d 966 (citing authority)...................................................................................... 73

Meyer v. AmerisourceBergen Drug Corp.,
2008 WL 397412 (6th Cir. 2008) ............................................................................................. 63

v

Nieto v. Blue Shield of Cal. Life & Health Ins. Co.,
181 Cal. App. 4th 60 (2010) ..................................................................................................... 68

Okun v. Morton,
203 Cal. App. 3d 805 (Cal. Ct. App. 1988) .............................................................................. 27

Ontario Downs, Inc. v. Lauppe,
192 Cal. App. 2d 697 (1961) .................................................................................................... 26

Parduhn v. Bennett,
112 P.3d 495 (Utah 2005)......................................................................................................... 72

Parsons v. Bristol Dev. Co.,
62 Cal. 2d 861 (1965) ............................................................................................................... 16

Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc.,
508 U.S. 49 (1993).................................................................................................................... 73

Relational Design & Tech., Inc. v. Brock,
No. 91-2452-EEO, 1993 WL 191323 (D. Kan. May 25, 1993) ............................................... 28

Rogers v. Davis,
28 Cal. App. 4th 1215 (Cal. Ct. App. 1994) ............................................................................. 16

Roseleaf Corp. v. Radis,
122 Cal. App. 2d 196 (Cal. Ct. App. 1953) .............................................................................. 71

Rubin v. Fuchs,
1 Cal. 3d 50 (1969) ................................................................................................................... 70

Schwartz v. State Farm Fire and Cas. Co.,
88 Cal. App. 4th 1329 (2001) ................................................................................................... 69

Shakey's Inc. v. Covalt,
704 F.2d 426 (9th Cir.1983) ..................................................................................................... 63

Shugrue v. Cont'l Airlines, Inc.,
977 F. Supp. 280 (S.D.N.Y. 1997)............................................................................................ 28

Silvers v. Sonly Pictures Entmt., Inc.,
402 F.3d 881 (9th Cir. 2005) .................................................................................................... 23

The SCO Group, Inc. v. Novell, Inc.,
578 F.3d 1201 (10th Cir. 2009) ......................................................................................... passim

vi

Traicoff v. Digital Media, Inc.,
439 F. Supp. 2d 872 (S.D. Ind. 2006) ....................................................................................... 23

Trial Sys. Corp. v. Southeastern Exp. Co.,
64 F.3d 1330 (9th Cir. 1995) .................................................................................................... 74

United States v. Gonzalez-Garcia,
85 Fed. Appx. 160 (10th Cir. 2004).......................................................................................... 60

United Truckmen v. Lorentz,
114 Cal. App. 2d 26 (1952) ...................................................................................................... 26

Utah Labor Comm'n v. Paradise Town,
660 F. Supp. 2d 1256 (D. Utah 2009)....................................................................................... 72

Wm. R. Clarke Corp. v. Safeco Ins. Co.,
15 Cal. 4th 882 (1997) .............................................................................................................. 70

Other Authorities

1 Copyright Throughout the World § 19:29 (2009)...................................................................... 21

1 The Law of Copyright § 4:44 (2009)......................................................................................... 22

15 R. Lord, Williston on Contracts § 44:52 (4th ed. 2009) .......................................................... 73

17 U.S.C.A. § 101......................................................................................................................... 22

28 U.S.C. § 125............................................................................................................................... 2

28 U.S.C. § 1331............................................................................................................................. 2

28 U.S.C. § 1338(a) ........................................................................................................................ 2

28 U.S.C. § 1391(b) ........................................................................................................................ 2

3 Patry on Copyright § 7:2 (2010) ................................................................................................ 21

Cal. Civ. Code § 3392................................................................................................................... 71

Copyrights and Copywrongs: The Rise of Intellectual Property and
How It Threatens Creativity, 3 J. High Tech. L. 1 (2003)........................................................ 21

Nimmer on Copyright § 13.09 (2009) .................................................................................... 74, 75

Restatement (Second) of Contracts § 362 (1981) ......................................................................... 25

vii

Plaintiff/Counterclaim-Defendant, The SCO Group, Inc. ("SCO"), respectfully submits these Proposed Findings of Fact and Conclusions of Law concerning the claims tried to the Court from March 8 through March 26, 2010.

INTRODUCTION

The claims at issue are before this Court pursuant to the Tenth Circuit's mandate and remand in The SCO Group, Inc. v. Novell, Inc., 578 F.3d 1201 (10th Cir. 2009). The claims are SCO's claim for specific performance, seeking an order requiring Defendant/Counterclaim-Plaintiff, Novell, Inc. ("Novell"), to transfer to SCO the UNIX and UnixWare copyrights; Novell's counterclaim seeking a declaration of Novell's rights under Section 4.16(b) of the amended Asset Purchase Agreement ("APA"); and SCO's claim for breach of contract contending that Novell breached the implied covenant of good faith and fair dealing under the amended APA in exercising its alleged rights under Section 4.16(b). These are, respectively, Questions (2), (3), and (4) of the Tenth Circuit's mandate and remand. Id. at 1227.

These issues, as agreed by the parties, are to be decided by the Court (Docket No. 750 at 1), by the preponderance of the evidence. The Court heard testimony and received evidence on these claims in the course of the jury trial on the parties' respective claims for slander of title, from March 8 through March 26, 2010. 1

FINDINGS OF FACT AND CONCLUSIONS OF LAW 2

I. JURISDICTION AND VENUE

1. This is an action for specific performance, declaratory relief, and breach of contract. Jurisdiction of the Court is invoked under 28 U.S.C. §§ 1331, 1338(a), 2201(a), and 2202. Venue is proper pursuant to 28 U.S.C. § 1391(b), and is laid in the Central Division of the District of Utah under 28 U.S.C. § 125.

II. BACKGROUND

2. SCO is a Delaware corporation with its principal place of business in Lindon, Utah. (8:3-9:10 (Uncontroverted Facts).) SCO is in the business of developing and selling software products. (Id.)

3. SCO is the successor-in-interest to all of the assets that The Santa Cruz Operation, Inc. (unless otherwise indicated, also "SCO") acquired under an amended Asset Purchase Agreement ("APA") with Novell. (Id.) On September 14, 2007, SCO filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. On August 25, 2009, that Bankruptcy Court appointed former United States District Judge Edward N. Cahn as Chapter 11 Trustee.

4. Novell is a Delaware corporation with its executive offices in Waltham, Massachusetts, and its principal product development facility in Provo, Utah. (Id.) Novell is also involved in the development and sale of software products. (Id.)

5. SCO's claim for specific performance requires the Court to determine whether Novell must now transfer copyrights in the UNIX and UnixWare computer operating systems to SCO under the amended APA.

2

6. Novell's request for a declaration of its rights under Section 4.16(b) of the amended APA requires the Court to determine whether Novell had the authority to waive SCO's rights and claims against International Business Machines Corp. ("IBM"), as Novell purported to do in 2003 and 2004.

7. SCO's alternative claim for breach of the implied covenant of good faith and fair dealing requires the Court to determine whether Novell's purported waivers of SCO's rights and claims against IBM are ineffective even if Novell had the authority to assert the waivers, because they were made in violation of the obligation of good faith and fair dealing implied by law in the amended APA. The Court must decide this claim only if it determines that Novell had the right to waive SCO's claims under Section 4.16(b) in the first place.

[So what SCO is asking is that the court rule that even though the jury decided that SCO didn't get the Unix/UnixWare copyrights under the 1995 APA plus amendments, they should get them now. Further, they want the court to rule that Novell has no right to waive, but if it does have the right, then SCO asks the court to rule that despite having the right under the contract, it's unfair to have that in the contract, it being in violation of "good faith and fair dealing implied by law".]

8. In SCO, 578 F.3d 1201, the Tenth Circuit found that the District Court's (Kimball, J.) summary judgment order in favor of Novell on each of the foregoing issues was in error and remanded these issues for determination after trial.

[I would say that instead it decided it was error to decide the matters on summary judgment. SCO likes to make it sound like the appeals court bought SCO's side of every story, but read it for yourself.]

III. THE JURY VERDICT

9. As a threshold matter, although the parties' claims for slander of title and SCO's claim for specific performance concern similar subject matter, the verdict the jury reached in this case does not govern the Court's resolution of the claim for specific performance.

10. The "Seventh Amendment prevents district courts from applying equitable doctrines on the basis of factual predicates rejected, explicitly or implicitly, by a jury verdict." Haynes Trane Serv. Agency, Inc. v. Am. Std., Inc., 573 F.3d 947, 959 (10th Cir. 2009). The Seventh Amendment thus applies only if the verdict necessarily "resolves a factual issue." Id.

11. The verdict here does not resolve SCO's claim for specific performance. SCO's primary basis for seeking specific performance is that Amendment No. 2 reflects Novell's obligation now to transfer to SCO those copyrights that SCO has demonstrated are required for

3

SCO to exercise its rights in the UNIX and UnixWare technologies that SCO acquired under the APA. The question with respect to this request for relief therefore is whether the jury has already decided that there are no such "required" copyrights. SCO's alternative basis for seeking specific performance is that the documents at issue fail properly to document the parties' intent to have Novell transfer the UNIX and UnixWare copyrights to SCO. The question with respect to this request for relief therefore is whether the jury has already decided that the parties did not intend to transfer the copyrights to SCO.

[SCO is following a two-pronged strategy. First, it suggests that the jury didn't decide there were no copyrights required ever. Just that they didn't get transferred yet. Alternatively, SCO says that there was a mistake and the APA and amendments didn't properly document the intent of the parties that the copyrights should transfer. So that raises the question: did the jury's verdict answer this "it was a mistake" question?]

12. These questions are not determined by the jury's answer of "no" to the question: "Did the amended Asset Purchase Agreement transfer the UNIX and UnixWare copyrights from Novell to SCO?" Considering the evidence and arguments at trial, the jury could have decided, for example, that the parties did intend to transfer the copyrights, but that the parties nevertheless failed adequately to incorporate and reflect that intent in either the APA or Amendment No. 2; that the parties had that intent, but that they needed to have executed -- as Novell argued -- a bill of sale in 1996 in connection with Amendment No. 2; that the parties had that intent, but that they needed to amend -- again as Novell itself argued -- Schedule 1.1(a) to effect that transfer; that the parties intended to transfer copyrights only if SCO subsequently made a showing that the copyrights were required for it to exercise its rights in connection with the UNIX and UnixWare business; or that some UNIX and UnixWare copyrights did transfer, but others did not. The jury could have reached any of those decisions, moreover, regardless of the time the parties spent arguing for or against those points at trial. The jury simply was not asked to address the specific questions now before the Court. SCO's claim for specific performance thus rests on "findings not precluded by the jury's verdict." Haynes, 573 F.3d at 960 (brackets omitted).

[SCO's answer to the question it posed is no, the jury wasn't asked to determine if the copyrights were supposed to transfer under various conceivable scenarios. For example, maybe the documents were poorly reflective of the actual intent. Maybe they were supposed to transfer if asked for under certain circumstances. Maybe some did transfer, but others didn't, and so the jury's ruling doesn't decide SCO's specific performance claim.]

4

13. Indeed, in the Joint Submission Regarding Allocation of Issues for Bench and Jury Trial, the parties acknowledged that the two claims implicated different issues concerning the amended APA:
As an alternative to its slander of title claim, SCO seeks specific performance of what it claims is an obligation imposed on Novell by the APA to transfer the UNIX copyrights. The underlying theory appears to be that if the APA does not itself transfer those copyrights, as required to sustain SCO's slander claim, the APA might nevertheless require Novell to transfer them.
(Docket No. 750 at 2-3.) In its request for an advisory jury on the issue of specific performance, Novell recognized that the claim for specific performance focuses on a different, albeit related, question to the issue of whether the copyrights had already transferred:
Because the jury will already be charged with interpreting the contract to determine whether it transfers copyright, it makes sense for the Court to take an advisory verdict from the jury as to whether those provisions, if they do not themselves transfer copyright, nevertheless obligate Novell to do so.
(Id. at 3.) The Court denied Novell's request for an advisory jury. (Docket No. 761 at 2.)

14. Novell sought to convince the jury, both through argument and witnesses, that the absence of any reference to "copyrights" in the Bill of Sale, and the absence of any new bill of sale at the time of Amendment No. 2, meant that the copyrights had not transferred.

[Novell succeeded, in that the jury ruled that the copyrights didn't transfer.]

15. In its opening statement, Novell argued to the jury:

What else happens? Well, the asset purchase agreement itself doesn't transfer anything. It describes what will be transferred. The legal document that transfers the assets is called a bill of sale. If I were to go down the street and buy a new car from one of our fine auto dealers and I entered into a purchase agreement, that wouldn't give me title. I've got to get a bill of sale. That is the document that is memorializing the transfer. The bill of sale doesn't say anything about copyrights, trademarks. It says, instead, look to the agreement, look to the asset purchase agreement to describe. I have shown you the language, all copyrights were excluded.

5

(76:15-77:8.)

16. Novell proceeded to pursue its argument through witnesses. For example, Novell asked Mr. Thompson:

Q. And so that the jurors understand, the bill of sale is the document that actually transfers ownership from Novell to Santa Cruz; right?

A. Yes.

Q. And so business people and lawyers can get together and negotiate a deal and can decide we're going to transfer these assets, but until the bill of sale is actually transferred, nothing is transferred; right?

A. That's my understanding, yes.

(311:9-20.)

17. Similarly, Novell asked Mr. Tolonen:

Q. Now we've talked about the schedule 1.1(b) of the asset purchase agreement, which is the excluded assets. Under Amendment No. 2, did Amendment No. 2 also change the schedule of included assets?

A. No, it did not.

Q. Do you know when Novell closed the deal with Santa Cruz in December of 1995, whether there was a bill of sale for the assets being transferred?

A. Yes, there was.

Q. And in connection with Amendment No. 2, was there a revision of that bill of sale to include any UNIX related copyrights?

A. No, there was not.

(2038:4-16.)

18. After making the argument with several other witnesses, Novell again referenced its argument in its closing statement:

6

Now, in addition, on December 6, 1995 there was a document that was entered into that actually transferred the assets. The asset purchase agreement itself transfers nothing. Instead, it is a promise that Novell would transfer assets, but the actual document that accomplishes that was the bill of sale. The bill of sale that you saw, Exhibit W-5, references the transfer only of the assets. The assets are, again, described in the asset purchase agreement, so to really understand what was sold one would have to look to the bill of sale and say what does the bill of sale say? The bill of sale tells us that to understand what was sold we look to the asset purchase agreement, the assets, Schedule 1.1-A. So that is straightforward and clear.
(2680:10-23.)

19. The foregoing testimony alone shows that if the jury agreed with Novell's argument, it could have answered "no" as it did, even if it concluded that the parties did intend to transfer the copyrights, or that the copyrights are required.

[This speaks for itself. I think SCO is avoiding the more obvious conclusion, that the jury noticed that the bill of sale didn't say copyrights transferred and neither did the APA, hence they were not supposed to. But it also speaks to the issue of payment. If there is no payment noted in any bill of sale or any other writing, SCO never paid for any copyrights. How then can the judge hand them over now without additional payments?]

20. The Court therefore concludes that the jury verdict does not dispose of SCO's alternative claim for specific performance.

[It may not dispose of it, although Novell says it does ("SCO's claim for specific performance has been mooted by the jury's verdict and should be rejected on that basis alone.") but surely it is a relevant factor in any case.]

IV. THE UNIX BUSINESS

A. The Business of Licensing the UNIX Source Code.

21. The UNIX operating system was originally developed by AT&T in the 1960s and became an operating system of choice for business. (8:15-18 (Uncontroverted Facts).) AT&T and the subsequent owners of UNIX, including Novell and SCO, continually developed and released updated versions of the operating system derived from and including the source code from prior versions. (1729:11-1730:6 (Nagle); 1732:3-11 (Nagle); 1738:9-12 (Nagle); 1781:21-1784:22 (Nagle); 515:20-517:19 (Levine).)

[Actually, at the first bench trial, there was testimony that no one had ever looked to see if *all* older code was brought forward and then put into UnixWare or not. They guess the important parts were, but no one actually knew. Chris Sontag on his second day on the stand testified like this:

Q. Counsel asked you a very direct question yesterday regarding whether or not there is any UnixWare code in Linux. And I wrote down your answer, and you said that there very well could be; correct?

A. Yes.

Q. But the bottom line is that you simply do not know if there was any unique UnixWare code in Linux; right?

A. I believe your question was about uniquely UnixWare code. Given that UnixWare has developed out of, you know, many versions of the UNIX, you know, development tree, much of that code is uncommon. And to uniquely parse out something that's different with UnixWare versus previous releases, I've never done that analysis, never seen this analysis.

Q. Do you know if that analysis has ever been done, that is, someone has sat down and parsed out what is unique to the most recent version of UnixWare as opposed to what exists in pre APA SVRX?

A. I don't know if that has been done.

Q. But the bottom line is that given that testimony, you simply don't know if there's any code that is unique to UnixWare that is in Linux; correct?

A. I do not....

Q. Now, it's true, isn't it, that not all of this pre-APA SVRX software is in the current version of UnixWare? Correct?

A. Probably not. But I would suspect, you know, anything that is valuable and important would still be in the current version of UnixWare.

Q. But you've never done a line-by-line comparison to determine what portions of this software, the legacy SVRX software, is actually in the current version of UnixWare; correct?

A. I have not.

Q. And you're not aware of anyone else having done that analysis; correct?

A. I'm not aware of that analysis.

Q. And Sun didn't do that analysis, as far as you know; correct?

A. Not that I know.

Q. And you're not aware of any expert for SCO doing that analysis?

A. I'm not aware.

Q. And you're not aware of any technician or technical person or engineer of SCO doing this analysis; correct?

A. No, I'm not.

You might say, yes, but that is talking about UnixWare. Yes, but Sontag and Darl McBride both testified that there was no real difference, that UnixWare was just the latest version of Unix. Further they both said that it was standard practice to provide licenses to all prior versions of Unix with a license to the latest version. If the code was identical and brought forward from version to version intact, there would be no need for prior licenses, I would assume. Here's a bit of what Darl testified as to the code being pretty much identical, on day 2 of the bench trial, and here's SCO's tree diagram they are talking about:
Q. And it's true, isn't it, that on several prior occasions, you have described SCO's UNIX assets using a tree analogy?

A. Yes.

Q. Why don't we bring up Exhibit 421, if we could. Let me give you a copy.

And if you take a look at the third page of Exhibit 421, Mr. McBride, or fourth page, that's the tree; right?

A. Yes.

Q. And in the diagram, the trunk labeled as SCO IP UNIX, that's the core UNIX System V software code; correct? That's what that represents?

A. Yes.

Q. And the branches on this diagram are derivative works that are based on the core UNIX software code; correct?

A. Yes. Q. And those branches include both SCO UnixWare; correct?

A. SCO -- that is correct. SCO UnixWare is a little bit unique in this diagram in that it serves both as the trunk of the tree and also as a branch.

And so if somebody came to the company and said, we want to get the core intellectual property to UNIX, and we want to take a license for that, for example, IBM did that with us in 1998, we said, okay, if you want to get core access to the UNIX intellectual property or the trunk code, the way you do that is through a UnixWare license. So UnixWare is unique compared to any of these other branches in that the core trunk is where the UNIX intellectual property was held was inside of UnixWare.

Q. Well, isn't it true that when you arrived in Caldera in late 2002, you realized that the revenues from the branches UnixWare and OpenServer were, in your words, marching south and dying off; correct?

A. They were under severe competition from primarily Linux but also from others. But, yes, they had been going south for a number of years.

Q. And because the revenues from the branches UnixWare and OpenServer were marching south and dying off, your strategy was to focus on maximizing the value of the trunk; correct?

A. In part, that's correct.

Q. And the trunk of the tree is the core SVRX code; correct?

A. We call it different things along the way. Sometimes we call it SCO UNIX; sometimes we call it System V; and sometimes we call it SVRX; sometimes we call it UnixWare. But it's all basically the core IP UNIX.

Q. And that's the core IP that dates back at AT&T?

A. It started at AT&T, but it had evolved dramatically over the years.

Q. And it was the core UNIX IP that you and Mr. Sontag and others sought to mine with the SCO source program at SCO in 2002 through 2004; correct?

A. We sought to take the core UNIX ownership rights that we had that were primarily embodied in UnixWare and be able to get more value in the marketplace out of that core intellectual property.

Q. But you don't know, do you, whether all of the code from the core UNIX IP exists in UnixWare; correct?

A. The core -- no, that's not correct. The core code of UnixWare is where the older versions of UNIX have been embodied. It's been that way for years. I worked at Novell, and it was the case then and it's the case now 15 years later.

Q. But my question is, do you know if every line of code of the trunk here, do you know if every line of code in this trunk exists in UnixWare?

A. I know that if you want to license the trunk code, you'd have to do it through UnixWare.

Q. That wasn't my question. My question was, do you know if every line of code in the UnixWare, this core trunk exists in UnixWare?

A. That's my understanding.

At the time, the bench trial was about how much money SCO would have to pay Novell, and so anything they could describe as being UnixWare and only incidentally UNIX System V was to their advantage financially. That reminds me, since this is making me think about telling the truth in courtrooms, the part about IBM coming to SCO in 1998 and wanting to license Unix isn't accurate either. IBM and Santa Cruz went into a joint development project, Project Monterey, which you can read about beginning on this page, which collects all of Groklaw's articles on Project Monterey from 2003 to 2009. It wasn't IBM looking to license Unix. It had that already, having entered into agreements with AT&T beginning with this one [PDF] in 1985. Here is the 1998 Project Monterey Joint Development Agreement [PDF; text], if you'd like to see it so you can verify. But just note the title.]

22. Starting in the early 1980s, AT&T built a business on licensing the source code to releases of the then-current version of UNIX known as UNIX System V to major computer manufacturers, also known as Original Equipment Manufacturers ("OEMs"). (515:20-516:8

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(Levine); 251:5-6 (Thompson); 1685:11-1686:9 (Maciaszek).) Source code is the human-readable form of a computer program, in contrast to binary code, which runs on computers and cannot be read by people. (353:17-20 (Chatlos); 358:22-359:3 (Chatlos).) Because the UNIX business that AT&T built involved releasing the crown jewels of the business to licensees, the company implemented "heavy duty" confidentiality protections to which licensees had to agree before receiving the source code. (576:3-577:8 (Broderick); 369:15-19 (Chatlos).) Those strict protections allowed the owner of the UNIX business to continue this revolutionary business of licensing source code to third parties.

[Actually at the first bench trial, Chris Sontag testified that Sun's 1994 contract allowed them to sublicense the UNIX code to pretty much all their customers:

Q. Could Sun, under that 1994 agreement, distribute its Solaris product to as many as a hundred licensees?

A. Yes.

Q. A thousand?

A. A thousand. A million. They, in turn, could sublicense that source code to their customers, so, it could -- Solaris could be very broadly distributed very easily, with the rights that Sun had in the 1994 agreement.

Q. Now, what do you recall discussing with Sun about whether there were confidentiality restrictions in the 1994 agreement?

A. I had raised that there were confidentiality provisions. They, as part of the negotiating, tit for tat, kind of strongly stated that they believed that most of those confidentiality provisions had been undermined or waived by disclosures of the UNIX code over the years. They gave examples of the Lion's Book and some other examples to make their point. I, in doing my job, tried to press back and emphasize that I thought it was important that they, you know, had confidentiality provisions. Their position was that, with their broad licensing rights and what they were intending to do, they felt that they had the right to basically, in a, you know, Sun's sort of style, release an open source version of Solaris with the rights they had in 1994.

You can visit Groklaw's Unix Books project, and you'll see why Sun felt that confidentiality was over long ago for Unix code, due to there having been so many books and articles, such as the Lions book referenced, that revealed the code. If you look at IBM's contract with AT&T, furthermore, you will see that confidentiality requirements were terminated if the code had been revealed. You find this in the Side Letter Agreement, which amended Section 7.06(a) of the contract regarding confidentiality:
If information relating to a SOFTWARE PRODUCT subject to this Agreement at any time becomes available without restriction to the general public by acts not attributable to LICENSEE or its employees, LICENSEE's obligations under this section shall not apply to such information after such time.
So it was a limited confidentiality requirement, which no doubt is why SCO's lawyer at the very first hearing in the IBM litigation said that there were no more trade secrets in Unix, only in UnixWare:
KEVIN MCBRIDE: There is no trade secret in Unix system files. That is on the record. No problem with that. There are trade secrets from Unixware, which is SCO's version of Unix that was given to IBM in the joint development project.
But, but, you say, doesn't SCO say that Unix System V and UnixWare are the same thing? Ah, class, this is now and that was then. SCO's story has shifted greatly since this ugly saga began. But this admission by Darl McBride's brother says that they certainly are not identical. That IBM litigation began as a trade secrets case, but SCO later dropped that claim. So IBM by this admission is free of any confidentiality requirements with respect to Unix, as opposed to UnixWare. UnixWare entered the picture only with Project Monterey; it was not involved in IBM's contract with AT&T. But look at Sun's rights alone. In giving Sun such broad rights, which were actually further broadened in 2003, as Sontag testified later that same day, SCO surely was not requiring confidentiality from Sun, and hence from anyone, since Sun had the right to open source all the code.]

23. "UnixWare is the brand name for the more recent releases of the UNIX System V, Release 4 operating system developed and licensed in the early 1990s by Novell and its predecessors to the technology. The product was called UnixWare because it was to be a combination of the latest releases of System V source code and some components of Novell's NetWare source code. The first releases of UnixWare contain all or virtually all of the technology included in the immediately prior System V releases, SVR4.2 and SVR4.2MP." (Docket No. 542 at 7.) 3

[Here SCO is quoting from Judge Dale Kimball, which is ironic considering how they trashed and smeared him when it was to their advantage to discredit his ruling. But be that as it may, the fact is, it isn't accurate. Kimball was misled by SCO testimony. UnixWare more accurately is SCO's flavor of Unix for Intel. UnixWare 7, for example, includes a SVR5 SMP kernel, but it includes a lot of other things, applications and tools, including FOSS materials like Samba, Apache, and Perl:

As you can see there was quite a lot in there beyond the kernel itself. So it's just not so that UnixWare was just the latest version of UNIX System V, Release 4 plus NetWare.]

24. Novell, like its predecessors, licensed the source code to the UnixWare releases of UNIX to licensees who used the source code to create derivative works subject to strict confidentiality restrictions under Sections 2.01 and 7.06(a) of the standard Software Agreement. (See, e.g., Ex. 4; see also 576:13-577:8 (Broderick); 1685:11-1686:9 (Maciaszek).) These derivative works are sometimes referred to as UNIX "flavors" and were developed under license agreements that are very different from the amended APA through which SCO, in contrast to a

8

licensee, acquired ownership of the UNIX and UnixWare business, technology, and source code. (604:25-610:4 (Broderick); Ex. 1 (APA), Schedule 1.1(a).) When SCO purchased the UNIX and UnixWare business from Novell, SCO acquired these software development agreements with OEM licensees and used the same contract forms to license the source code to future licensees. (Ex. 1, Schedule 1.1(a), Item III.L; 1688:2-24 (Maciaszek).)

[Again, as we've seen, the confidentiality requirement was limited. By the way, since SCO has complained about Linux kernel 2.4, it is significant that Sun distributed Linux 2.4 after it signed the 2003 license agreement with SCO, and without protest by SCO. I take that to mean that Sun GPL'd any UNIX code in that version of Linux, not that there is any, but if there were any, Sun was in a position to notice it, and yet it distributed it under the GPL, and since it had a license from SCO to open source the code, I can't see how SCO can go after anyone for infringement of code that it allowed to be open sourced.]

25. Aside from licensing the UNIX (including UnixWare) source code to OEM licensees, Novell also sold a binary version of UnixWare in competition with the UNIX flavors marketed by its licensees. When SCO purchased the UNIX and UnixWare business from Novell, SCO continued to both license the UnixWare source code to OEM licensees and sell its own binary version of UnixWare. (Ex. 1 (APA), Recital A; 1778:6-16 (Nagle).) SCO continued to use the same form licenses that Novell used when it was licensing the UNIX and UnixWare source and binary products to third parties prior to the APA. (1688:2-24 (Maciaszek); Ex. 1 (APA), Recital A § 1.3(a)(i).)

[So, UnixWare and UNIX are not identical after all? And you could license Unix separately from UnixWare? Why, yes. In fact if you look at the IBM-AT&T licensing agreement, it was not for UnixWare.]

26. OEM licensees such as IBM, Sun, and Hewlett-Packard used the UNIX source code to develop their own flavors best suited for use on their respective computers. (608:2-4 (Broderick); 1685:11-1686:9 (Maciaszek).) A licensee paid one-time fees for the rights to use the source code of a particular release to create and distribute its flavor and paid continuing royalties for each binary copy of the flavor sold to end-users; while licensees could distribute their flavors in binary form, the standard Software and Sublicensing Agreements used by AT&T, Novell, and later SCO, required licensees to keep the UNIX source code confidential. (See, e.g., Ex. 4; 576:13-577:8 (Broderick); 1685:11-1686:9 (Maciaszek).) IBM was such a licensee and developed its own flavor of UNIX, named AIX. (959:7-8 (McBride); 1778:8-9 (Nagle).)

[As we've already seen above, the confidentiality requirements were limited, and apparently no longer exist, given the open sourcing by Sun and the many, many revelations of the code by others such as Lions, and the admission by SCO lawyer Kevin McBride that there are no trade secrets in Unix any more.]

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27. There are three mains types of agreements associated with the licensing of the UNIX and UnixWare operating system source code to OEM licensees and other third parties: the aforementioned Software Agreement, the Sublicensing Agreement, and the Product Schedule License. (574:17-581:12 (Broderick); 247:4-22 (Thompson); 369:11-370:9 (Chatlos).) The Software Agreement is the "umbrella" or "master" agreement that must be executed by any party wishing to license a specific product, including any UNIX or even non-UNIX product, under a Product Schedule License. (576:15-18; 555:18-556:9 (Broderick).) The Software Agreement requires the licensee to keep confidential both the source code that it licenses and the derivatives, or flavors, that the licensee creates based on that source code. (Ex. 4 §§ 2.01, 7.06(a); 576:15- 577:8 (Broderick); 369:15-20 (Chatlos).) The Sublicensing Agreement allows the OEM licensee to compile into binary form the source code of the UNIX derivative the licensee creates from the source code that it licenses under a Product Schedule License, and also authorizes the licensee to sublicense copies of the resulting binary product to end-users. (581:1-12 (Broderick); 369:21-21 (Chatlos).) The Product Schedule License for each particular version of UNIX actually licenses the source code for that version to the OEM licensee and specifies the fees the licensee must pay for the right to use that version of the source code to build a derivative work, and the royalties the licensee must pay going forward for each binary copy of the derivative work the licensee distributes to end-users. (370:4-9 (Chatlos); 247:4-22 (Thompson).) A licensee does not even receive a copy of the source code to the UNIX release, let alone have any rights to that version of the source code, until the licensee executes the corresponding Product Schedule License for that release. (522:15-523:6 (Levine).)

B. SCO's Purchase of the UNIX Technology and Business.

28. In 1995, then Novell President and CEO Robert Frankenberg directed Senior Vice President Duff Thompson "to sell the UNIX business in its entirety" so that Novell could cut

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costs and focus on its Netware computer networking business. (88:9-90:12 (Frankenberg); 221:18-222:15 (Thompson).) In the summer of 1995, Novell started negotiations with SCO, a software company that was itself a UNIX licensee and that developed and sold a UNIX flavor known as OpenServer. (92:14-94:1 (Frankenberg).)

29. After initial negotiations, the parties realized that SCO could not afford to pay in cash or stock the total price that Novell sought. (459:14-23 (Mohan).) Accordingly, the transaction was structured so that Novell would receive the "SVRX Royalties" that would continue to be paid by licensees to the licensor -- now SCO -- for distributions of certain pre-UnixWare versions of UNIX System V designated in the APA as "SVRX," for "System V Release __." (234:17-237:17 (Thompson); 459:14-23 (Mohan); 905:18-906:6 (Sabbath); 798:1-14 (Madsen).) The APA specifies that SCO would be the owner of legal title to these royalties and Novell would have only an equitable interest. (APA § 1.2(b).) SCO also paid Novell over six million shares of SCO stock, or about 17-20 percent of SCO stock, valued at the time at $50-60 million. (2065:3-25 (Tolonen).) In addition, Novell received a conditional interest of up to $84 million in UnixWare sales through 2002. (Ex. 1 (APA) § 1.2(b), Schedule 1.2(b) § (b)(i)(c); 146:9-15.)

[Notice that SCO lists what Novell *would* receive, not what it *did* in real life. SCO never paid Novell a dime on the UnixWare sales, for example, after the APA was signed. That is despite the fact that Novell continued to work on UnixWare until January 1996, about a year after the APA, as you can trace by the copyrights on UnixWare 2.1 files you can find at that link, and even after that, you find Novell still contributing to UnixWare 2.1.1. We find Novell copyrights in 1997 also. If SCO wishes to speak about course of dealings, this is relevant, that both parties were behaving like Novell retained the copyrights, which you continue to find in UnixWare 7 as well.

As for the claim that businesses only licensed SVRX prior to the advent of UnixWare, please note that SCO got both under the APA, two separate lines of business, and here's how they described to the SEC in a 10K in 1996 why an entity might want one or the other, and the reason had to do with hardware, not age of SVRX code:

Traditionally, mainframes and minicomputers have formed the basis of enterprise computing in large, complex organizations. These organizations have generally used custom applications to perform business-critical tasks such as general accounting, inventory management, transaction processing, manufacturing control and branch management....

SCO believes, however, that UNIX technology is only the beginning of the solution, and that considerable value must be added to the basic technology in order to create a family of products that solve complex customer requirements for Business Critical Servers. Business and government organizations are increasingly demanding adherence to standards-based open systems to protect their computing investment and avoid reliance on a single vendor's hardware or software. For such customers, the proprietary implementations of the UNIX System that dominate the technical and scientific workstation market are unacceptable. These proprietary versions of UNIX systems run on hardware architectures that are expensive relative to PCs, are tied to the proprietary hardware of particular vendors and have failed to meet the increasing demand for hardware-independent, Intel CPU-based systems. Business and government organizations also require broad availability of third-party applications software so that they can use predefined solutions and, to the extent possible, avoid having to develop custom applications. When custom applications are required, these customers need a development environment and tools which enable such applications to be easily produced and implemented and run across multiple hardware architectures. Lastly, these customers require a high level of customer support in the form of consulting and training, as well as continual product enhancements to incorporate new technology and industry standards.

SCO has focused on Intel CPU-based computers because of their dominant position in the microprocessor-based computer market and their potential in the emerging client/server market. SCO's years of experience in supporting each successive generation of Intel processors has resulted in highly reliable and stable UNIX operating system products....

Because purchase decisions are often driven by the availability of applications, SCO has positioned its products as a strategic platform for developers of business applications. Developers write software compatible with SCO's products because of SCO's leadership in the UNIX market for Intel CPU-based computers and its support for a wide range of hardware vendors. Applications written for the SCO environment run on over 2,700 computers and peripherals, and can be readily ported to proprietary UNIX systems, thus expanding the market opportunity for the developer. SCO places particular emphasis on ensuring that SCO Business Critical Servers provide optimal support for the leading client/server applications, the new Java system-based applications, and the leading relational database management systems. Major software vendors that offer application software for the SCO environment include Banyan, Borland, Computer Associates, Informix, Lotus, Microsoft, Oracle, Novell, Progress, and Sybase. In total, SCO UNIX Systems are supported by over 12,000 independent software vendors (ISVs), representing over 15,000 business-critical applications.

As you can see, SCO in 1996 was offering both {"In fiscal year 1996, SCO acquired the UnixWare(R) and UNIX System V Release 4 source-license business from Novell, Inc."), but it was pushing its Intel solution, UnixWare. But as you can also see, they were by no means identical. Would you like to see what Santa Cruz said it bought from Novell under the APA? The same 10K tells us:
In December of 1995, SCO purchased the UNIX Systems technologies and business from Novell Corporation and is now a primary driving force behind this open systems platform.
UNIX Systems technologies and business. Not IP. Not lock, stock and barrel. The 10K goes on the describe what SCO planned to do and was doing with the code. Here's the first of four separate business lines:
SCO product development is comprised of four distinct development organizations. Each development organization has a specific focus and charter which directly aligns with SCO's over-arching strategic directions. These development organizations have the following focus:

1. The Platform Products Division has responsibility for the core operating systems and services including SCO UnixWare, SCO OpenServer, Gemini I and Gemini-64 products. This organization is also responsible for additional OS services such as SCO(R) Merge(TM), Virtual Disk Manager and On Line Data Manager (RAID subsystems), Development Systems and new technology development that are UNIX kernel-related such as clustering and NUMA support.

So development was not only in UnixWare in 1996. UNIX was by no means a legacy pile of code. Note that Santa Cruz lists its competitors for both UnixWare on Intel and for its non-Intel UNIXproducts:
COMPETITION The market for Intel operating systems is very competitive and rapidly changing. The Company currently encounters significant competition from a limited number of direct competitors including IBM, Microsoft, and Sun Microsystems, which offer hardware-independent multi-user operating systems for Intel platforms, and from OEMs such as AT&T, DEC, Hewlett-Packard, IBM, Olivetti, Sun Microsystems and Unisys, which offer their own versions of the UNIX System on a variety of RISC and Intel CPU-based hardware. Many of these hardware competitors also offer SCO's system software products, either through direct OEM agreements or indirectly through the various distribution channels used by the Company. In addition, to the extent the Company's products penetrate the markets for larger and multiprocessor servers, SCO will increasingly face competition from IBM's AS/400, DEC's Alpha-based servers, and Sequent servers.

Competitive systems not based on Intel microprocessors are offered by DEC, Hewlett Packard, IBM, and Sun, among others. These systems are sold with operating system software which is based upon the UNIX System and offer many of the benefits of the Company's products. The Company also expects to receive increasing direct competition on the Intel platform from OEM versions of the UNIX System and from such hardware-independent operating systems as Microsoft Windows NT and SunSoft's Solaris for Intel. The Company expects Microsoft Windows NT (server and workstation) to continue to offer significant and increasing competition to UNIX System products, including SCO products. Many of these competitors and potential competitors have significantly greater financial resources, more technical personnel and more extensive marketing and distribution capabilities than the Company. The major factors that affect the competitive market for the Company's products include product reliability, availability of user applications, compliance with industry standards, ease of use, networking capability, breadth of hardware compatibility, quality of support and customer services, product performance and price.

]

30. The parties argued at trial over whether only the stock payment or also the royalty interests retained or received are properly considered part of the "purchase price." That dispute over labels is of no consequence, as all of the above three revenue streams were in fact set forth in the Asset Purchase Agreement, and all were specified as something Novell would "receive" from SCO as consideration in the Term Sheet submitted to the Novell Board of Directors to explain the transaction. (Ex. 754 at 5.) Novell did "modeling" of the future SVRX royalty stream and valued it in the "hundreds of millions of dollars." (354:8-15 (Chatlos).) Novell

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forecast that the SVRX royalty stream for 1995 alone would approximate $50 million. (Ex. 754; 2066:1-12 (Tolonen).)

31. On September 19, 1995, Novell and SCO executed the APA. (Ex. 1.) The parties entered into amendments to the APA on the Closing Date of the transaction, December 6, 1995 (Amendment No. 1), and on October 16, 1996 (Amendment No. 2). (Id.) The parties executed other documents in connection with the APA, including the Technology License Agreement ("TLA") referenced in Section 1.6 of the APA, the Bill of Sale, and the Operating Agreement. (Ex. 162 (TLA); Ex. 90 (Bill of Sale); Ex. X5 (Operating Agreement).)

32. The APA defines "the Business" that SCO acquired as including the business of developing, licensing, and supporting UNIX and UnixWare software products, including "the sale of binary and source code licenses to various versions of UNIX and UnixWare." (Ex. 1 (APA), Recital A.)

33. SCO's acquisition of the UNIX and UnixWare business from Novell in 1995 was not limited to the business of selling binary versions of UNIX, a business that it could already operate as a UNIX licensee. Novell through the APA effectively transferred to SCO ownership of the UNIX and UnixWare business in its entirety, subject to Novell's receipt of certain royalty rights and protections of those royalty rights. Specifically, under the APA, Novell:

  • transferred to SCO ownership and all copies of the UNIX source code, wherever located (Ex. 1, Schedule 1.1(a) Item IV);

  • transferred to SCO its workforce of employees running the UNIX Licensing Group (Ex. Z3 at 2);

  • executed with SCO an Asset Purchase Agreement, as opposed to a UNIX license;

  • executed with SCO the TLA, which licensed back to Novell rights to use UNIX under certain restrictions (Ex. 1 (APA) § 1.6; Ex. 162 (TLA) § II); and

  • transferred to SCO all of Novell's claims pertaining to the UNIX and UnixWare source code (Ex. 1 (APA), Schedule 1.1(a) Item II).

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The sale of assets to SCO was therefore different from a simple license agreement by which a licensee received from Novell the right to develop its own flavor of UNIX based on a single distribution of a release of UNIX source code that the licensee was obligated to keep strictly confidential.

34. The APA is by its terms an agreement transferring assets, not licensing them. If there were any doubt, the APA itself provides that Novell and SCO intended for SCO to acquire "all of the Business," as defined above. (Id. § 1.3(a)(i).)

35. The evidence addressed below demonstrates that the APA also expressly transferred all rights of ownership to the source code in all versions of UNIX and UnixWare, transfers the software development agreements as to which Novell and prior owners were the licensors, and, as discussed below, transferred all of Novell's legal claims. Numerous Novell documents clearly state that full ownership of the UNIX and UnixWare business, including source code, claims, and many other components, was transferred from Novell to SCO. Licensees who obtained the right to develop a flavor of UNIX under a restricted UNIX licensing arrangement did not receive a transfer of such assets. While it is true that Novell retained the right to receive SVRX Royalties and reserved certain rights to protect that royalty stream, in the Court's view, this does not transform the APA into simply a licensing arrangement whereby SCO could only develop and market UnixWare and serve as an agent to collect royalties.

C. SCO's UNIX-Based Business Since the Amended APA.

36. Contrary to being a mere licensee, since signing and closing on the APA, SCO has owned and has been the company who licensed to others the right to use the source code that makes up the UNIX and UnixWare operating systems by entering into Software License Agreements with OEMs and other third parties. (98:15-24 (Frankenberg); 608:16-610:4 (Broderick); Docket No. 542 at 12.) In addition to licensing the source code, SCO also

13

distributes two UNIX-based products in binary form, OpenServer and UnixWare, which many customers use as their operating system of choice.

[Yes, and without owning the copyrights, all these years. Anyway, it's not precisely how it was. If it's all SCO's business, why was the IBM buyout with Novell and SCO instead of just SCO? And why did the lower court and the Court of Appeals rule that SCO wasn't supposed to enter the Sun license without Novell getting its money?]

37. "SCO released several subsequent releases of UnixWare, including multiple versions of each UnixWare 2 and UnixWare 7, which are the latest implementation of System V and the latest generation of UNIX SVR 4.2 with SVR 4.2MP. All of the releases of UnixWare subsequent to Novell's transfer of the business are releases of System V." (Docket No. 542 at 7-8.) The "commercially valuable technology from the prior versions is included in UnixWare, and UnixWare would not operate without its System V components. The current version of UnixWare supports the newest industry-standard hardware." (Id. at 8.)

38. In licensing the UNIX source code (including UnixWare releases), "SCO also licensed each of the prior products upon which the newest version was built. This practice began with AT&T, was continued by Novell, and then adopted by SCO. For example, a licensee who executed a license for SVR4.2, had the same rights to the earlier versions of UNIX on which 4.2 was built, and the list of prior products reflected that right. SCO regularly listed the older releases of UNIX, including numerous releases of System V, with the current license. Customers paid no additional fees for the rights to the prior products regardless of whether they had a previous license to the prior products." (Id. at 12.)

39. "The practice of including rights to prior products recognized that licensees developed their own versions of UNIX based on the most recent product and as an assurance to the licensee that they had rights to any of the technology included in that licensed product. At this time, SCO was primarily contracting with computer manufacturers, or OEMs." (Id.)

40. Under the APA, SCO was transferred and owns the aforementioned agreements under which the UNIX and UnixWare operating system source code has been licensed to others.

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(Ex. 1 (APA), Schedule 1.1(a).) The Software Agreement, as noted, reflects a crucial component of SCO's UNIX-based business § namely, the requirement that the licensed UNIX source code and the derivatives based on it, including the methods and concepts embodied in the code and derivatives, be kept confidential. (Ex. 4 §§ 2.01, 7.06(a); 576:15-577:8 (Broderick); 369:15-20 (Chatlos).)

V. NOVELL'S OBLIGATION TO TRANSFER THE COPYRIGHTS

A. Specific Performance Pursuant to Amendment No. 2.

1. Novell's Obligation to Transfer "Required" Copyrights.
41. California law governs the APA. (Ex. 1 (APA) § 9.8.) The law of specific performance in California is applicable to SCO's primary argument.

42. "Specific performance of a contract may be decreed whenever: (1) its terms are sufficiently definite; (2) consideration is adequate; (3) there is substantial similarity of the requested performance to the contractual terms; (4) there is mutuality of remedies; and (5) plaintiff's legal remedy is inadequate." Blackburn v. Charnley, 117 Cal. App. 4th 758, 766 (2004). The Court concludes that SCO meets each of these elements.

43. The parties do not dispute that each has remedies available to it under the APA and the California law of contracts. SCO's legal remedy is inadequate. The jury determined that the APA did not already transfer the copyrights to SCO. To obtain the copyrights at this time is a matter of specific performance, an equitable remedy, based on Amendment No. 2, with which the Court agrees, requiring Novell now to transfer the required copyrights.

44. In addition, the terms of any decree of specific performance rests in the "sound discretion" of the Court. De Anza Enters. v. Johnson, 104 Cal. App. 4th 1307, 1315 (2003).

45. "An order of specific performance or an injunction will be so drawn as best to effectuate the purposes for which the contract was made and on such terms as justice requires. It

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need not be absolute in form and the performance that it requires need not be identical with that due under the contract." Restatement (Second) of Contracts § 358(1) (1981). "The objective of the court in granting equitable relief is to do complete justice to the extent that this is feasible." Id. cmt. a; accord Rogers v. Davis, 28 Cal. App. 4th 1215, 1222 (1994).

46. "The function of the court is to do complete justice; and it has power to mold its decree to that end." Restatement, supra, cmt. b. The decree "may command a performance by the defendant that is not identical with that which he promised to perform." Id. cmt. c; accord Rogers, 28 Cal. App. 4th at 1222.

47. The primary relief SCO seeks falls within the foregoing parameters. SCO asks the Court to order Novell to execute the documentation necessary to transfer the UNIX and UnixWare copyrights from Novell to SCO. The decree will thus effectuate the purposes for which the amended APA was made.

48. The Court notes that, in the APA, Novell promised that it would use its commercially reasonable efforts "to consummate and make effective the transactions contemplated" under the APA. (Ex. 1 (APA) § 4.9.) Novell also promised to "execute and deliver such other instruments and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby." (Id. § 4.12.)

49. Under the well-established California law of contracts generally, moreover, "[e]ach party to a contract has a duty to do what the contract presupposes he will do to accomplish its purpose." Parsons v. Bristol Dev. Co., 62 Cal. 2d 861, 868 (1965); accord Bewick v. Mecham, 26 Cal. 2d 92, 99 (1945).

50. SCO argues that ownership of UNIX and UnixWare copyrights are "required" to protect its intellectual property associated with the UNIX and UnixWare business and that

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Novell must therefore transfer the copyrights to SCO now. The APA defines the Business that SCO acquired as the business of developing, licensing, and supporting UNIX and UnixWare software products, including the sale of both source and binary code licenses. (Ex. 1 (APA), Recital A.) The APA effectuated that asset transfer by specifying a schedule of transferred assets, Schedule 1.1(a) (the Assets Schedule), and a schedule of excluded assets, Schedule 1.1(b) (the Excluded Assets Schedule). (Id. § 1.1(a).)

51. Item I of Schedule 1.1(a) identifies the full scope of the transferred assets as consisting of:

All rights and ownership of UNIX and UnixWare, including but not limited to all versions of UNIX and UnixWare and all copies of UNIX and UnixWare (including revisions and updates in process), and all technical, design, development, installation, operation and maintenance information concerning UNIX and UnixWare, including source code, source documentation, source listings and annotations, appropriate engineering notebooks, test data and test results, as well as all reference manuals and support materials normally distributed by Seller to end-users and potential end-users in connection with the distribution of UNIX and UnixWare, such assets to include without limitation the following:
Item I then proceeds to identify by name all UNIX and UnixWare source code products and binary products.

52. Item III of Schedule 1.1(a) goes on to list additional specific assets that are part of the UNIX and UnixWare business being transferred to SCO:

All of Seller's [Novell's] rights pertaining to UNIX and UnixWare under any software development contracts, licenses and any other contracts to which Seller is a party or by which it is bound and which pertain to the Business (to the extent that such contracts are assignable), including without limitation . . .
Item III then separately lists specific types of software development contracts that were being transferred to SCO. Item III.L on that list of contracts with respect to which Novell was transferring all of its rights is:

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Software and Sublicensing Agreements § This includes the software and sublicensing agreements that Seller has with its OEM, End User and Educational customers. The total number of these agreements is approximately 30,000.

53. Item II of Schedule 1.1(a) specifically lists Novell's claims as among the all rights and ownership in UNIX and UnixWare that was being transferred to SCO:

All of Seller's [Novell's] claims arising after the Closing Date against any parties relating to any right, property or asset included in the Business. 4

54. The Excluded Assets listed on Schedule 1.1(b) originally contained a provision that stated the following: "All copyrights and trademarks, except for the trademarks UNIX and UnixWare." (Ex. 1 (APA), Schedule 1.1(b), Item V.) This language was replaced when the parties executed Amendment No. 2.

55. In connection with the APA, Novell and SCO also entered into a Bill of Sale, confirming the transfer of all of the Assets to be transferred under the APA. (Ex. 90.)

56. In October 1996, to address a question raised for the first time with respect to the transfer of the UNIX and UnixWare copyrights, the parties executed Amendment No. 2 to the APA. Paragraph A of Amendment No. 2 states that Schedule 1.1(b) of the APA "shall be revised to read":

All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the Agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies. However, in no event shall Novell be liable to SCO for any claim brought by any third party pertaining to said copyrights and trademarks.

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57. Alison Amadia, Novell's negotiator of Amendment No. 2 and the principal support for Novell's theory that Amendment No. 2 simply confirmed some type of a "license," acknowledged that copyrights that are required for SCO to exercise its rights in the UNIX and UnixWare technologies it had acquired were intended to be transferred, not licensed, to SCO. (2177:15-18.) Ms. Amadia further testified that she did not have any view today as to what copyrights are required for SCO to exercise its rights. (2157:1-3.)

58. Ms. Amadia's testimony that some further process was required under Amendment No. 2 for SCO to obtain the copyrights is a basis that supports SCO's claim for specific performance. Ms. Amadia testified that "to the extent that they believe what was required in order for them to exercise their rights under the APA was full copyright ownership, then they would need to do something beyond this." (2163:25-2164:9.) If (as Novell has contended) Amendment No. 2 was intended to constitute a process by which SCO could request transfer of copyrights that were required, that would be consistent with a determination now that such copyrights are required and that Novell must specifically perform by transferring the copyrights to SCO.

2. The UNIX and UnixWare Copyrights Are "Required."

59. The UNIX and early UnixWare technology lies at the heart of SCO's current version of UnixWare. The source code of the versions of UnixWare that SCO acquired in 1995 (and built its business around licensing in the ensuing years) consists almost entirely of "UNIX" source code (1732:1-11 (Nagle); 1781:21-26 (Nagle)), and the current version of UnixWare that SCO sells still consists in significant part of "UNIX" source code (1784:20-22 (Nagle)).

60. UnixWare was a "version of UNIX is -- [that] was essentially rebranded and some cosmetic and a few minor features added to it to create UnixWare 2.0. UnixWare 2.0 is almost

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entirely UNIX System V release 4.2." (1732:1-11 (Nagle).) Thus, "90, 95 percent" of UnixWare was older UNIX code. (1782:6 (Nagle).) UnixWare is not simply a separate, stand-alone version or block of UNIX that can be detached from the UNIX code and run on its own -- it is the latest release of UNIX. Neither the early version of UnixWare nor the latest version of UnixWare would work if the "UNIX" source code were removed. (1784:7-22 (Nagle).)

61. The evidence addressed below shows that given the technological reality of UnixWare's development and ancestry, without copyright ownership, SCO does not have the right to enforce in court the copyrights at issue in the UNIX and UnixWare technology, and thus to protect the core technology in UnixWare. Numerous witnesses testified that the ability to protect the intellectual property was and is critical to the UNIX and UnixWare business:

[There is no doubt that Santa Cruz wanted the copyrights. But it lacked the money to pay for them. Since Novell retained the copyrights, presumably they would protect their intellectual property, should a need arise. And if not, it doesn't mean the copyrights magically transfer even though SCO failed to raise the funds to pay for them. If life worked like that, I'd magically own a Rolls Royce. I'd certainly like one. What? You mean I have to pay for it? No fair! If SCO's argument was correct, how could IBM, Sun (now Oracle), HP, or any other Unix vendor defend their IP in their particular flavor of Unix? They, like SCO, own all copyrights to their own work built on top of the UNIX licensed code, obviously.

If you believe SCO's argument, then if I obtained the source code to AIX or HP/UX, I could create a clone of them and IBM and HP wouldn't be able to do anything about it, since AIX and HP/UX, just like Unixware won't work without the underlying UNIX core code, which they don't own the copyrights to. And that's just silly.

But let's be clear about what SCO actually had in mind when it uses the word protection. Here's what it told the SEC on July 8, 2003:

One of the assets we acquired from Tarantella was all right, title and interest in and to UNIX and UnixWare, including source code and intellectual property rights. UNIX System V was initially developed by AT&T Bell Labs and over 30,000 licensing and sublicensing agreements have been entered into for the use and distribution of UNIX. These licenses led to the development of several derivative works based on UNIX System V, including our own SCO UnixWare and SCO OpenServer, Sun's Solaris, IBM's AIX, SGI's IRIX, HP's UX, Fujitsu's ICL DRS/NX, Siemens' SINIX, Data General's DG-UX, and Sequent's DYNIX/Ptx. These operating systems are all derivative works based upon, or modifications of the original UNIX System V source code currently owned by us. As such, we retain the right to control certain uses of all UNIX-based derivative works and to prohibit use of UNIX and UNIX-based derivative works for others and to prohibit the unauthorized disclosure of UNIX and UNIX-based derivative works to third parties, including open source developers.

We initiated the SCOsource effort to review the status of these licensing and sublicensing agreements and to identify others in the industry that may be currently using our intellectual property without obtaining the necessary licenses.

That claim proved to be untrue. It did not get the intellectual property. But when you track what they actually did in pursuit of those goals with SCOsource, it added up to nothing less than the destruction of the Linux market with massive short-term financial benefits to SCO. As Darl McBride himself put it in a teleconference in July of 2003:
McBride: On the financial side of this, clearly the copyright protection we get here is significant in terms of the value to our company. The ability to seek injunctive relief and damages relief from end users all the way down to the amount of the ... the price of the product that you would have sold for the similar infringing product is pretty significant when you take the over two million servers that are in the marketplace today -- on just the 2.4 kernel according to IDC -- and you multiply that out against a UnixWare type of a pricing model. Obviously this becomes a multi-billion dollar problem.
In short, this was not a normal IP litigation path. It was the creation of a "problem" for its competition in the market.]

62. Former Novell and Current SCO UNIX Contract Manager Bill Broderick. Mr. Broderick testified that "you show your ownership and protect your software" "by copyright," and that accordingly, SCO requires ownership of the copyrights to indemnify licensees and protect the software against third party misuse or disclosure. Mr. Broderick deemed "the ability to enforce prescriptions against third parties" as "integral to the operation of SCO's business" and thus testified without rebuttal that SCO "would be out of business" if it "couldn't protect [its] software" "through copyrights." (666:9-21; 667:16-668:6.)

63. SCO Manager of Law and Corporate Affairs Kimberlee Madsen. Ms. Madsen testified that during her tenure at SCO, the company "required all" the UNIX and UnixWare copyrights "in order for this UNIX, UnixWare business to be successful." She explained that the copyrights were "essential" "to be able to protect and enforce [SCO's] intellectual property rights" in UNIX, such as when SCO took action against Microsoft in the European Union in 1997 (in which SCO, through the law firm that had represented it in the APA transaction with

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Novell, specifically and expressly represented that it was the owner of the UNIX copyrights). (780:23-24; 802:23-803:1; 865:16-21; 866:18-21; 875:7-14; 884:21-885:21.)

[Nowhere is SCO's M.O. more clearly on display than right here. Ms. Madsen was introduced to us, in Exhibit 22 in this collection of exhibits [PDF], in her deposition as a paralegal. In Exhibit 21, in the same bundle, she tells us that by 1995, she was "employed as a Manager in the Law and Corporate Affairs group at The Santa Cruz Operation, Inc." Now, she's called Manager of Law and Corporate Affairs, which makes it sound like the executive in charge of the entire group, doesn't it, maybe even a lawyer? But she was a paralegal, evidently managing others in that department, which paralegals do, but she was not a lawyer and she was not in charge of the department. She worked for Steven Sabbath. We know all this, in part because of Novell's Offer of Proof regarding some inconsistencies between her testimony and her boss, Sabbath, who not only contradicted her but contradicted himself, something Novell was not allowed too present to the jury, but which was not lost on Judge Stewart, who remarked on it. Her elevation was foreshadowed in Sabbath's testimony, which our reporter said went like this:

Asked about Ms. Madsen, he states that she was his #2 with regard to negotiating the APA. She reviewed documents sometimes even without him reviewing them, played an important role, or even lead, on Amendment 2 and Amendment X. She was exceptionally good at what she did.
Well, one hopes he reviewed her document review work eventually, because asked by Novell's Michael Jacobs whether she was familiar with the legal phrase "notwithstanding the foregoing", she said no. Sabbath's position is made clear in Santa Cruz's 10K in September of 1996:
Mr. Sabbath was named Vice President, Law and Corporate Affairs and Secretary in February 1993. Between 1991 and 1993, he served as Vice President, Legal Affairs. Prior to joining the Company, between February 1988 and January 1991, Mr. Sabbath was the Deputy General Counsel for Sun Microsystems, Inc., a manufacturer of UNIX system-based hardware and software.
That is who he was, and that was his position, and she worked for him. So, ipso facto, she was not the head of the department.]

64. SCO General Counsel Steven Sabbath. Mr. Sabbath testified that "we needed the copyright in order to defend the property" and "protect the technology" because "we didn't want somebody to be able to go off and pirate, for example." Mr. Sabbath explained that "if you didn't own the copyrights, how could you even go after somebody that is pirating your software? How could you enforce your right to the technology? So you would need all the copyrights and binaries and source code." (913:1-15; 914:17-915:5.)

[Here's a question. Since the product contemplated was to be a merge of UnixWare and OpenServer, and since UnixWare is Unix plus NetWare, and since SCO didn't buy NetWare, why wouldn't NetWare copyrights be required for its business also, if it needed the copyrights to Unix and UnixWare? The other side of that same coin is since Novell owned all the copyrights, why would it be a problem if it had Unix and UnixWare too, not just NetWare?]

65. SCO CEO Darl McBride. Mr. McBride explained that "ownership of the UNIX copyrights" was "absolutely" "required for SCO's business" because without that ownership you cannot "enforce your rights if somebody tries to take advantage of your property." He explained that running the business without copyright ownership "would be like the Beatles trying to protect their music catalog without having the underlying copyrights. You have to have the copyrights to protect it." (997:11-23.)

[SCO surely recalls that Darl McBride testified that it could run its business without the copyrights, and in fact he said so in a filing with the SEC and in a letter to partners. Novell in its proposed Findings and Conclusions sums up his testimony:

Darl McBride, CEO of SCO from 2002 to 2009 and the architect of the SCOsource program, admitted that SCO could run its software business without owning the UNIX copyrights. (March 2010 Trial Tr. at 1225:2-1226:10.) He testified that the UNIX copyrights were not required for SCO to run its UnixWare and OpenServer software business, since SCO could "run our business . . . without the copyrights, just like HP, IBM, all of the other licensees of UNIX can run their businesses as well." (Id. at 1225:24-1226:1.) He further admitted that SCO could develop and sell its UnixWare products without ownership of the UNIX copyrights. (Id. at 1231:11-19.) Mr. McBride testified only that SCO was unable to "run [its] business for the licensing side" without the copyrights. (Id. at 1226:2-3.) Mr. McBride asserted that the copyrights were needed for SCO's new business of licensing--and, if necessary, suing--Linux users. (Id. at 1226:1-10.) But SCO presented no evidence that suing Linux users was part of the "rights" transferred under the APA. Rather, even SCO's witnesses testified that the APA was intended to enable Santa Cruz to develop a new version of UnixWare that could compete with Microsoft Windows. (Id. at 91:7-13; 92:20-93:1 (Robert Frankenberg); 224:23-225:25 (Duff Thompson); see also 429:2-10 (Jack Messman).)
It's more than odd that this is not addressed by SCO at all. It's like they just pretend they did not hear it. But I am positive they did. But the greater oddity is that SCO proceeds as if the judge didn't hear it or doesn't remember this vital testimony, but I am sure he did and he does.]

66. Former Novell and Current SCO UNIX Product Manager & OEM Relations Manager John Maciaszek. Mr. Maciaszek testified that "the copyrights are required to operate SCO's business" because you need ownership of the code and "the copyrights associated with it" in order "to have the ability to give a license to a client." He further explained that "you would not be able to carry out that business" without "ownership" of those copyrights. In addition, ownership of copyrights was required to be able to enforce and protect the intellectual property upon which the software products were predicated. (1686:25-1687:24.)

67. SCO General Counsel Ryan Tibbitts. Mr. Tibbitts explained that the "copyrights are critical for us to run the business that was purchased from Novell in `95, both the SCOsource

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business and the right to protect that core UNIX intellectual property," and that "we own the core UNIX intellectual property and a very critical component of that at this point in time is to protect that IP, and we have got to have that IP to keep other people from encroaching into our marketplace." (1844:25-1845:18.)

68. There is no sensible interpretation of the amended APA under which SCO did not have the right to protect its business. Protecting against misuse of the crown jewels of the business -- the highly confidential source code -- was a critical part of the business itself. The evidence at trial further showed that SCO had concluded both that the use of Linux was hurting the UnixWare business and that assets SCO had acquired had been misappropriated into Linux. (See, e.g., 1836:23-1840:4 (Tibbitts); 1848:19-23 (Tibbitts); Ex. 575.)

69. SCO's need to bring copyright enforcement actions does not turn on the existence of the SCOsource program whose demise Novell focused on at trial. Mr. Tibbitts credibly explained that if SCO "could not protect" the "core intellectual property" in UnixWare, then "this venerable UNIX business that has been around for many years that many customers around the world are using would simply die off, and we have got to have that intellectual property to protect those crown jewels." (1845:21-1846:1.)

70. Shortly after the parties executed Amendment No. 2, for example, SCO, through the law firm that represented it in the APA, took the position in a formal petition against Microsoft Corporation in the European Union that SCO had acquired the UNIX copyrights and was the UNIX copyright holder. (Ex. 127 at §§ 3.4, 4.9.) Such copyright ownership was part and parcel of SCO's petition, and there can be no reasonable question that bringing the petition was part of SCO's pursuit and maintenance of its UNIX-based business. The same is true for the settlement agreement between the parties that resolved the dispute. (Ex. 199, Recital B.)

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71. In addition, as noted, SCO also acquired "All of Seller's claims arising after the Closing Date against any parties relating to any right, property or asset included in the Business." (Ex. 1 (APA), Schedule 1.1(a), Item II.) SCO thus acquired, among other claims, all of the claims, which Novell otherwise would have, relating to the use or misuse of the UNIX and UnixWare source code, all of which was included among the property in the Business. (Id. at Items II, IV.) The claims that SCO acquired are part of the "rights with respect to the acquisition of UNIX and UnixWare technologies" that SCO had acquired under the APA, and ownership of the copyrights is required to prosecute such claims.

72. The parties do not appear to dispute that if SCO does not own the copyrights, it cannot enforce them in court. See, e.g., Davis v. Blige, 505 F.3d 90, 98 (2d Cir. 2007) (owner of a copyright has the exclusive right to bring suit to enforce the copyrights); Silvers v. Sonly Pictures Entmt., Inc., 402 F.3d 881, 885 (9th Cir. 2005) (copyright owner cannot transfer its accrued copyright infringement claims without also transferring the copyrights); 1 Copyright Throughout the World § 19:29 (2009); Copyrights and Copywrongs: The Rise of Intellectual Property and How It Threatens Creativity, 3 J. High Tech. L. 1 (2003); 3 Patry on Copyright § 7:2 (2010) (explaining that "copyright is not just a bundle of rights; it is also the ability to enforce those rights"); accord Jury Instruction No. 34A. 5

[Interestingly, in SCO v. IBM, SCO seemed to argue that it was an exclusive licensee, in its Sur-Surreply re Objections to the Magistrate Judge's Order on IBM's Motion to Confine:

With respect to the purported law set forth in IBM's Addendum A, moreover, a sampling of the substantive propositions set forth therein shows important errors and oversights:
* IBM incorrectly says (at no. 1) that a party cannot assert copyright infringement over materials that it does not own. Under the copyright laws, an exclusive licensee of such materials can assert such claims.

* IBM incorrectly says (at no. 2) that the plaintiff bears the burden of showing it is the author of the copyrighted material. The plaintiff need show only that it owns or is the exclusive licensee of the copyrighted material. The case IBM cites, Community for Creative Non-Violence v. Reid, 490 U.S. 730, 737 (1989), does not make any pronouncement regarding the burden a plaintiff must meet to establish infringement.

Now, in this litigation with Novell, it seems to argue that it isn't or if it is then it has become the owner of the copyrights.]

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73. Novell has presented no conflicting evidence or law. To the contrary, Novell's former General Counsel Mr. LaSala admitted both generally that "the agreements speak to what copyrights SCO requires in order to exercise its rights under the agreement" and specifically that "SCO has the rights to bring claims to protect its business." (1976:25-1977:7.)

74. In its decision, moreover, the Tenth Circuit pointed to the claims that SCO had acquired under the APA:

SCO indisputably acquired certain assets under the APA. SCO's claim, as we understand it, is that copyrights are necessary to protect the value of the assets themselves, and are therefore necessary to prosecute seller's claims "relating to any . . . asset" included in the Business. Novell has not explained, for instance, what recourse SCO had under Novell's theory of the transaction if a third party had copied and attempted to resell the core UNIX assets Santa Cruz received in the deal.
SCO, 578 F.3d at 1218 n.4.

75. It also bears emphasis that the relevant question is whether under Amendment No. 2 the copyrights are "required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies." The fact that there was evidence that SCO could physically continue to sell its UnixWare and OpenServer products without copyright ownership (such as the evidence that SCO contemplated selling that part of the business last year, while retaining its pending claims, copyrights, and additional licensing rights and claims) is not dispositive. (See, e.g., 664:19-666:21 (Broderick).) That in no way suggests that the copyrights are not required for SCO to exercise and protect the full rights it acquired form Novell. Amendment No. 2 requires Novell to transfer the UNIX and UnixWare copyrights if they are required for SCO to exercise any of its ownership rights in connection with the UNIX and UnixWare business it acquired. Those rights also included the right to license the UnixWare source code, and the prior

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UNIX source code therein, to existing and new licensees -- which business depends on protection of that source code and thus requires copyright ownership.

76. As to specific performance, the terms of the APA are sufficiently definite in this regard, because SCO is entitled to the transfer of the "required" copyrights identified in Amendment No. 2 -- that is, the copyrights for the UNIX and UnixWare technology as of the date of the APA, which is specifically identified in Schedule 1.1(a) of the APA.

77. In addition, the consideration that SCO paid to Novell under the APA is adequate. The parties agree that no consideration specific to Amendment No. 2 was paid or required. Instead, the significant consideration that SCO paid under the APA supports the requirement that Novell transfer the required copyrights.

78. Accordingly, for all of the foregoing reasons, the Court concludes that transfer of the UNIX and UnixWare copyrights is required for SCO to protect the intellectual property that is related to the UNIX and UnixWare business and to pursue the legal claims transferred to SCO under the APA. Therefore the copyrights are "required" for SCO pursuant to Amendment No. 2 and must now be transferred by Novell to SCO.

B. Specific Performance to Effectuate the Parties' Intent.

1. The Prospect of Inadequate Transfer Documentation.

79. SCO further contends that specific performance is warranted on the ground that the parties intended that the copyrights transfer, that Amendment No. 2 allows for such transfer, and that any failure in the operative documents to accomplish such a transfer that the jury considered does not stand as an obstacle to this Court now effectuating the intent of the parties to the transaction that such transfer accompany the sale of the UNIX and UnixWare business, including the very source code as to which the copyrights indicate ownership.

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80. It is well established across jurisdictions that a court may order specific performance to account for some technical failure in the documentation of the parties' intent, in particular with respect to the transfer of property. See, e.g., Schuler v. Graf, 862 N.E.2d 708, 712-15 (Ind. Ct. App. 2007); O'Berry v. Gray, 510 So. 2d 1135, 1137-38 (Fla. Ct. App. 1987); Eliason v. Watts, 616 P.2d 427, 429-31 (Utah 1980).

81. The law of specific performance in California also applies to this separate ground for SCO's claim. In determining the "parties' intent" in applying specific performance, the Court may consider extrinsic evidence of such intent. De Anza, 104 Cal. App. 4th at 1315; United Truckmen v. Lorentz, 114 Cal. App. 2d 26, 28-29 (1952). In DVD Copy Control Ass'n v. Kaleidescape, Inc., 176 Cal. App. 4th 697 (2009), for example, the trial court had concluded that the terms of the contract at issue were insufficiently definite to permit specific performance. The appellate court reversed, finding that the extrinsic evidence at issue was sufficient to clarify any ambiguity in that portion of the agreement and thus to permit specific performance (depending on the trial court's assessment of other factual issues on remand). Id. at 719-20. Similarly, in Blackburn v. Charnley, 117 Cal. App. 4th 758 (2004), the court expressly concluded that "the properly admitted extrinsic evidence rendered the description of the lots conveyed by the purchase agreements sufficiently definite for enforcement. The court did not err in ordering specific performance." Id. at 767; see also Ontario Downs, Inc. v. Lauppe, 192 Cal. App. 2d 697, 704 (1961) (finding that if "any ambiguity remains, extrinsic evidence is admissible to show the actual intent of the parties" with respect to prospect of "a decree of specific performance" concerning property at issue).

82. In assessing the intent of the parties on specific performance, "a court will avail itself of all of the usual aids in determining the scope of the agreement." Restatement (Second)

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of Contracts § 362 (1981). Such extrinsic evidence includes the parties' course of performance. See, e.g., Okun v. Morton, 203 Cal. App. 3d 805, 819 (Cal. Ct. App. 1988). "It is only when the extrinsic evidence fails to remove the ambiguity that specific performance must be refused." Id. (quotations and citations omitted). It is within the court's discretion to infer from the extrinsic evidence what specific acts the parties must have intended for one party to undertake. Id.; see also SCO, 578 F.3d at 1217 (practical construction is "best evidence" of parties' intent). The Court finds it within its discretion to award specific performance on the foregoing ground.
2. The Parties Intended to Transfer the Copyrights.

83. Having concluded that an award of specific performance is within its discretion if the amended APA failed adequately to implement or reflect the parties' actual intent, the Court concludes that the parties to the amended APA did intend for Novell to transfer the UNIX and UnixWare copyrights.

[That would be a remarkable conclusion indeed, given that Novell's Board Minutes from the day before the APA was signed clearly state that no copyrights would transfer.]

84. The Language of the Amended APA. The Asset Schedule of the APA covers copyrights by virtue of providing for the transfer of all rights of ownership in, among other things, the source code for all then-extant versions of UNIX and UnixWare. While the language of the Excluded Asset Schedule originally excluded all copyrights from the transferred assets, that language was replaced by Amendment No. 2. 6

[Getting source code and getting copyrights are two different things, as the minutes of the board of directors made clear.]

85. The APA, as noted, defines the Business that SCO acquired as the business of developing, licensing, and supporting UNIX and UnixWare software products § including both source and binary code licenses. (Ex. 1 (APA), Recital A.) The APA further provides that

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Novell and SCO intended for SCO to acquire "all of the Business." (Id. § 1.3(a)(i).) The APA identifies as transferred assets those listed in Schedule 1.1(a) but not excluded by Schedule 1.1(b). (Id. § 1.1(a).)

[The business, yes. The business contemplated, after all, was a merged product and adminstering the licensing. You don't get the copyrights, however, without some wording saying so. We know it was not "all" the business, in that SCO didn't get the patents and it didn't get some trademarks, so this isn't a case where the phrase "all the business" means copyrights too. I think SCO knows that. They just say it anyway.]

86. Item I of Schedule 1.1(a) in turn identifies the full scope of the transferred assets as consisting of "All rights and ownership of UNIX and UnixWare" including "without limitation" the specific assets listed in the rest of Schedule 1.1(a).

[If it was "all" you wouldn't need to list specific assets included, and don't forget there was a list of exclused assets as well, and on that list of excluded assets was "all copyrights", amended in Amendment 2 but still not saying "all copyrights" had transferred or even would necessarily.]

87. The specific, catch-all phrase "All rights and ownership of UNIX and UnixWare" includes the copyrights of UNIX and UnixWare -- the core intellectual property on which the UNIX and UnixWare licensing business depends. SCO, 578 F.3d at 1213-14. A transfer of "all right, title and interest to computer programs and software can only mean the transfer of the copyrights as well as the actual computer program or disks." Shugrue v. Cont'l Airlines, Inc., 977 F. Supp. 280, 286 (S.D.N.Y. 1997) (emphasis added); see also ITOFCA, Inc. v. Megatrans Logistics, Inc., 322 F.3d 928, 931 (7th Cir. 2003) (transfer of "all assets" to a business includes copyrights); Relational Design & Tech., Inc. v. Brock, No. 91-2452-EEO, 1993 WL 191323, at *6 (D. Kan. May 25, 1993) (transfer of "all rights" in a program includes copyrights). In addition, the "without limitation" language makes clear that the list of Items that follow in the Assets Schedule is non-exhaustive. 7 Where copyrights are one of the "rights and ownership" of

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UNIX and UnixWare covered by Section I of Schedule 1.1(a), such copyrights need not have been expressly included in the intellectual property transferred in Section V of the Schedule.

[Not if there is a section called excluded assets, and note that Amendment 2 didn't say they got the patents, now , did it? So it still was not "all" the business and rights, despite SCO's hypocrisy.]

88. The inclusion of copyrights in the sale of the source code is logical. Indeed, it is difficult to comprehend that a party would transfer "all rights and ownership of" source code while retaining the copyrights. In a licensing arrangement, the licensor does not transfer all rights and ownership of the source code. Here, having sold those rights, it logically follows that the copyright ownership would be included in the sale. This common-sense proposition is reflected in the testimony of numerous witnesses, addressed below, who spoke to what they saw as the obvious inclusion of copyrights in the sale of the UNIX and UnixWare source code.

[Santa Cruz didn't have enough money to pay for the copyrights, remember, so that is the logic in the deal. If they had had the full amount, they would have gotten the copyrights too, but because they didn't, and because Novell was worried they might go bankrupt, it chose to retain what it needed to protect its own business interests, as Tor Braham explained in his declaration.]

89. In addition to requiring copyright ownership to protect the intellectual property contained within UNIX and UnixWare (as shown above), SCO also requires the copyrights to facilitate certain types of source code licensing, which was an indisputable portion of the UNIX and UnixWare business SCO acquired. Such source code licensing was historically part of the UNIX and UnixWare business, SCO's business included in large part entering into new source code licenses, as contemplated by the APA,8 and evidence at trial established that the copyrights were needed for such licensing to occur, as there was nothing in the APA which granted a license for such activity. (2543:21-2544:3 (Frankenberg); 241:19-242:3 (Thompson); 666:9-21 (Broderick); 667:16-668:6 (Broderick); 503:9-11 (Michels); 504:6-7 (Michels); 442:15-443:6 (Wilt); 912:21-913:6 (Sabbath); 914:17-915:5 (Sabbath).)

[Now we reach the nitty gritty. They want to copyrights so they can sell SCOsource licenses, something never contemplated under the APA, as SCO Group here even admits. So if the language of Amendment 2 says they could get the copyrights if they could ever prove they needed them in order to *acquire* what they had acquired under the APA, does that sound like SCOsource to you?]

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90. The only alternative interpretation that Novell offered at trial § that Amendment No. 2 merely "affirms" that SCO had obtained some sort of a "license" to use copyrighted material under the APA § is not reasonable and not supported by the evidence or the law. As the Tenth Circuit observed: "Whatever the Amendment means, it refers to the ownership of copyrights, not to licenses." SCO, 578 F.3d at 1216. The Tenth Circuit stated: "Although Amendment No. 2 did not purport to amend Schedule 1.1(a), this does not mean that the balance of assets transferred to SCO remained unchanged. The transaction was structured such that SCO would acquire 'all of Seller's right, title and interest in and to the assets . . . identified on Schedule 1.1(a),' but that 'the Assets to be so purchased not include those assets (the 'Excluded Assets') set forth on Schedule 1.1(b).' Schedule 1.1(a), in turn, provided that SCO would receive '[a]ll rights and ownership of UNIX and UnixWare . . . including all source code,' a broad set of assets limited only by Schedule 1.1(b). As a result, any change to the set of Excluded Assets in Schedule 1.1(b) necessarily implicated those copyrights actually transferred under Schedule 1.1(a)." SCO, 578 F.3d at 1213-14.

[But without further consideration, and remembering that the APA excluded the copyrights precisely because Santa Cruz couldn't pay for them, does it make sense that Novell would just hand them over for no money under Amendment 2, or might it be more logical that they would hand them over for money if a day ever came where Santa Cruz could demonstrate they needed them "to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies" (note the addition of the word "technologies", meaning not necessarily everything else) and could pay for them?]

91. As indicated in the Tenth Circuit's decision, the sensible interpretation of Amendment No. 2 is that it does not merely "affirm" that SCO had received a "license" under the APA. The Tenth Circuit considered the same argument that Novell makes to this Court -- that Novell's rejection of certain language that SCO had proposed in an initial draft of Amendment No. 2 means that the parties did not intend to transfer the copyrights in agreeing to the final language of Amendment No. 2 -- and found it wanting:

92. "Novell contends that because it did not accept Santa Cruz's initial proposal, there is no basis for construing Amendment No. 2 as SCO would -- an affirmation of the transfer of all UNIX and UnixWare copyrights. It insists that the language reflects its explanation of

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Amendment No. 2 as a mere affirmation of Santa Cruz's implied license to use the copyrights." SCO, 578 F.3d at 1216. "As an initial matter, we are skeptical of Novell's interpretation of the Amendment. Whatever the Amendment means, it refers to the ownership of copyrights, not to licenses." Id.

93. "[I]t is plausible to think that Santa Cruz would have found the final language equally sufficient for its purposes, given its insistence that all the UNIX copyrights were required for it to exercise its rights under the deal. Alternatively, the final language of Amendment No. 2 may have represented a compromise whereby Novell agreed to confirm that Santa Cruz obtained ownership only of those copyrights 'necessary' for Santa Cruz to run its business." Id.

[There are two problems with this: 1.) where's the money to pay for them? and 2.) if they only were to get some, those "necessary", where the list specifying which ones? Obviously there would have to have been a list if only some were meant to transfer. There is no list.]

94. The absence of any reference to any "license" is particularly important where neither the APA nor the Amendment uses the word "license" with respect to SCO's rights and where neither "grants" SCO any rights -- the words the parties would have used if they had wanted to confirm any license, and the ones they did use in the APA in describing the Technology License Agreement. (Ex. 1 (APA) § 1.6, Ex. 162 (TLA) § II.) Under that Agreement, with certain restrictions on such use, Novell unambiguously did receive a "license" to use the UNIX and UnixWare source code in Novell's own products.

[Keep in mind, though, that this was an asset purchase agreement. Santa Cruz wasn't buying everything, just some assets. And the point of the APA was for Santa Cruz to shoulder the responsibility to create a merged product, one that would benefit Novell too, and in fact Novell kept working on the code too until at least 1999. So it wasn't a normal type of deal, more like a joint venture but with Santa Cruz doing most of the work, but with Novell having an ongoing interest in the direction and implementation of the work. ]

95. Extrinsic Evidence Regarding Amendment No. 2. Ms. Amadia's testimony regarding any SCO "license" is equally relevant to assessing the parties' intent to transfer the UNIX and UnixWare copyrights. Ms. Amadia ultimately acknowledged at trial that copyrights that are required for SCO to exercise its rights in the UNIX and UnixWare technologies it had acquired were intended to be transferred, not licensed, to SCO. Ms. Amadia testified on cross-examination that "if there are copyrights that are required for SCO to exercise its rights, like the UNIX and UnixWare trademarks, they were transferred." (2177:15-18.)

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96. Ms. Amadia had testified on direct examination to her view that Amendment No. 2 did not transfer copyrights, but it became clear thereafter that she took that position solely on the grounds that, in her view, there was no category of copyrights at the time that were required for SCO. (21654:12-21; 2165:17-18.) She further testified that she did not have any view today as to what copyrights are required for SCO to exercise its rights. (2157:1-3.) On cross-examination, she thus acknowledged that if there were any such category of copyrights, then they did transfer. (2178:15-18; 2176:13-21; 2177:25-2178:3; 2160:3-7.)

[We don't yet have the transcripts, but given the rest of what SCO says about it, it seems likely she said they would transfer if needed, but they were not needed. To date, there has been no need demonstrated, and in fact Darl McBride in his testimony to the SEC and on the stand was that they didn't need the copyrights to run the UNIX and UnixWare businesses, so the earliest they might be needed would be long after the APA and Amendment 2. Consequently, even if Ms. Amadia said what they say she said, the copyrights still didn't transfer to date, and without consideration and a demonstrated need, they still can't.]

97. Ms. Amadia's testimony stands in agreement with the testimony of SCO negotiator and general counsel Steve Sabbath. Mr. Sabbath testified to his intent and understanding that Amendment No. 2 was intended to confirm that SCO had acquired the copyrights. Mr. Sabbath testified that "the intent was clearly to me that all the copyrights for the UNIX and UnixWare were to be transferred to Santa Cruz Operation" and that the Excluded Asset Schedule was intended to exclude the Netware copyrights. (900:23-901:9.) Mr. Sabbath further testified that SCO "bought the UNIX business from Novell, all copyrights pertaining to that business came with the product. Amendment Number 2 was meant to confirm that." (911:6-14.) Novell has pointed to prior declaration testimony that Mr. Sabbath had given, but that testimony is not substantive evidence at all; it was admissible only to suggest that Mr. Sabbath was not credible. Moreover, Mr. Sabbath had never stated previously that Novell had retained the UNIX and UnixWare copyrights or that he never intended they be acquired. To the contrary, even Ms. Amadia's testimony was that Mr. Sabbath told her that the copyrights had been excluded as a result of a "typographical error in the original APA" that required correction. (2184:25-2185:1.)

[So SCO would like the judge to hand them the copyrights based on testimony from someone whose credibility is in doubt (and not only from contradicting himself, but due to a financial interest in the outcome), to the exclusion of contradictory testimony from those whose credibility is not in doubt?

To anyone even tempted to imagine that it's true that it was all a scrivenor's error, please read this article, Notice this Notice, and you will see it was not. Also reread Tor Braham's declaration:

7. The APA was not a straight up asset purchase. The contract took on a more complex form due to various issues that arose in the course of negotiations. For example, Santa Cruz did not have the cash to buy both the UNIX assets that Novell had purchased from USL in 1993 plus Novell's UnixWare business. SCO's financial health also raised serious concerns about Santa Cruz's viability as a company. Further, once the form of consideration for the deal became Santa Cruz stock, it became necessary to structure the deal so that Novell would receive less than 20% of Santa Cruz stock. This structuring enabled Santa Cruz to complete the deal more quickly without the delay of seeking shareholder approval. However, the value of the Santa Cruz stock that Novell received — or approximately 16.7% — was approximately $50 million, or far less than the $300 million that Novell paid to USL in 1993 and far less than what Novell believed the USL assets were worth. With these issues in mind, we negotiated specific provisions in the contract whereby Novell's business and legal interests were protected through contractual mechanisms.

8. The APA was primarily a forward-looking deal. The common goal of both Novell and Santa Cruz was for Santa Cruz to take Novell's UnixWare operating system, to enhance and innovate it, and to proliferate it as a low-cost UNIX competitor to Microsoft's Windows NT product for use on personal computers. To that end, the parties specifically contemplated that Santa Cruz would develop a product called, in the APA, the "Merged Product" to run on computers powered by 32-bit Intel x86 chips. Novell, on the other hand, would focus its business on its networking operating system, called NetWare, as well as related products, including NetWare Directory Services. It was not in Novell's interest to have a homogeneous operating system environment in the PC world dominated by Microsoft. Novell would benefit from a heterogeneous computing environment that included Santa Cruz's successful proliferation of an enhanced UnixWare or Merged Product.

9. As to SVRX, the intent was that Santa Cruz would act as Novell's agent. The Wilson team and I drafted the APA provisions that memorialized the agency relationship. This drafting is reflected in contemporaneous documents that still exist. Exhibit 1, for example, is a true and correct copy of my marked-up redline of Wilson's early draft of the APA containing Section 4.16. In this early draft of 4.16, as well as the final APA, we defined SVRX License to include any agreements relating to a series of UNIX System V software products that we listed in Item VI of Schedule 1.1(a). (See Exhibit 1 at NOV 42711; See Exhibit 2 at 31.) We did not limit SVRX License to a subset of SVRX license agreements relating only to the binary rights and royalties under those agreements. Indeed, we drafted the contract to state "all SVRX Licenses" and that term was intended to encompass licenses governing source and binary rights and revenues. (Id.)

10. One agency obligation we included in the contract — and to which Santa Cruz agreed — was that Santa Cruz would collect and pass through all SVRX Royalties to Novell, subject to a 5% administrative fee. In Section 4.16(a), the Wilson team and I defined SVRX Royalties to be "all royalties, fees and other amounts due under all SVRX Licenses." (See Exhibit 2 at 31.) We did not limit this revenue stream to a subset of "all royalties, fees and other amounts" such as binary royalties or sums being paid be existing SVRX customers. Further, because we were concerned about Santa Cruz's viability and what could happen to these revenues if Santa Cruz went bankrupt, at my direction we proposed contract language to Santa Cruz whereby Novell would remain the equitable owner of the SVRX Royalties under the Bankruptcy Code:

Seller and Buyer further acknowledge and agree that Seller is retaining all rights to the SVRX Royalties notwithstanding the transfer of the SVRX licenses to Buyer pursuant hereto, and that Buyer only as [sic] legal title and not an equitable interest in such royalties within the meaning of Section 541(d) of the Bankruptcy Code.
(See Exhibit 3 at NOV 41922.) In case Santa Cruz declared bankruptcy, the SVRX Royalties would be protected from the bankruptcy estate and Novell would continue to receive them. Attached hereto as Exhibit 3 is a true and correct copy of Wilson's transmittal to Santa Cruz of the aforementioned proposed language. Santa Cruz agreed to our proposed language.

11. We also proposed that "all right, title and interest to the SVRx Royalties, less the 5% fee for administering the collection thereof pursuant to Section 4.16 hereof" would be an Excluded Asset under APA. (See Exhibit 4 at NOV 40413.) Attached hereto as Exhibit 4 is a true and correct copy of Wilson's transmittal to Santa Cruz in which we proposed this exclusion language. Santa Cruz agreed to our proposal.

12. I drafted Section 4.16(b) of the APA to confirm Novell's control over SVRX Licenses. Although Santa Cruz remained Novell's agent to administer the SVRX licensing arrangement, Novell retained the "sole discretion" to direct Santa Cruz to take certain actions under SVRX Licenses. I emphasized the unqualified nature of this sole discretion right by adding the phrase "to the extent so directed in any manner or respect by Seller." (See Exhibit 1 at NOV 42711.) I drafted additional language in Section 4.16(b) providing that Novell was authorized to act on Santa Cruz's behalf when Santa Cruz so refused:

In the event that Buyer shall fail to take any such action concerning the SVRX Licenses as required herein, Seller shall be authorized, and is hereby granted, the rights to take any action on its own behalf.
(See Exhibit 5, a true and correct copy of my edits to Section 4.16 in an APA draft, at NOV 42765.) Santa Cruz accepted our proposed language.

13. The language in Section 4.16(b) was broadly worded and intentionally so. It was meant to make clear that Novell could take whatever action it wanted to protect its ongoing interests in SVRX. For example, Novell could enter into "buy outs" of its SVRX license agreements, similar to the buy out agreement Novell executed with Sun Microsystems in 1994. Novell could also grant Hewlett Packard ("HP") SVRX source rights in connection with HP's contemplated development of a UNIX operating system for Intel 64-bit chips, should Santa Cruz so refuse. There was no intent to limit Novell's authority under Section 4.16(b) to protecting a binary royalty stream.

14. During the negotiations, David Bradford indicated to me that Novell was unwilling to transfer intellectual property rights in UNIX and UnixWare, including patents and copyrights. The Wilson team and I implemented this retention of rights to protect Novell's interest in the significant revenue stream that Novell would be retaining from SVRX Licenses. Novell was receiving an annual SVRX revenue stream of approximately $50 million. Novell's copyright ownership, in particular, would permit Novell to continue to have rights to this revenue, should Santa Cruz go bankrupt; the rights to the revenue would follow the copyrights to Novell. Novell's ownership of the copyrights also would aid in Novell's negotiation of buy-outs of SVRX Licenses and in Novell's interest in the development of UNIX on 64-bit Intel processors, for example by Hewlett Packard.

15. The Wilson team thus revised an early draft of a Schedule of Assets that had included patents, copyrights and trademarks. (Attached hereto as Exhibit 6 is a true and correct copy of an early draft of the APA from the Wilson Sonsini files that we revised.) We drafted a new schedule of assets to be included in the asset transfer, as well as a schedule of assets to be excluded from the transfer. Attached hereto as Exhibit 7 is a true and correct copy of these new Schedules from my Wilson Sonsini files. Both schedules specifically addressed how intellectual property rights in UNIX and UnixWare would be treated in the deal. Patents and copyrights were not included as assets; instead patents and copyrights were specifically excluded. Only certain UNIX and UnixWare trademarks were identified as included assists [sic].

See why all SCO's cases about straight asset deals or complete buyouts don't apply, not to mention their arguments about what would be "logical"? This was a complex and very unique deal. That's why it's hard to understand if you read it without the background from those who actually drafted it and know why it was worded as it was. There is no need to guess. Well. SCO has a need, but not one contemplated by the APA, I'd say. Note that Braham retained all his drafts to back up his description of what happened. And it all matches.

And also Ms. Amadia's, because she drafted Amendment 2, after Steve Sabbath tried to tell her that the copyrights should have transferred, and she kept drafts also:

13. As indicated on the first page of the signed Amendment No. 2, Amendment No. 2's revision of Section V of Schedule 1.1(b) was effective "as of the 16th day of October 1996." (Exhibit 2 at 1.) During the negotiations, Mr. Sabbath did not propose to me that Amendment No. 2's revision of Section V of Schedule 1.1(b) would be retroactively effective as of the date the Original APA was executed in September 1995.

14. Based on my personal involvement in the negotiations and drafting of Amendment No. 2, I am well-situated to describe the intent of Amendment No. 2. Amendment No. 2 was not intended to alter the Original APA's copyright ownership exclusion. Amendment No. 2 was not intended to transfer ownership of any UNIX or UnixWare copyrights owned by Novell. As I mentioned above, Amendment No. 2 affirmed that Santa Cruz had a license under the Original APA to use Novell's UNIX and UnixWare copyrighted works in its business.

So whatever Amendment 2 did, it certainly didn't transfer the copyrights as of the APA's signing in 1995, now, did it? So we can toss out any such arguments right there. Of course, the jury already tossed out all the arguments SCO here proposes, but it would like the judge to single handedly do what the jury deliberately did not.

And please note what the Court of Appeals said about Amendment A:

Moreover, while both parties attribute different meanings to the APA and Amendment No. 2, neither party argues that Amendment No. 2 was meant to substantively change the intent of the APA; both SCO and Novell agree that it merely clarified or affirmed the original intent of the transaction.
So if the copyrights were not to transfer originally, the Amendment can't alter that substantively, if we are to follow the Court of Appeals. Not that I think that's the wisest course, actually, but SCO is always arguing that it must be obeyed as unquestioningly as if it came down with Moses on stone tablets. I think the Court of Appeals was laboring under some inaccurate information, as set forth in this Groklaw article, as one example.]

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98. The testimony of the only other Novell witness on Amendment 2, James Tolonen, does not support a contrary result. Mr. Tolonen did not participate in the drafting or negotiation of the language, and while Mr. Tolonen expressed the view that he did not intend Amendment No. 2 to transfer copyrights, that absolutist view cannot be squared with the plain language of the Amendment. As noted, the Tenth Circuit stated: "Whatever the Amendment means, it refers to the ownership of copyrights, not to licenses." SCO, 578 F.3d at 1216.

[ Excuse me, but is the language of the Amendment now "plain"? If so, I believe the Court of Appeals would be wrong in declaring it ambiguous, and in that case, it would be improper to allow extrinsic evidence after all. I know. But I'm just pointing out that SCO uses whatever, logical or not, contradictory or not.]

99. Other provisions of the APA are consistent with SCO acquiring ownership of UNIX and UnixWare copyrights. The TLA entered into as part of the APA gives Novell a license-back to use the "Licensed Technology," and that "Licensed Technology" includes the UNIX and UnixWare source code. (Ex. 1 (APA) § 1.6, Schedule 1.1(a) Item I; Ex. 162 (TLA) § II.A.) The TLA thus unambiguously gives Novell a license-back to use the UNIX and UnixWare source code in Novell's own products (subject to certain limitations). Of course, if Novell had retained the UNIX and UnixWare copyrights, it would not have needed any license-back to use the UNIX and UnixWare source code in Novell's own products. (107:23-108:1 (Frankenberg); 847:4-7 (Madsen).) The evidence showed that Novell itself thinks that it is reasonable to read the TLA as inconsistent with a reading of the APA under which the UNIX and UnixWare copyrights were retained. (1965:4-1966:4 (LaSala).) The TLA also clearly identified SCO as the "owner" of the Licensed Technology. (Ex. 162 (TLA) § III.)

[The TLA doesn't alter the excluded assets list. It's not unusual for lawyers to be specific about what can and can't be used, even if it's redundant, because it makes it clear what doesn't ever need to be litigated. They think like that. So Novell wanted whatever SCO worked on going forward, Unix and UnixWare code included, which SCO was specifically going to be working on. And it wanted to be able to use the third party code.]

100. Novell suggests that the license-back was necessary because it would permit Novell to use in its products the technology in the "Merged Product" that SCO was to develop after the execution of the APA. But the TLA unambiguously gives Novell a license-back to much more than just the source code in the Merged Product; it gives Novell such a license for the existing UNIX and UnixWare source code itself. (Ex. 1 (APA) § 1.6, Schedule 1.1(a) Item I; Ex.

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162 (TLA) § II.A.) Where the APA expressly refers to the TLA and vice versa and the two agreements are obviously related agreements (Ex. 1 (APA) § 1.6; Ex. 162 (TLA) § I), it would be unreasonable to read the amended APA in a manner that renders it inconsistent with the unambiguous terms of the TLA.

[Keep in mind that the TLA was about more than code. It included licenses for "related documentation and support". Novell didn't want to be hassled over continued support for customers. The documentation absolutely was transferred to SCO under the APA, so they would need permission to use it freely. That's why the TLA specifically states it would be free to "use, reproduce and modify, and authorize its customers to use, reproduce and modify, Licensed Technology (including related documentation) in their respective internal business operation".]

101. Novell has also previously argued that there is no inconsistency between the exclusion of copyrights and the TLA because where the copyrights are excluded, SCO could not have licensed the copyrights back to Novell. This argument misses the point. The relevant question is whether Novell would have needed any license to the UNIX and UnixWare source code -- which indisputably had transferred to SCO under the APA -- if Novell had retained the copyrights to that code. The clear answer is no.

[Novell had sold the source code, but retained the copyrights. Why, then, wouldn't it need a license to use the code, even if it held the copyrights? I don't see SCO's point.]

102. The Testimony of the Negotiators and Principals Regarding the APA. The preponderance of testimony of the negotiators and principals to the transaction on both Novell's and SCO's sides of the transaction shows that Novell intended to transfer the UNIX and UnixWare copyrights.

[Only if you include all the witnesses SCO presented who were not there or were not actually directly involved in drafting any of the documents. If you subtract all the witnesses who own stock in SCO and would benefit from SCO getting the copyrights therefore, the list gets even smaller.]

103. A total of ten witnesses -- including multiple witnesses from each of the SCO and Novell sides of the transaction -- testified to their intent and understanding that Novell had sold and SCO had acquired the UNIX and UnixWare copyrights under the APA:

104. Novell President and CEO Robert Frankenberg. Mr. Frankenberg testified that it was the intent at the beginning of the transaction, throughout the transaction, and when the transaction closed, to sell the copyrights in UNIX and UnixWare and to exclude the NetWare copyrights because Novell was retaining the Netware business. (176:9-177:3; (2558:17-2559:7.) Mr. Frankenberg testified that no other member of his board of directors had the authority to negotiate a deal apart from what the executives had negotiated across the table from SCO.

[Actually, our reporter at the trial indicated that Frankenberg admitted that only the board of directors as a group could authorize copyright transfer and he admited that the minutes from the meeting say that copyrights were not to transfer. From our report:

The BOD minutes contain a motion to approve the APA. It passed unanimously. The minutes said that Novell retained the copyrights. Frankenberg admits that that's what the minutes say. He admits that the minutes are accurate.

Frankenberg did not read all of the APA when he signed it. He relied on the lawyers and his negotiating team.

]

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(178:4-11.) And Mr. Frankenberg testified that Messrs. Tolonen, Bradford, and Braham had no authority to decide whether copyrights would be part of the deal, as the deal had already been negotiated with SCO before those individuals even began their involvement in the process of documenting the deal. (2541:18-2542:4.) Confirming the obvious, Novell witness Jack Messman, a member of Novell's board of directors at the time and subsequently Novell's CEO, acknowledged that Mr. Frankenberg "was in a position to know what the deal was." (2298:3-7.)

[And Frankenberg admitted the board minutes excluding the copyrights were accurate. So there you are. He also admitted this:

Novell and Santa Cruz had nearly three months to review the APA. The result was Amendment #1, which didn't say anything about copyrights. It was signed by Duff Thompson, and presumably reviewed by him.

The APA said that it was selling "certain assets" which comprised the business. Frankenberg admits that he understood that the assets being sold were listed in schedule 1.1a, and the exclusions were listed in 1.1b.

]

105. Novell Senior Vice President Duff Thompson. Mr. Thompson testified that Novell told SCO that it was selling all of the UNIX and UnixWare business "lock, stock and barrel, the whole thing" including the copyrights. (230:15-231:13.) He further testified that he never asked the attorneys documenting the deal from Novell's end to change the deal so that the UNIX and UnixWare copyrights would be retained. (233:1-15.)

[What about the patents? The trademark that went to OpenGroup? And as we just saw, the language of the APA says "certain assets", which logically means "not all." The 1995 Operating Agreement [PDF] uses the same language:

The Parties have executed an Asset Purchase Agreement providing for the transfer of certain assets from Novell to SCO relating to the UNIX operating system as more specifically described therein....
Obviously it was *not* lock, stock and barrel, so there is no implication that copyrights had to be included, particularly when they are on the excluded list.

At the trial, it was brought out that Thompson has a financial interest in the outcome. From our reporter that day:

The cross-exam by Acker was great. Thompson has 110,000 shares of SCO stock and undescribed options. He headed up the litigation committee that made the decision to sue Novell and IBM. His partner (Dan Campbell) also sits on the board and was part of the deal to finance this litigation. (I suspect this was in reference to the deal that was approved by the bankruptcy court, but no specific reference to the bankruptcy was made). Thompson claimed to "know nothing about his partner's personal investments."

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

If you'd like to review Duff Thompson's deposition and declaration, they are here (PDF), exhibits 10 and 11.]

106. Novell Senior Director and Chief Negotiator Ed Chatlos. Mr. Chatlos testified that he participated in the face-to-face negotiations with SCO, including weekly travel from New Jersey to California for three months. (351:2-7.) He testified that "the deal with SCO was to include the copyrights" for UNIX and UnixWare and to exclude the copyrights for the Netware business that Novell was not selling, and that he understood Schedule 1.1(b)'s exclusion of copyrights to be referring to the NetWare copyrights. (352:5-17; 359:20-362:3.) He further testified that holding back the UNIX and UnixWare copyrights would have been inconsistent with the directives he was given from Mr. Thompson and with the directives and authority given to the lawyers who documented the deal. (354:16-355:5.) Mr. Chatlos testified that the deal he negotiated included the UNIX and UnixWare copyrights and that changing the deal to exclude the copyrights "would have been unethical." (354:16-355:5.)

[It did, originally, but then it turned out Santa Cruz lacked the money to do the deal, and so copyrights were excluded. Mr. Chatlos was not there for that part, as Novell pointed out in Motion in Limine 19 [PDF]:

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

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107. Novell Vice President of Strategic Relations Ty Mattingly. Mr. Mattingly testified that during the months of negotiations that he attended, no one from Novell ever suggested that Novell was retaining the UNIX and UnixWare copyrights and that the copyrights the parties intended to withhold were the Netware copyrights for the Netware business that Novell was retaining. (677:5-13; 690:18-22.)

[Well, Mattingly was at the board of directors meeting the minutes for which said copyrights would be excluded. Did he fall asleep? Or forget after all these years? That's one very good reason copyrights transfers have to be memorialized by a writing, by the way. Mattingly's testimony was essentially that the business folks, like himself, were the ones that really knew what the deal was about; the lawyers were just wordsmiths, and afte they told the lawyers what to write, he left. He also said the legal work was "sloppy" on both sides. Well, Tor Braham still had all his drafts, which speaks to thoroughness, to me, and both sides had three months to review, and Amendment 1 did change some things, but not the copyright exclusion, so if the business folks were so smart and effective, why didn't they catch it? Because they didn't. Or is it perhaps more logical that this close friend of SCO General Counsel Ryan Tibbitts, since college days, tried to help his friend? Think that sort of thing never happens? The reason I even ask is because one thing that happened during Mattingly's trial testimony was that it came out that he had not obeyed the judge's instructions not to speak to anyone about the case. Our reporter's notes:

Mattingly states he was involved in the input stage of the MOU phase.

OKAY big moment here, Mattingly makes a statement about Chatlos’ testimony and says something like Brennan should know from Chatlos’ already speaking about it. Brennan starts immediately asking, “What do you mean?” “How would you know about that?” It turns into a very tense moment in court when Brennan started pressing Mattingly about how he knew about Chatlos being a witness. Nobody in the room moved. Mattingly finally said he talked with Lee Johnson about it and that Ed Chatlos was on the stand before him.

Mattingly’s replies shorten quite a bit at this point.

Sadly, in life, it's been my experience that if a person will go over one line, he might be more likely to step over the next one too. Hasn't that been your experience too?]

108. Santa Cruz President and CEO Alok Mohan. Mr. Mohan testified that the deal "absolutely" included the UNIX copyrights as part of the business that SCO was acquiring. (461:19-462:9.) Like Novell's own witnesses, he testified that SCO's understanding was that it was acquiring the business "lock, stock, and barrel." (464:4-19.) He testified that no one from Novell ever said to him prior to the execution of the APA that Novell intended to retain any UNIX or UnixWare copyrights. (467:24-468:6.)

[Since we know that isn't so, since the patents, for one thing, didn't transfer, perhaps that is why Santa Cruz didn't do so well as a company. At trial, Mohan testified via his deposition to his lack of attention to details, as a matter of fact:

Mohan -- was Santa Cruz Organization's CEO at time. Engaged in 'high level' discussions, not details; reviewed did not author writings; had some discussions with Duff Thompson and Frankenberg. He looked at APA but did not participate in strategy; he signed APA. He reviewed details – Yes, he read it. Did he read it cover to cover? Yes. He believed it complete – nothing jumped out as unclear....

Exhibit 180 allowed, 18 Apr 1996: Frankenberg to Mohan; Novell did not grant IBM additional rights, no right to sub-license was granted, except to make small changes or corrections. Asked if both sides were well represented, he responded affirmitively. Asked if it was an arms-length transaction, he said Yes. Did either side have an unfair advantage, he thought they were equal.

Asked if the contract was the most important thing, he said Yes. In a dispute, he was asked, should you look to the contract? Yes; even if the disput is many years down the road? Yes. APA gave right to business. Asked if a contractural provision (should prevail), he didn't answer directly.

The Novell/IBM sentence likely is referring to the 3-way deal, Amendment X in 1996, and if the exhibit says Novell didn't give IBM additional rights, it indicates Novell still controlled certain rights, n'est-ce pas? And in fact if you read the opening section of Amendment X, it says, "In an agreement between Novell and SCO dated September 19, 1995 (the "Asset Purchase Agreement"), SCO purchased, and Novell retained, certain rights with respect to the Related Agreements." So much for all the SCO Group's witnesses swearing up and down that they thought Santa Cruz got the whole enchilada, lock, stock and barrel. It goes on to say, "Notwithstanding the above, the irrevocable nature of the above rights will in no way be construed to limit Novell's or SCO's rights to enjoin or otherwise prohibit IBM from violating any and all of Novell's or SCO's rights under this Amendment No. X, the Related Agreements, or under general patent, copyright, or trademark law." So both Novell and SCO had rights with regard to the IBM contract. Incidentally, that tells me, simple soul that I am, that if SCO "needs" the copyrights now to sue IBM, it already has what it needs without them. Both Steve Sabbath and James Tolonen signed Amendment X, so they ought to know its contents. Here's what else our reporter noted from Mohan's deposition played at trial:
Two questions asked of him in the video at the end.

Did anyone from Novell tell you UNIX copyrights would transfer?

Did anyone from SCO ask for the copyrights?

A: “I would not know that.”

Mohan's deposition is here (PDF).]

109. Santa Cruz Vice President of Business Development Jim Wilt. Mr. Wilt testified that it was his "intent on behalf of SCO to acquire, through the APA, Novell's entire UNIX and UnixWare business, including the UNIX and UnixWare source code and all associated copyrights" and that he believed that Novell's intent was to sell those assets and rights as well. (445:21-446:5.) He further testified that if Novell had ever said that it was retaining the UNIX and UnixWare copyrights that would have been "extremely remarkable and probably would have ended the negotiations." (443:7-19.)

[Here's what our reporter says he told the court via his video deposition:

Had limited discussions with Caldera/SCO. ... He just assumed that copyrights transferred, As one would assume if you “go out the door, your head goes with you.” Didn't recall specifically saying copyrights were included or not. He indicated that they wouldn't buy the 'business' if copyrights did not transfer. Discussed that they couldn't afford outright purchase – and the royalty payments went to purchase price, they retained 5% to cover their collection costs.
Find it convincing to hear an executive tell you he merely assumed? That he doesn't recall anyone saying yea or nay about copyrights? Wilt's deposition is exhibit 19 in this collection (PDF).]

110. Santa Cruz Assistant Negotiator Kimberlee Madsen. Ms. Madsen testified that it was SCO's intent to acquire the UNIX and UnixWare copyrights as part of the business and that it was her understanding and belief after the transaction was completed that SCO had acquired those copyrights. (783:3-784:4; 788:24-789:5; 814:24;815:3.) She also testified that Mr. Seabrook's report to the SCO board of directors never suggested that Novell had retained any

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UNIX or UnixWare copyrights. (788:5-8;788:20-23.) She further testified that no one from Novell had ever said that Novell would retain any UNIX or UnixWare copyrights. (783:3- 784:4.) Ms. Madsen further testified that during the 1996 dispute with Novell concerning its conduct with respect to IBM, Novell never asserted that it had retained ownership of the UNIX and UnixWare copyrights. (802:3-7.)

[Now she's "Assistant Negotiator", I see. Lots of titles for a paralegal. I'm one, myself, and so I know that no matter how brilliant a paralegal is, or how much of the lawyers' jobs she does, she doens't get anointed with new titles but remains a paralegal, unless there is some formal process whereby her job title does actually change.

On the stand, Madsen was asked if copyrights were transferred under the APA:

Were copyrights included?

Yes, they were....

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

However, in her deposition, she clearly stated that she never heard anyone mention copyrights one way or the other. And if you read the full cross exam by Michael Jacobs, that's not all she didn't know. She admitted on the stand she had "no recollection" of the excluded assets schedule of the APA. The Assistant Negotiator didn't know about such a significant part of the agreement? And she testified about the three-month time period during which everyone reviewed the APA, leading to Amendment 1, which didn't at all change the wording of the excluded assets. Asked about the license back to Novell, she said it was so they could use the projected merged product:
Mr. Jacobs brought attention to the APA provision granting a license back to Novell. Rights to use the derivative/merged product? Yes.
I think this cross examination by Jacobs had a lot to do with the jury's ultimate decision, actually.]

111. Novell In-House Counsel Burt Levine. Mr. Levine was involved in review of the very asset schedules that originally included language excluding copyrights. Mr. Levine testified that that language did not reflect Novell's intent and that, under the APA, SCO "obtained a full right, title and interest in ownership" in UNIX and UnixWare that "would automatically convey the copyright along with the rest of the business assets." (522:3-14.) Indeed, Mr. Levine characterized the idea that Novell would sell the business while withholding the copyrights as not being "ethical." (521:17-522:2.)

[If both parties agree, and the buyer hasn't got the money to pay for the copyrights, why would it be unethical? Our reporter at the trial wrote this about Levine's testimony, via deposition:

The next deposition was the most interesting. It was Burt Levine. Started at USL in 1991 and he was a lawyer. He was involved with drafting the APA. When Novell bought USL he transferred to Novell. Then after a few months of the sale to Santa Cruz he transferred to Santa Cruz. He again testified that the intent was to convey everything. Intent was used many times.

Novell asked what specifically in the agreement points to the conveyance. Levine can't point to anything specific. Novell asked him about the Excluded Assetts. It turns out that the initial draft had some mark-ups that he had faxed to Novell. Something related to the Excluded Assetts. Levine asked what excluded assets means. There were 8 items on excluded list. IP specifically excluded. I don't remember all the details, but the point was that he took out some language after drafts, but the excluded language remained. So he had a chance to reflect on the language and didn't change it, so it adds weight to Novell's argument.

So, again, there was a chance to notice that copyrights were excluded, but while he altered other language, he didn't change that exclusion language. So many of these witnesses who claimed the intent was to transfer the copyrights read and even discussed and rewrote language in the APA and not one of them noticed that the contract said copyrights would not transfer? It beggers belief. Tor Braham in his deposition mentions at least four at Novell who were involved:

16. To my knowledge and based on my review of the Wilson Sonsini files, during the APA negotiations at least four representatives of Novell reviewed and approved the Excluded Assets provision that excluded copyrights from the asset transfer:

  1. David Bradford reviewed and approved the exclusion.

  2. I reviewed and approved Schedules 1.1(a) and 1.1(b), including the copyright exclusion.

  3. Aaron Alter reviewed and approved Schedules 1.1(a) and 1.1(b). In fact, Aaron specifically edited their Intellectual Property provisions, confirming that only certain UNIX and UnixWare trademarks would be transferred to Santa Cruz and leaving the copyright exclusion intact. Attached hereto as Exhibit 8 is a true and correct copy of Aaron's marked-up Schedule 1.1(a) and 1.1(b) from my Wilson Sonsini files. Aaron also marked up a term sheet contained in the Wilson Sonsini files, a true and correct copy of which I attach hereto as Exhibit 9. Notably, next to a Section entitled "C. Intellectual Property" — which was followed by a line item with the phrase "Copyrights, trademarks...", Aaron made the handwritten annotation "already excluded." (See Exhibit 9 at NOV 39798.)

  4. Burt Levine of Novell also reviewed and edited the Intellectual Property provisions in Schedules 1.1(a) and 1.1(b). He too left the copyright exclusion intact. Attached hereto as Exhibit 10 is a true and correct copy of Burt's marked-up Schedule 1.1(a) and 1.1(b) from the Wilson Sonsini files.

6

17. During the negotiations, the Wilson team and I transmitted drafts of Schedule 1.1(a) and Schedule 1.1(b), containing the exclusion of copyrights, to Santa Cruz representatives. I attach Exhibit 4 to this Declaration as an example; we sent it to Santa Cruz's counsel on September 18, 1995. The Schedules attached to Exhibit 4 were redlined to show changes to drafts we had previously given to Santa Cruz. The draft of Schedule 1.1(b) in Exhibit 4, which excluded "[a]ll copyrights and trademarks, except for the trademarks UNIX and UnixWare," did not contain any redlining — thereby indicating that the exclusion of "all copyrights" had already appeared in a previously exchanged draft with Santa Cruz. (See Exhibit 4 at NOV 40413.) The draft of Schedule 1.1(a) in Exhibit 4 identified just one type of "Intellectual Property" to be included in the transfer: "Trademarks UNIX and UnixWare as and to the extent held by Seller (excluding any compensation Seller receives with respect of the license granted to X/Open regarding the UNIX trademark)." (Id. at Nov 40410.) The redlining indicates that the previously exchanged draft had referred to "Trademarks UNIX and UnixWare as held by Seller" as the sole included IP Asset; it did not refer to "copyrights" or "patents." (Id.)

18. In its final form, the APA included a Schedule 1.1(a) list of Assets. This schedule specifically identified the "Intellectual Property" to be included in the transferred assets; it only identified certain UNIX and UnixWare trademarks. (See Exhibit 2 at 059-060.) The APA also contained an "Excluded Assets" list in Schedule 1.1(b). (Id. at 061-062.) This list specifically called out that certain "Intellectual Property" was excluded from the asset transfer. In particular, the Schedule excluded "[a]ll copyrights and trademarks, except for the trademarks UNIX and UnixWare" and "all patents." (Id. at 062.)

19. The exclusion of copyrights and patents from the asset transfer is also confirmed through a provision I drafted in Section 1.1(a) of the APA. That section provides that Santa Cruz's purchase of "all of Seller's right, title and interest in and to the assets and properties of Seller relating to the Business ... identified on Schedule 1.1(a)" was subject to a specific set of exclusions:

Notwithstanding the foregoing, the Assets to be so purchased shall not include those assets (the "Excluded Assets") set forth on Schedule 1.1(b).
(Id. at 009.) As indicated in this provision, Schedule 1.1(b) was intended to operate as an explicit carve-out of any rights otherwise listed in Schedule 1.1(a).
Braham also mentions that Levine was not involved in the APA negotiations between Novell and Santa Cruz, and other than sending notes to the Novell team had no further involvement.

You can read Levine's Deposition as Exhibit 14 in this collection (PDF). On page 33 of the PDF you'll find him talking about his fax to Aaron Alter the day before the APA was executed, with his markup of Schedule 1.1(a). He marked up the contract, but insists that the intent of the parties was the opposite of what the excluded assets language says, but he didn't mark up that language as a problem.]

112. SCO General Counsel Steve Sabbath. Mr. Sabbath testified that "the intent was clearly to me that all the copyrights for UNIX and UnixWare were to be transferred to Santa Cruz Operation" and that the Excluded Assets Schedule was intended to exclude the Netware copyrights. (900:23-901:9.) Mr. Sabbath further testified that when SCO "bought the UNIX business from Novell, all copyrights pertaining to that business came with the product. Amendment Number 2 was meant to confirm that." (911:6-14.)

113. Santa Cruz Founder and Vice President Doug Michels. Mr. Michels testified that "of course" SCO bought the UNIX and UnixWare copyrights and that, had any of his executives suggested otherwise, he would have "laughed them out of [his] office." (501:1-18.)

[Michels' deposition is here (PDF), exhibits 16 and 17 in the group.]

114. While Novell has pointed to the financial interest certain of these witnesses have in SCO, their testimony is consistent with the fact that Novell executed Amendment No. 2 to

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eliminate the copyright exclusion, with the testimony of other witnesses such as Mr. Frankenberg and Ms. Madsen who have no financial interest in the matter, and with the parties' actions before this dispute arose.

115. Novell's Dealings with SCO. Even viewed most favorably to Novell, the evidence at trial showed a division within Novell's ranks as to whether the copyrights were intended to transfer, but united belief by SCO principals and negotiators that the copyrights were to be included. Given SCO's understanding, and the importance of copyright ownership -- a point no witness disputed -- it is incomprehensible that exclusion of the copyrights reflected an intentional and knowing agreement of both parties, when there was no express negotiation of the point. There would have been no need for such discussion up to the last week before the APA was signed, as SCO and Novell business negotiators agree that they contemplated that the copyrights were being sold. During the week before the APA was signed, the language in the schedule excluding the copyrights was introduced by Novell's outside counsel, Tor Braham, acting perhaps with the approval of Novell's general counsel, David Bradford.

116. Novell spent a good deal of time on the issue, but any internal decisions that the Novell board of directors made did not constitute negotiations of the agreement between the parties, and, of course, the language at issue in the board's resolution excluding copyrights (taken directly from the old language in the APA) was replaced by Amendment No. 2. The copyright exclusion was added during the last week before the signing of the APA, and was not directly negotiated with Santa Cruz but rather simply added to a list of excluded assets, which itself was added to the APA only during the last week before it was signed. (2401:25-2402:15 (Braham); 2403:6-10 (Braham).) At the board level, moreover, the only term sheet in evidence provided to the directors did not even make the directors aware of the fact that copyrights were

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being retained -- and to the contrary suggested that they were being transferred by identifying other assets (like patents) that were being retained. (Ex. 754; 678:3-681:18 (Mattingly); 2450:6- 2451:1 (Bradford); 2470:10-2471:1 (Bradford).) In addition, there was no clear evidence that any member of the board (other than Mr. Frankenberg) had actually read through the entire APA to even see the exclusion of copyrights in the Excluded Assets Schedule. The minutes did not reflect that there was any actual discussion of any retention of copyrights during the corresponding meeting of the Santa Cruz Board of Directors. (Ex. 29; 784:23-788:23 (Madsen).) Mr. Frankenberg further testified that if an exclusion of the UNIX copyrights had been discussed at the Novell board meeting, he would have remembered that because the exclusion would be "ludicrous" and that was not the intent of the deal. (2543:12-2544:6.)

117. Mr. Bradford's testimony was highly equivocal. He admitted that he did not have a recollection of what had occurred independent of his review of selected documents he was provided in meeting with Novell's counsel. (2434:24-2435:15; 2438:5-16; 2441:7-10; 2444:12- 21; 2446:22-2447:12.) Mr. Bradford further acknowledged that his review of documents did not include obviously relevant documents such as the TLA and Amendment No. 2. (2461:12-24.)

118. In contrast to the meeting of the minds between the business negotiators for both sides, there was no such evidence with respect to the conduct of Novell's outside counsel. It does not appear that Novell ever expressly drew SCO's attention to the copyright exclusion language that had been added in the schedule of excluded assets, which would explain why there was no forcible pushback from SCO on the point. Novell contends that the Brobeck law firm knew of and accepted the language of the copyright exclusion, but the evidence did not end up supporting that argument. Mr. Braham testified that he could recall a discussion about "the entire schedule of excluded assets," but that he did not actually know that he and any Brobeck

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lawyer ever discussed that exclusion. (2403:6-25.) He acknowledged that he "thought the other side was talking about the copyright exclusion," but that he does not recall the Brobeck attorney "mentioning that specifically." (2428:23-2429:4.) 9

119. That is also consistent with the testimony of Ms. Amadia. Ms. Amadia testified that Novell executed Amendment No. 2 because Mr. Sabbath requested that Novell amend Schedule 1.1(b) of the APA to correct an unintended "clerical error" that could be read to exclude all copyrights from the sale. 10 (2140:2-3; 2184:25-2185:1; 2140:20.) Ms. Amadia further testified that she understood that Mr. Sabbath's understanding was that "the purpose of the Amendment was to clarify that the UNIX and UnixWare copyrights had transferred." (2169:17-2179:1.) She further testified with respect to the Amendment that "it's reasonable to interpret this language as saying that among the copyrights included in the transfer are those that SCO needs to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies." (2160:25-2161:6; 2160:8-15.)

120. Indeed, Ms. Amadia recognized the incongruity between her agreement to amend the schedule of excluded assets and her intent that the original exclusion of all copyrights not change at all, claiming that she nevertheless agreed to the language because "if you're a

40

transactional attorney and you understand the way these transactions work in the context of settling a threatened litigation, sometimes you're willing to live with a little bit of ambiguity in order to get a deal done." (2174:6-24.) Ms. Amadia testified with respect to Mr. Sabbath that she agreed "to work within the confines of his initial drafts" -- which unambiguously clarified that the UNIX and UnixWare copyrights transferred -- because "knowing Steve Sabbath and who he was and what his reaction was going to be to a whole modification of his proposed language, that was not going to bring the deal forward and get the parties on to do their businesses, which is where we all wanted to be." (2174:6-24.)

121. Mr. Tolonen, like Ms. Amadia, relies substantially on the fact that the language in the executed version of Paragraph A of Amendment No. 2 differs from the draft language that Mr. Sabbath sent to Ms. Amadia. (2032:25-2033:10.) The difference in language does not support the weight Novell seeks to give it, and in fact counsels in favor of SCO's interpretation of Amendment No. 2. The evidence is that Mr. Sabbath believed that Amendment No. 2, which he signed, met his objective of clarifying the clerical error in the APA.

122. The draft that Mr. Sabbath sent to Ms. Amadia would have replaced Item V.A of Schedule 1.1(b) with the following language: "All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of this Amendment No. 2, which pertain to the UNIX and UnixWare technologies. However, in no event shall Novell be liable to SCO for any claim brought by any third party pertaining to said copyrights and trademarks." (Ex. T34.) The first sentence thus conveyed that all of the copyrights and trademarks owned by Novell as of Amendment No. 2 pertain to the UNIX and UnixWare technologies, and that Novell has transferred all of its copyrights and trademarks to SCO. (See also 2170:11-2171:5 (Amadia); 2172:10-15 (Amadia); 2173:3-10 (Amadia).)

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123. Yet neither of those two propositions reflected either Ms. Amadia's or Mr. Sabbath's intent. (903:3-9 (Sabbath); 2170:21-2171:14 (Amadia); 2172:3-9 (Amadia).) Novell therefore had good reason to propose alternative language for reasons other than any concern over what the draft language said about the transfer of UNIX and UnixWare copyrights. In addition, the last sentence of Amendment No. 2 also reflects that transfer of at least certain copyrights was contemplated. That sentence would have no meaning if no copyrights would transfer. Ms. Amadia also admitted (as noted) that in referring to the "trademarks owned by Novell as of the date of the Agreement required for SCO to exercise its rights with respect to the acquisition of the UNIX and UnixWare technologies," the first sentence of Paragraph A refers to the UNIX and UnixWare trademarks that Novell intended to be transferred to SCO. Amendment No. 2 does not distinguish between trademarks and copyrights.

124. Ms. Amadia understood the intent Mr. Sabbath had in seeking Amendment No. 2, and she did not know if Mr. Sabbath accepted her intent as to how Amendment No. 2, as worded, would only affirm a license for SCO (a view that even Ms. Amadia ultimately recanted on the stand). (2126:15-2127:12.) Ms. Amadia testified only that "he did sign it." (2127:9-12.)

125. The Court finds that these circumstances are within what had been referred to as "the forthright negotiator rule" of contract interpretation, which the Tenth Circuit explained in Flying J Inc. v. Comdata Network, Inc.:

Where the parties assign different meaning to a term, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made . . . (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.
405 F.3d 821, 837 (10th Cir. 2005) (citing Restatement (Second) of Contracts § 201(2)).

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126. Under this rule and the preponderance of the evidence, Amendment No. 2 must be interpreted in accordance with the meaning attached by SCO (Mr. Sabbath), since Ms. Amadia knew or at least "had reason to know" that Mr. Sabbath intended the Amendment to be confirming that the UNIX and UnixWare copyrights were transferred to SCO, and knew that the language in Amendment No. 2 supported his intent.

127. Novell also contended at trial that if Amendment No. 2 had transferred copyright ownership, that would have required the approval of the Novell board of directors. That argument just begs the question. Where the vast weight of the evidence showed that the parties had intended to transfer the copyrights in the first place, and where the language and extrinsic evidence of Amendment No. 2 show that it sought to clarify the parties' intent under the APA, there would have been no need for board approval.

128. The Parties' Course of Performance. The parties' course of performance is further compelling grounds for concluding that the parties intended for SCO to acquire the UNIX and UnixWare copyrights. The Tenth Circuit held that such evidence is the "best evidence" of the parties' intent. SCO, 578 F.3d at 1214. This Court agrees with that proposition.

129. This evidence, much of which is found in Novell documents, was created after the APA was signed but before the deal was closed and the first amendment to the APA was executed, after Amendment No. 1 but before Amendment No. 2, and after Amendment No. 2. The evidence at trial reflected the following facts of the parties' (and even third parties') practical construction of the amended APA.

130. The official press release that SCO issued on September 20, 1995, quoting Mr. Frankenberg states: "According to the terms of the agreement, SCO will acquire Novell's UnixWare business and UNIX intellectual property." (Ex. 526; 110:22-111:23.) Novell

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presented no evidence that it ever sought to correct the press release. Novell tried to suggest at trial that "intellectual property" might refer just to source code, but there was no evidence to support that proposition, it is contrary to the ordinary meaning of the term, and one of Novell's own chief witnesses had to acknowledge that the core "intellectual property" in software "typically" included the copyrights. (2144:13-16 (Amadia).) Mr. Frankenberg himself testified that, in approving that press release for Novell, he understood the term "intellectual property" to include the copyrights. (112:12-13.) Burt Levine, a long-time Novell IP lawyer who worked on this transaction, testified that ownership of UNIX and UnixWare "would automatically convey the copyright along with the rest of the business assets." (522:3-14.)

131. Similarly, SCO reported in its 1996 Form 10-K that it had "acquired certain assets related to the UNIX business including the core intellectual property from Novell." (Ex. 521 at 57; 804:1-5 (Madsen); 806:4-6 (Madsen).) Ms. Madsen, who reviewed and edited those reports for SCO, testified that her understanding was that "the core intellectual property of the UNIX business include[d] the UNIX and UnixWare copyrights." (803:12-15; 806:14-17.)

132. At Novell's direction, Novell's own engineers placed SCO copyright notices on the existing versions of UnixWare -- versions on which SCO had done no work at all. (1704:18-1705:7 (Maciaszek); 1723:14-20 (Maciaszek); 1727:19-25 (Nagle); 1733:9-25 (Nagle); Ex. 655.) Novell presented no evidence to explain how that would have made sense if SCO was to own the copyrights in only the UnixWare source code that SCO would add to those existing versions of UnixWare.

133. The participants in the transition of the UNIX and UnixWare business from Novell to SCO -- individuals who had not participated in the negotiations --understood SCO to have acquired the UNIX and UnixWare copyrights, including because no one ever suggested

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otherwise. (547:11-16 (Broderick); 1671:22-1672:18 (Maciaszek); 1676:17-20 (Maciaszek).) Novell presented no evidence that any such participants believed that Novell continued to own any such copyrights.

134. In fact the only testimony regarding the transition meetings reflected that Novell representatives told SCO that Novell had sold UNIX and that the copyright notices had to be changed. (548:10-17 (Broderick); 1704:18-1705:7 (Maciaszek); 1723:14-1728:21 (Nagle); 1732:12-1737:13 (Nagle); 1775:15-1776:16 (Nagle).) There was no evidence that Novell ever told anyone in these meetings that Novell was retaining any UNIX or UnixWare copyrights.

135. Novell's own engineers thus replaced the "Novell" copyright notice on the CD for the current version of the UnixWare product with a "Santa Cruz" copyright notice. (1725:1-1728:21 (Nagle); 1723:9-1736:17 (Nagle); Ex. 35.) In sorting through the materials in its former offices to determine what to keep and what not to keep, moreover, Novell gave to SCO the copyright registration certificates for UNIX and instructed its transition team to retain only those materials pertaining to the businesses it was retaining, Netware and Tuxedo. (610:5-612:4 (Broderick).)

136. In addition, in early 1996, Novell sent thousands of letters explaining that it had transferred to SCO Novell's "existing ownership interest in UNIX System-based offerings and related products," specifically identifying such products as including "All Releases of UNIX System V and prior Releases of the UNIX System" and "All UnixWare Releases up to and including UnixWare Release 2 (encompassing updates and upgrades to these releases as well." (586:4-15 (Broderick); Ex. 580.) In one such letter, which was co-signed by Novell and SCO, Novell further explained that "Novell's right as licensor under such agreements have been assigned to the Santa Cruz Operation" and that "the ownership of the UNIX operating system

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has been transferred from Novell, Inc. to the Santa Cruz Operation." (Ex. 751; 1682:23-1684:10 (Maciaszek); 1684:24-1685:7 (Maciaszek).)

137. Novell argued at trial that these letters did not need to tell customers about Novell's claimed copyright exclusion, but the evidence showed otherwise. In addition to the plain fact that Novell's assertion of ownership transfer would have been inaccurate if Novell had retained the copyrights, such an exclusion would have been relevant to customers. Mr. Maciaszek testified, for example, that among the "things a customer does need to know" is "who can enforce the copyrights in the contracts" that SCO now owned. (1710:8-22.)

138. In concert with these letters, Novell representatives visited OEM licensees, including in Europe, to reiterate the statements in those letters and personally inform the licensees that "SCO had acquired all ownership rights in the business," without "any limitation ever." (1678:4-16 (Maciaszek); 1680:22-1681:22 (Maciaszek); 1684:4-17 (Maciaszek).)

139. Novell, SCO, and IBM engaged in a protracted dispute and negotiation throughout 1996 regarding the scope of Novell's rights under the APA. SCO's evidence showed that Novell never contended that it owned the copyrights during that dispute, and Novell presented no evidence to the contrary. (802:3-7 (Madsen).)

140. During the dispute among the three corporations in 1996, even IBM took the position that SCO could protect itself through its ownership of the UNIX copyrights, asserting that "SCO is protected by copyright." (Ex. 123.). SCO's evidence showed that Novell never contended otherwise, and Novell presented no evidence to the contrary. (802:3-13 (Madsen).)

141. Just months after Amendment No. 2 was signed, SCO, through the law firm that represented SCO in connection with the Novell/SCO APA, took the position in formal litigation against Microsoft Corporation in the European Union that SCO had acquired the UNIX

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copyrights and was the UNIX copyright holder. (807:3-811:20 (Madsen); Ex. 127 §§ 3.4, 4.9.) Novell presented no evidence to call into question the nature of SCO's assertions in that filing.

142. In resolving the foregoing dispute, SCO entered into a settlement agreement with Microsoft in which SCO again stated that it had acquired the UNIX copyrights and was the UNIX copyright holder. (811:21-813:24 (Madsen).) The document states: "SCO has acquired AT&T's ownership of the copyright in the UNIX System V Operating System Program." (Ex. 199 Recital B.) Novell again presented no evidence to call into question the nature of SCO's assertion in that settlement.11

143. With respect to the elements of specific performance, the terms of the APA are sufficiently definite in this regard as well, because the terms of the amended APA and the extrinsic evidence demonstrate the parties' intent to transfer the UNIX and UnixWare copyrights; the consideration that SCO paid to Novell under the APA is, as noted above, adequate; and the specific performance that SCO seeks is identical (or nearly identical) to the terms of the amended APA and consistent with the overwhelming evidence of the parties' intent.

144. The Court therefore concludes that specific performance is appropriate to give effect to the parties' intent that the UNIX and UnixWare copyrights be transferred to SCO.

VI. NOVELL'S RIGHTS UNDER SECTION 4.16(b)

145. In its fourth counterclaim, Novell seeks a declaratory judgment that it is entitled, at its sole discretion, to direct SCO to waive its claims against IBM, and that it is entitled to

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waive on SCO's behalf SCO's claims against IBM. The Tenth Circuit reversed the district court's summary judgment ruling that Novell did have such rights, finding that the contract was ambiguous regarding the question of which licenses Novell retained waiver rights over, requiring the consideration of extrinsic evidence at trial. SCO, 578 F.3d at 1219-24.

146. The Tenth Circuit also remanded for trial SCO's alternative claim that even if Novell had the right to waive SCO's contract claims against IBM, Novell's exercise of its rights under Section 4.16(b) to waive SCO's claims against IBM violated the duty of good faith and fair dealing, and therefore are of no force and effect. Id. at 1224-25.

[Interestingly, here is what Novell wrote in its competing Findings:

The Tenth Circuit stated that if the term "SVRX License" was interpreted to mean the entire set of SVRX agreements, it might allow Novell to divest SCO of "its exclusive and undisputed ownership rights in the underlying source code of UNIX." The SCO Group, 578 F.3d at 1224. The Tenth Circuit remanded this issue for trial. Following the jury's verdict, it is now established that SCO does not have "exclusive and undisputed ownership rights" in UNIX. The jury found that the APA did not transfer the UNIX copyrights to SCO. Nor did SCO have exclusive rights to UNIX--it had the right to use the UNIX code in the context of developing UnixWare. Novell's exercise of its waiver rights under Section 4.16(b) did not divest SCO of its ability to use UNIX in developing UnixWare. While SCO did acquire ownership of the specific copies of UNIX source code in Novell's possession at the time of the APA, Novell's exercise of its waiver rights did not impact SCO's ownership of those source code copies. Accordingly, the broad (and proper) interpretation of "SVRX License" under Section 4.16 does not divest SCO of any ownership rights it acquired under the APA.
]

147. Novell did not have the right to waive SCO's contract claims against IBM. Even if Novell had the authority to waive such rights, it was required to comply with the covenant of good faith and fair dealing in doing so, and on the evidence presented, Novell's waiver actions breached those obligations and are therefore ineffective.

[How can they argue that Novell did not have the right to waive? The APA specifically says this, in 4.16:

(b) Buyer shall not, and shall not have the authority to, amend, modify or waive any right under or assign any SVRX License without the prior written consent of Seller. In addition, at Seller's sole discretion and direction, Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by Seller. In the event that Buyer shall fail to take any such action concerning the SVRX Licenses as required herein, Seller shall be authorized, and hereby is granted, the rights to take any action on Buyer's own behalf.
I guess that is why SCO goes on to say, even if they did have the right.... Because if the words don't mean what Novell says they mean, what *do* they mean? They are not just words on paper. The parties intended the Novell can waive something, sometimes, so when? How? In essence, SCO's real argument is that the contract was not fair, even if they did sign it.]

A. SCO's Claims Against IBM.

148. In 2003, SCO asserted claims for breach of contract against IBM in litigation pending in this Court (Campbell, J.). In those claims, SCO alleges that IBM breached Software and Sublicensing Agreements to which IBM and Sequent (a company that IBM acquired in the late 1990s) are parties by distributing protected UNIX source code and other confidential information to Linux, a competing operating system. (See, e.g., Ex. J16.) Based on these violations, as shown below, SCO also sought to terminate IBM's rights under the Software and Sublicensing Agreements.

[But Darl's brother Kevin McBride admitted in court that there are no trade secrets any more in Unix, only in UnixWare, and both IBM and Sequent licensed UNIX, not UnixWare, and if there are no secrets any more, the contract states that the confidentiality requirement is no more.]

149. SCO contended that IBM was obligated to keep confidential the source code and certain other technology in the UNIX-derived flavor that IBM had developed, called AIX, based on the source code that IBM had licensed. SCO explained to Novell, for example, that "IBM is transferring the UNIX code, derivative works and methods for use in Linux in violation of the

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Software Agreement." (Ex. J16 at 3.) SCO took the view that IBM's disclosure of such technology in connection with the development of Linux was a breach of its Software Agreement and that IBM's conduct was "devastating" to SCO's UnixWare business, which competed with Linux. (1813:18-1814:8 (Tibbitts).) SCO took the same view with respect to IBM's disclosure of technology from the UNIX flavor that Sequent had developed, and which IBM controlled after its acquisition of Sequent. (1821:5-1822:1 (Tibbitts).)

[Wait a sec. SCO, as Caldera, was a Linux company. OldSCO was also promoting Linux. So where is the harm to either?]

150. In a series of steps invoking Section 4.16(b) of the APA, Novell directed SCO to waive those claims for breach of contract, and to rescind the termination of IBM's rights. Following SCO's refusal to do so, Novell purported to waive those rights on behalf of SCO.

151. In a letter dated June 9, 2003, Novell directed "SCO to waive any purported right SCO may claim to terminate IBM's SVRX License enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM." (Ex. 675 at 1.) Novell also directed SCO "to take this action by noon, MDT, June 12, 2003." (Id.)

152. In a letter dated June 12, 2003, noting that "SCO has failed to take the action directed by Novell" in its June 9 letter, Novell purported to waive "on behalf of" SCO and "pursuant to Section 4.16(b)" of the APA, "any purported right SCO may claim to terminate IBM's SVRX License enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM." (Id. at 1-2.)

153. In a letter dated October 7, 2003, Novell again invoked Section 4.16(b) and directed "SCO to waive any purported right SCO may claim to require IBM to treat IBM Code itself as subject to the confidentiality obligations or use restrictions of the Agreements." (Ex.

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243 at 3.) Novell directed SCO "to take this action by noon, MST, on October 10, 2003, and to notify Novell that it has done so by that time." (Id.)

154. In a letter dated October 10, 2003, again noting that "SCO has failed to take the action directed by Novell," Novell again purported to waive, "on behalf of" SCO and "pursuant to Section 4.16(b)" of the APA, "any purported right SCO may claim to require IBM to treat IBM Code, that is code developed by IBM, or licensed by IBM from a third party, which IBM incorporated in AIX but which itself does not contain proprietary UNIX code supplied by AT&T under the license agreements between AT&T and IBM, itself as subject to the confidentiality obligations or use restrictions of the Agreements." (Ex. 691 at 2.)

155. In 2004, Novell similarly invoked its Section 4.16(b) rights to direct SCO to waive, and waive on SCO's behalf, SCO's rights under Sequent's Software and Sublicensing Agreements. In a letter dated February 6, 2004, Novell directed "SCO to waive any purported right SCO may claim to require Sequent (or IBM as its successor) to treat Sequent Code as subject to the confidentiality obligations or use restrictions of Sequent's SVRX license." (Ex. 108 at 2.) Novell directed SCO "to take these actions by noon, MDT, February 11, 2004, and to notify Novell that it has done so by that time." (Id.)

156. In a letter dated February 11, 2004, noting again that "SCO has failed to take the actions directed by Novell," Novell again purported to waive "on behalf of" SCO and "pursuant to Section 4.16(b)" of the APA, "any purported right SCO may claim to require Sequent (or IBM as its successor) to treat Sequent Code as subject to the confidentiality obligations or use restrictions of Sequent's SVRX license." (Ex. 500 at 2.)

157. After Novell had attempted to exercise these purported waiver rights on IBM's behalf, it was announced that IBM was "investing" $50 million in Novell. At trial, Novell's

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witnesses contradicted one another regarding IBM's role in influencing Novell to purport to waive SCO's claims. Christopher Stone, Novell's Vice Chairman at the time of the waivers, testified that IBM did not request Novell to assert the waivers "at all," and agreed that "no one from IBM had any conversation with anyone from Novell at all prior to the exercise of that waiver," because, as Mr. Stone put it, "We acted on our own. No input from IBM at all." (1611:18-23.) But when asked whether IBM counsel David Marriott had asked Novell to waive SCO's rights against IBM, Joseph LaSala, who was Novell General Counsel at that time, responded unequivocally: "Yes. He asked us to take -- to assert our rights to waive all claims, yes, he did." (1937:2-6.) Mr. LaSala then confirmed that Novell "directed SCO to waive the termination of the IBM license," after Mr. Marriott asked Novell to "waive all of SCO's claims," impressing upon Novell that "the matter was urgent." (1947:11-1948:15.) The Court need not make a determination regarding what role, if any, IBM's investment of $50 million in Novell had; it is clear from the admissions of Mr. LaSala and the documentary evidence (Ex. 530; 1944:19-1945:23 (LaSala)) that Novell's waiver steps were taken at the express request of IBM.

[Aside from not being contradictory evidence, in that lawyers do talk to each other without necessarily telling each and every executive in the company what they said to one another, it actually is reassuring to finally see a couple of witnesses who are not singing exactly the same song. It is how honesty looks. It's when all the witnesses say exactly the same thing you need to worry. As for the investment, Novell has said it was at their suggestion, in that they were already moving to Linux. It's why, if you recall, Novell immediately said no to Darl and Yarro's requests for Novell to give them the copyrights and/or to join in the attacks on Linux. Novell, prior to SCO suing anybody, was already determined to move to Linux.]

158. SCO refused to accede to Novell's requests on the grounds that they were inconsistent with SCO's rights under the APA. In a letter dated June 11, 2003, SCO responded to Novell's efforts to exercise its Section 4.16(b) rights by waiving SCO's claims and rights under the Software and Sublicensing Agreements with IBM. (Ex. J16.) Quoting the Assets Schedule of the APA, SCO pointed out that the APA transferred to SCO, "All rights and ownership of UNIX and UnixWare," all right, title, and interest to all "Software and Sublicensing Agreements," and "all claims against any parties relating to any right or asset included in the Business," among other assets and properties. (Id. at 1-2.)

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159. SCO also explained that Amendment No. 2 had clarified Section 4.16(b) by making clear that "Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the Agreement," particularly in the context of a licensee (such as IBM) who had previously obtained a buy-out of its SVRX royalty obligations. (Id. at 1.)

[Isn't this the exact argument the Court of Appeals said wouldn't fly, in the Sun context?]

160. In addition, SCO underscored the effect Novell's alleged waiver would have on SCO's UNIX technology and business. SCO noted that Novell was attempting to waive SCO's "claims against IBM under the AT&T/IBM Software and Sublicensing Agreements, the very agreements designed to protect the integrity and confidentiality of the UNIX source code." (Id. at 3 (emphasis in original.)) SCO accordingly explained that SCO's claims against IBM for breach of those Agreements "go to the very core of protecting the UNIX source code," and that IBM was breaching the "confidentiality of UNIX protected under the Software Agreement in a concerted effort to destroy the entire economic value of the UNIX source code." (Id.)

[If there are no trade secrets left, there is no confidentiality to breach.]

161. SCO concluded that "for the reasons outlined above and for other reasons, we have no intention of waiving our rights against IBM for destroying the value of UNIX and UnixWare by ignoring the restrictions on use, transfer and confidentiality of source code, derivative works and methods." (Id. at 4.)

[Well, if confidentiality is no more, and the court in SCO v. IBM ruled that SCO can't submit any evidence about methods as a sanction for SCO's discovery misconduct, that leaves only derivative works. So what is the truth about derivative works? Please review this 1995 Side Letter between IBM and AT&T, which I refer to as the "what's mine is mine and what's yours is yours" letter:

2. Regarding Section 2.01, we agree that modifications and derivative works prepared by or for you are owned by you. However, ownership of any portion or portions of SOFTWARE PRODUCTS included in any such modification or derivative work remains with us.
Testimony has been offered that "Software Products" here means the UNIX code being licensed. Add up all three items, and what have we got? I don't know about you, but I see nothing to sue anybody about in any normal litigation.]

B. The Scope of Novell's Waiver Rights with Respect to "SVRX Licenses."

162. Novell has claimed the right to waive, amend, and modify any and all of SCO's rights under its Software and Sublicensing Agreements. Novell's interpretation of Section 4.16(b) is extremely broad and would permit Novell to control and undermine SCO's UNIX- based business. (2353:21-2354:8 (Braham).)

163. The Tenth Circuit's Analysis. The Tenth Circuit observed that the waiver right Novell claims "would be a broad power indeed." SCO, 578 F.3d at 1221. With the rights it claims, Novell could "divest[] SCO of all title to any intellectual property in any UNIX product

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for which a sublicensing agreement existed," and "Novell's interpretation of Section 4.16 would mean it was free to waive limitations on a licensee's ability to copy, transfer, or sell the derivative products it created based on UNIX, something that would substantially limit the value to Santa Cruz of its UNIX ownership rights." Id.

164. "To read Novell's rights as broadly as it asks would give it unlimited power not only to reduce or increase its own rights under an SVRX License after the APA (namely rights to royalties), but also to direct SCO to supplement a licensee's substantive rights `in any manner,' even if by doing so, Novell forced SCO to divest rights unquestionably owned by SCO after the transaction. As SCO argues, this would enable Novell, at its sole discretion, to destroy a substantial part of the value of Santa Cruz's acquisition of the UNIX business." Id.

165. The Tenth Circuit further observed: "The issue is not whether independent consideration existed, but whether it is consistent with the context of the deal to imagine that Santa Cruz would have paid the price that it did if this was the only value it obtained in the deal, unencumbered from Novell's powerful discretionary rights to control the underlying UNIX code." Id. The Tenth Circuit further stated that Novell's interpretation of Section 4.16(b) would allow Novell to divest SCO of "its extensive and undisputed ownership rights in the underlying source code of UNIX," id. at 1224, and, notwithstanding the jury's verdict with respect to transfer of the copyrights to SCO under the APA, there was no dispute at trial that SCO owns all of the underlying source code of UNIX.

166. "SVRX Licenses" Under the APA. Novell's rights under Section 4.16(b) are limited to a set of licenses identified as "SVRX Licenses," and thus the extent of Novell's rights turns on what the parties meant by the term "SVRX License," because those are the licenses to which the waiver rights exclusively relate.

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167. Section 4.16(b) of the APA states in relevant part:
Buyer shall not, and shall not have the authority to, amend, modify or waive any right under or assign any SVRX License without the prior written consent of Seller. In addition, at Seller's sole discretion and direction, Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by Seller. In the event that Buyer shall fail to take any such action concerning the SVRX Licenses as required herein, Seller shall be authorized, and hereby is granted, the rights to take any action on Buyer's own behalf.

168. While Section 4.16(b) provides broadly that Novell may direct SCO to take certain actions or, if seller refuses, to take those steps for SCO, the waiver rights are not unlimited. Section 4.16(b) limits Novell's rights to "SVRX Licenses." Because the term SVRX Licenses is ambiguous, the Court must look at the language of the provision, the relationship of that provision to the contract as a whole, and to extrinsic evidence of the parties' intent, including their prior actions insofar as it sheds light on the intent of the provision.

169. The term "SVRX License" is used in Section 4.16(a) of the APA, which states in relevant part: "Following the Closing, Buyer shall administer the collection of all royalties, fees and other amounts due under all SVRX Licenses (as listed in detail under item VI of Schedule 1.1(a) hereof and referred to herein as SVRX Royalties)." Item VI, in turn, does not contain a list of such licenses but instead contains a list of SVRX products. The language of Item VI, states the following: "All contracts relating to the SVRX Licenses listed below." This language taken together with the reference in Section 4.16(a) of the APA that the SVRX Licenses are listed "in detail under Item VI" indicates that the SVRX Licenses are not "all contracts" relating to these products but licenses to the products that are, in fact, "listed in detail" in Item VI of the

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Schedule. 12 The Software and Sublicensing Agreements with IBM (and Sequent) are not listed under Item VI of the Schedule.

[Essentially, SCO seems to be arguing that Novell's right to waive, if it even has it under California law, would be limited to products listed specifically, a list that doesn't include IBM's licenses. That ignores that while 4.16(a) mentions a list in connection with royalties (and IBM around that time period was about to get a buyout, which might well explain it not being on the list), 4.16(b) in contrast speaks about waiver rights with respect to "any" SVRX license. If they are positing that the APA doesn't include IBM, furthermore, I think they will fail. For example, in the Recitals to Amendment X between IBM, Santa Cruz and Novell in 1996, it distinctly states that the APA does reference IBM's agreements with AT&T:

RECITALS

AT&T Technologies, Inc. ("AT&T") and IBM entered into various software license agreements concerning the Software Product: UNIX System V, Release 3.2, which are Software Agreement SOFT-00015 as amended, Sublicensing Agreement SUB-00015A as amended, Software Agreement SOFT-00015 Supplement No. 170 as amended (or any other Supplements that pertain to prior versions or releases of the Software Product), and Substitution Agreement XFER-00015B (the "Related Agreements"). Novell acquired AT&T's rights under the Related Agreements. In an agreement between Novell and SCO dated September 19, 1995 (the "Asset Purchase Agreement"), SCO purchased, and Novell retained, certain rights with respect to the Related Agreements. In an effort to simplify the royalty requirements contained in the Related Agreements, the following modifications to the terms and conditions of the Related Agreements have been mutually agreed to by the parties.

The Amendment sets forth the terms of the IBM buyout, whereby it paid a lump sum instead of paying royalties as it went along. So if SCO is pretending the APA doesn't refer to IBM, I think this proves that it does.

Incidentally, while we are looking at Amendment X [PDF], I'd like to point out something that I think indicates that IBM was free to use methods and concepts, on page 12 of the PDF:

3.06 Notwithstanding anything to the contrary, YOU shall have the right to use residual information mentally retained by YOUR employees who in the ordinary course of their work pursuant to this Agreement, retain such information in non-tangible form after having access to REFERENCE SOFTWARE PRODUCT, provided that such employees make no deliberate attempt to preserve such information by reducting it to writing or to otherwise memorialize such information contemporaneously. However, nothing in this paragraph shall affect SCO's rights under patent of copyright laws.
At the time, no one dreamed someone like SCO would someday claim that copyright law included protection for methods or ideas of any kind, but clearly IBM was free to use the ideas its employees learned from the software, as long as they didn't deliberately copy. I mention it because even though SCO has been ordered not to argue methods and concepts in the IBM litigation, somehow or other SCO seems to always find a way to regurgitate old arguments that a court has forbidden them to use, as well as showing a remarkable ability to invent new ones.]

170. The Software and Sublicensing Agreement. Another Section of Schedule 1.1(a) expressly covers such Software and Sublicensing Agreements. Item III identifies as assets being transferred to SCO:

All of Seller's rights pertaining to UNIX and UnixWare under any software development contracts, licenses and any other contracts to which Seller is a party or by which it is bound and which pertain to the Business (to the extent that such contracts are assignable), including without limitation:
Subsection L of that Item specifies:
Software and Sublicensing Agreements § This includes the source code and sublicensing agreements that Seller has with its OEM, End User and Educational customers. The total number of these agreements is approximately 30,000.
There can be no dispute that the "Software Agreement" and "Sublicensing Agreement" subject to which IBM obtained access to UNIX source code, and which imposed limitations on IBM's disclosure of such code, is included among the "Software and Sublicensing Agreements" referenced in Item III.L of Schedule 1.1(a).

171. Witness Testimony. Several witnesses testified that in order to make sense, Novell's "waiver" rights under Section 4.16(b) of the APA must extend only to the terms of the Product Schedule Licenses through which licensees licensed particular UNIX products.

172. Novell licensing group executive Mr. Broderick testified that Novell used the term SVRX Licenses to refer to Product Schedule Licenses that licensed SVRX products. (658:23-659:16.)

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173. Messrs. Frankenberg, Chatlos, Thompson, Mohan, Wilt, Michels, and Sabbath, and Ms. Madsen all testified that the intent of Article 4.16(b) was to provide Novell rights over those licenses that were generating royalties for sales of SVRX products in which Novell had retained an interest and was still receiving payments -- and not to provide Novell with the right to control Santa Cruz's actions under other agreements, such as the Software and Sublicensing Agreements that did not generate such royalties but instead protected the UNIX and UnixWare source code that SCO had acquired under the APA. (110:8-21 (Frankenberg); 371:6-372:13 (Chatlos); 367:22-369:10 (Chatlos); 247:23-248:19 (Thompson); 251:7-15 (Thompson); 447:3-19 (Wilt); 469:9-13 (Mohan); 501:19-502:2 (Michels); 494:23-495:18 (Michels); 906:7-907:9 (Sabbath); 905:1-17 (Sabbath); 852:1-10 (Madsen); 892:24-893:12 (Madsen).)

174. Their rationale was that it would make sense for Novell to retain control concerning the terms of the Product Schedule Licenses, because those Schedules dictated the amounts of the binary royalties that Novell was receiving under Section 4.16(b) of the APA. Accordingly, in order to protect that stream of royalties, it would make sense for Novell to have certain rights over those terms, such as to make sure that the royalty amounts kept pace with the Consumer Price Index from year to year.

175. These witnesses testified that Novell's waiver rights could not extend further than the terms of the Product Schedule Licenses because to give Novell such a right would permit Novell to change the substantive terms of the agreements that essentially constituted the UNIX and UnixWare business itself. (892:24-893:12 (Madsen); 593:15-594:5 (Broderick); 599:22- 600:15 (Broderick).)

176. The Tenth Circuit stated:

It is reasonable to think that the parties would have covenanted in such a manner as to protect Novell's substantial pecuniary interest

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in the revenue stream that, even under SCO's interpretation, financed the acquisition. It is less easy to accept that SCO would have consented to giving Novell the unilateral power to unravel its exclusive and undisputed ownership rights in the underlying source code of UNIX.
SCO, 578 F.3d at 1224.

[However, that is a selective quotation. The Court of Appeals also wrote:

Given that the APA expressly provides Novell the power to direct SCO to "amend, supplement, modify, or waive any rights under any SVRX License," we cannot say that Novell's interpretation of Section 4.16 is foreclosed by the dictionary....

Because we cannot say that the evidence is so one-sided as to preclude a rational finder of fact from agreeing with SCO's interpretation of the scope of Novell's waiver rights, we think summary judgment is premature.

And as for SCO's "exclusive and undisputed ownership rights in the underlying source code of UNIX", the Court of Appeals did not have the benefit of the jury's ruling that SCO doesn't have the copyrights, so whatever rights it has to source code do not preclude Novell from its rights as copyright holder. Since the claims Novell waived included copyright infringement, it certainly has the right to do that. Plus the alleged infringements that SCO complained about were principally from Sequent and Dynix, the real question isn't about IBM being on the list but Sequent and Dynix, who certainly were SVRX licensees. Plus, SCO argued in the first trial and in the appeal that the SVRX licenses were only those prior to the APA, and neither the lower court or the appeals court agreed, and in affirming the lower court's decision that SCO owed Novell for the Sun 2003 license, it wrote this:
Even if the issue were properly before us, we are skeptical of the merits of SCO's claim. Even if "SVRX Licenses" include only those licenses entered into prior to the APA, as SCO argues, Sun's 1994 agreement with Novell would qualify. Section 4.16(b) of the APA makes clear that SCO "shall not have the authority to[] amend [or] modify . . . any right under . . . any SVRX License without the prior written consent of Seller." SCO does not dispute that the royalties provided by Sun under its licensing agreement constitute a right within the meaning of Section 4.16. Instead it contends that "the 1994 buyout was not modified in any way" because Novell was not required to relinquish any of the money it received from the 1994 buyout. But the 2003 agreement expressly purports to "amend and restate" the parties' 1994 agreement, by increasing the value of Sun's rights under its buyout. And even if Section 4.16 did not apply to the 2003 agreement, we agree with the district court that Amendment No. 2 would. Paragraph B of the Amendment sets out rules to govern "any potential transaction with an SVRX licensee which concerns a buy-out of any such licensee's royalty obligations." App'x 374 (emphasis added). SCO argues that "Section B does not apply when a licensee already has a buyout and now enters into a subsequent agreement that merely relates to the prior buyout agreement." Aplt. R. Br. 30. But we fail to see any support in the language for this limitation. Indeed, were this so, Amendment No. 2 would only have obligated the parties to jointly negotiate an initial buyout agreement. But Amendment No. 2 would not have prevented the parties from taking unilateral action to expand or modify the terms of that buyout thereafter. See Findings of Fact, July 16, 2008 at 3536. This seems counterintuitive.

In any case, we also agree with the district court that agreements that post-date the APA may constitute SVRX Licenses. SCO presents a variety of evidence to suggest that SVRX referred only to existing licenses under the APA. See Aplt. Br. 6668. This may have been consistent with the parties' intent at the time of the APA, which expressly provided that SCO "shall have no right to[] enter into future licenses or amendments of the SVRX Licenses." App'x 287. But the parties subsequently agreed to Amendment No. 2, which revised this section of the APA to provide that SCO "shall not, and shall have no right to[] enter into new SVRX Licenses except in [certain enumerated situations]." Thus, the clear language of the amended APA anticipates "new SVRX Licenses," indicating that an SVRX License can post-date the APA. To the extent that SCO argues that this amended language envisioning "new SVRX Licenses" is somehow inconsistent with the APA itself, we remind it that when "two contracts are made at different times, [but where] the later is not intended to entirely supersede the first, but only modif[y] it in certain particulars[,] [t]he two are to be construed as parts of one contract, the later superseding the earlier one wherever it is inconsistent therewith." Hawes v. Lux, 294 P. 1080, 1081 (Cal. Dist. Ct. App. 1931). What is sauce for the goose is sauce for the gander. Since SCO's challenge to the district court's ruling was premised only on its argument that "SVRX License" is a term temporally limited to assets existing at the time of the APA,7 see Aplt. Br. 66, we are compelled to reject it.

For all these reasons, we affirm the district court's ruling with respect to SCO's liability from its 2003 agreement with Sun.

I think this is dispositive that the list is not a closed and final list of all SVRX agreements, if new ones could be added, and IBM also got a buyout, so the terms of Amendment X would have to supersede the APA.]

177. Course of Performance. The 1996 IBM buyout dispute also presents relevant evidence of the parties' intent and understanding of the scope of Novell's rights under Section 4.16(b). At that time, just a few weeks after the APA transaction closed, a Novell salesman invoked precisely that provision to attempt granting IBM a buyout of its binary royalty obligations and minor rights to distribute the source code to its UNIX-based derivative flavor. (Ex. 67; 1689:5-1690:23 (Maciaszek).) SCO objected both to the buyout and the expansion of source code rights, and "began to institute a law suit" against Novell. (Ex. 179; 1690:24-1695:20 (Maciaszek).) The parties' subsequent agreement in Amendment No. X was thus negotiated specifically in response to and arising out of the foregoing dispute, and thus sought to clarify that Novell did not and does not have the claimed rights under Section 4.16(b).

178. During the months of negotiations between Novell and SCO that culminated with Amendment X and Amendment No. 2 in November 1996, Novell did not once assert ownership of the UNIX copyrights or the broad Section 4.16(b) rights it now claims, in response to SCO's objections, even with respect to the buyout of the IBM royalties over which Novell had an undisputed 95% interest. (1695:21-1696:9 (Maciaszek).) Instead, Novell ultimately settled that controversy by (1) cancelling the buyout agreement it had executed alone with IBM and replacing it with Amendment No. X, a three-party agreement that included SCO, (2) paying SCO about three times the APA-required 5% percent interest SCO would have ordinarily received of the buyout amount, and (3) agreeing to clarify Section 4.16(b) in Amendment No. 2, including

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with the language of Paragraph B.5that the Tenth Circuit found significant to the issue. (1696:15-1697:24 (Maciaszek); 1708:1-1709:3 (Maciaszek); SCO, 578 F.3d at 1223.)

179. Other than in connection with the 1996 IBM buyout, Novell never again attempted to direct SCO "to waive its rights under or to amend or to modify a software agreement" prior to 2003. (599:22-600:15 (Broderick).)

180. Because Novell acknowledged that its Section 4.16(b) rights were limited even in the context of buyouts, where Novell had its own interests to royalties, the Court cannot conclude that Novell's rights are essentially unfettered with respect to rights that SCO indisputably has under the APA to protect and license the valuable UNIX source code through the Software and Sublicensing Agreements. On the contrary, the Court must and does conclude that Novell's Section 4.16(b) rights, as clarified by Amendment No. 2, cannot impinge upon SCO's rights to license the UNIX source code and cannot expand a licensee's rights to the source code, as Novell has attempted to do with IBM.

181. Novell's Witnesses and Arguments. The Court rejects the view of certain witnesses that Novell's waiver rights are essentially unlimited, extending even to the terms of the Software and Sublicensing Agreements themselves because the terms of the Product Schedule Licenses were ultimately incorporated by reference as part of those Agreements, and that in order to "bulletproof" Novell against the prospect of having SCO unduly reduce the amount of Novell's royalty stream, Novell intended to retain "complete rights to control what happened with the UNIX business." (2354:6-8 (Braham).) Novell attorney Tor Braham, for example, testified that "Novell has the right to tell SCO what it can do and can't do." (2353:21-2354:4.) In response to questioning regarding the fact that Novell's rights were limited to "SVRX Licenses" as defined in the APA, Mr. Braham revealed that the premise of his view of Novell's

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rights under Section 4.16(b) was that term "SVRX Licenses" is "not a defined term" in the APA because there are no "quotation marks" surrounding the phrase. (2407:2-24.) The Court disagrees with the premise of Mr. Braham's understanding of Novell's waiver rights, as the Tenth Circuit specifically held that "the APA expressly made 'SVRX License' a defined term, albeit one defined with some lack of clarity." SCO, 578.F3d at 1220.

182. In addition, the Tenth Circuit addressed and was skeptical of Novell's contention regarding the scope of its waiver rights:

[T]he sublicensing and software agreements grant certain rights to licensees, for instance, enabling them to use, modify, and prepare derivative works based on a given software product. But as we understand Novell's argument, it does not seek to waive rights given to the licensee in the licensing agreement § but rather the licensor's (SCO's) ability to enforce the boundaries of those rights extended to licensees. This would be a broad power indeed.
Id. at 1220-21.

183. The Court similarly rejects Novell's suggestion that the reference to "all contracts" in Item VI means that an SVRX License refers to any agreement concerning SVRX source or binary code. First of all, the language of Item VI that "All contracts relating to the SVRX Licenses listed below" reflects that the term "all contracts" is separate from the "SVRX Licenses" themselves, which are to be listed below. Indeed, the reference to "all contracts" is not part of any definition of "SVRX License" as such. The SVRX Licenses to which the waiver rights apply are clearly a subset of "all contracts." As the Tenth Circuit noted:

Novell argues, and the district court agreed, that its reading of SVRX Licenses to include all three sets of licensing agreements is most consistent with the APA's use of broad language referring to 'any' and 'all' SVRX Licenses. But we think it plain that this only begs the question of the scope of what an 'SVRX License' is.
SCO, 578 F.3d at 1223-24.

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184. The ambiguity is created because the list of products in Item VI indisputably is a list of products § not licenses. That is, the products identified in Item VI are the same licensed products that are identified only in the Product Schedule Licenses that go along with the Software and Sublicensing Agreements, but that are not identified in those Agreements themselves.

185. Moreover, the argument that Item VI refers to Software and Sublicensing Agreements runs up against the express reference to those Agreements in Item III.L of the same Assets Schedule. Novell thus asks the Court to conclude that in identifying the Assets to be transferred, the parties decided redundantly to identify the same extensive set of agreements twice. That runs against normal rules of contract interpretation. Boghos v. Certain Underwriters at Lloyd's of London, 36 Cal. 4th 495, 503 (2005); accord United States v. Gonzalez-Garcia, 85 Fed. Appx. 160, 164 (10th Cir. 2004).

186. In addition, to the extent there is ambiguity in the text of the APA as to what "SVRX Licenses" means, the plain language and extrinsic evidence of Amendment No. 2 precludes any reasonable interpretation of the APA to permit Novell to exercise waiver rights that amend or modify the terms of any Software or Sublicensing Agreement.

[Speaking of Amendment 2, I wonder if SCO can be considered as still actively and aggressively marketing Unix products, in light of this wording:

C. Novell may execute a buy-out with a licensee without any approval or involvement of SCO, and will no longer be bound by any of the requirements stated in Section B. above, if: (i) SCO ceases to actively and aggressively market SCO's UNIX platforms; or (ii) upon a change of control of SCO as stated in schedule 6.3(g) of the Agreement.
If not, Novell can execute buyouts without any involvement of SCO at all, which makes zero sense if SCO's theory that it owns or should own the copyrights were so or if it's theory of what SVRX licenses means were true. Here's Section B, just for thoroughness:
B. Except as provided in Section C below, and notwithstanding the provisions of Article 4.16, Sections (b) and (c) of the Agreement, any potential transaction with an SVRX licensee which concerns a buy-out of any such licensee's royalty obligations shall be managed as follows:
1. Should either party become aware of any such potential transaction, it will immediately notify the other in writing.

2. Any meetings and/or negotiations with the licensee will be attended by both parties, unless agreed otherwise. Novell's participation will be by personnel who are engaged in corporate business development.

3. Any written proposal to be presented to the licensee, including drafts and final versions of any proposed amendments to the SVRX licenses, will be consented to by both parties prior to its delivery to the licensee, unless agreed otherwise.

4. Prior to either parties' unilateral determination as to the suitability of any potential buy-out transaction, the parties will meet face to face and analyze the potential merits and disadvantages of the transaction. No such transaction will be concluded unless the execution copy of the amendment is consented to in writing by both parties, and either party will have the unilateral right to withhold its consent should it judge, for any reason whatsoever, the transaction to be contrary to its economic interests and/or its business plans and strategy.

5. This Amendment does not give Novell the right to increase any SVRX licensee's rights to SVRX source code, nor does it give Novell the right to grant new SVRX source code licenses. In addition, Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the Agreement.

6. The parties agree that no member of Novell's sales force will receive a bonus, commission, quota attainment credit, or other type of sales incentive as a result of the buy-out of an SVRX license.

This is the part SCO breached by doing the Sun license all by itself without including Novell. None of this section applies if SCO stops aggressively and actively marketing UNIX platforms. Considering that SCO is currently trying to sell off all its assets, and clearly seems to lack the manpower to do upgrades, I can't help but wonder what more it would take for this clause C to kick in. And if it can kick in, why couldn't Novell now redo any license it wishes, including Sequent, Dynix, IBM, whoever?]

187. With respect to the plain language, the Tenth Circuit has already found that Novell's interpretation of Section 4.16 is problematic. Amendment No. 2 states that the "Amendment does not give Novell the right to increase any SVRX licensee's rights to SVRX source code." The Tenth Circuit stated: "If Novell already had the right under the APA itself to force SCO to increase any SVRX licensee's rights to SVRX code, then this provision would be pointless and ineffectual." SCO, 578 F.3d at 1223. This Court finds that the exact same reasoning applies with respect to the further statement in Amendment No. 2 that "Novell may not

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prevent SCO from exercising its rights with respect to SVRX source code in accordance with the Agreement."

188. Novell has argued that the foregoing language in Amendment No. 2 appears in a paragraph that generally concerns buy-outs, so that the language should be interpreted only with respect to buy-outs. The Court finds no merit in that argument. The point is that regardless of the scope of Paragraph B, the statements simply would not make any sense -- they would be "pointless and ineffectual" -- if Novell already had the rights at issue.

189. Novell's reading also makes no sense of the language in Paragraph B.5 stating that Novell will not prevent SCO from exercising its source code rights. Novell says that Paragraph B.5 applies only in the context of buyouts. But under the express terms of Paragraph B, buyouts are bilateral. It therefore makes no sense to read Paragraph B.5 to mean that, in the context of a process that by definition must work bilaterally, Novell promises that it will not prevent SCO from exercising certain of its rights. The whole point of Paragraph B is to make clear that Novell could not undertake any unilateral conduct in a buyout with respect to any of SCO's rights. Paragraph B.5 makes sense only if interpreted to speak to Novell's alleged waiver rights generally.

190. In addition, Novell's interpretation cannot be squared with the uncontroverted extrinsic evidence. The evidence showed that Amendment No. 2 resulted from a process whereby, over months, Novell had purported to do just what the language of sub-paragraph B.5 says that Novell cannot do -- that is, unilaterally change the terms of SCO's Software and Sublicensing Agreements. (Ex. 67; Ex. 707; Ex. 179.) There was no evidence to suggest that in resolving that heated dispute, SCO's representatives had concluded or agreed to permit Novell to

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continue to exercise any such purported rights, and there was countervailing evidence that SCO intended to make clear that Novell had no such rights. (Ex. 179; 1689:5-1692:19.)

191. During the months of negotiations that followed culminating with Amendment No. 2 in November 1996, Novell did not assert ownership of the UNIX copyrights or the broad Section 4.16(b) rights in response to SCO's objections, even with respect to the buyout of the IBM royalties over which Novell had an undisputed 95% interest. (1695:21-1696:9 (Maciaszek).) Instead, Novell ultimately settled that controversy by rescinding the buyout agreement it had executed alone with IBM and replacing it with a three-party agreement that included SCO and by agreeing to clarify Section 4.16(b) in Amendment No. 2, including with the language of Paragraph B.5, as explained above. (1696:15-1697:24 (Maciaszek); 1708:1-1709:3 (Maciaszek).)

192. Novell's actions in resolving the buyout dispute in 1996 -- where Novell could have simply taken action to grant IBM the buyout under Novell's current interpretation of Section 4.16(b) -- compel the conclusion that Amendment No. 2 was intended to foreclose the type of action in which Novell had engaged by making clear that Novell could not impinge upon SCO's rights to license the UNIX source code and could not expand a licensee's rights to source code. Indeed, as Section B of Amendment No. 2 made clear, even Novell's rights to protect its royalties by way of Section 4.16(b) were subject to SCO's participation and approval when Novell sought to obtain an upfront lump-sum payment -- that is, a buyout -- of the royalties.

193. Novell's limited extrinsic evidence to the contrary is not persuasive. Novell, for example, points to a 2003 letter to Novell in which Mr. McBride referred generally to IBM's license as an "SVRX license." (Ex. J16.) This is not evidence that goes directly to what the parties actually intended in using the defined term "SVRX License" in the APA many years

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[redacted or missing text]13

194. Unreasonable Consequences of Novell's Interpretation. This Court cannot endorse an interpretation that would permit Novell to destroy SCO's UNIX-based business, which is true of Novell's interpretation. See, e.g., Leo F. Piazza Paving Co. v. Found Constr., Inc., 128 Cal. App. 3d 583, 591 (1981). Where contract is susceptible to different interpretations, courts will adopt one which will give it validity, if it is reasonable, rather than one which renders it illusory. Lexington Ins. Co. v. Travelers Indem. Co. of Illinois, 2001 WL 1132677, at *3 (9th Cir. 2001) (applying California law); see also Meyer v. AmerisourceBergen Drug Corp., 2008 WL 397412, at *5 (6th Cir. 2008) (maxim of contract interpretation that courts disfavor interpretations that render contracts illusory and instead prefer interpretations that give contract vitality); MacDonald v. Lawyers Title Ins. Corp, 1996 WL 114719, at *6 (4th Cir. 1996) (refusing to interpret contract in a way that that renders it illusory); Shakey's Inc. v. Covalt, 704 F.2d 426, 434 (9th Cir.1983) (preference given to contract interpretation that does not render obligations illusory).

195. There are other strong reasons, moreover, for rejecting the interpretation that Novell gives to the term "SVRX Licenses" in connection with its alleged waiver rights under

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Section 4.16(b). If "SVRX Licenses" refers to an umbrella Software Agreement, for example, then Novell would have the right to amend, modify, or waive SCO's rights with respect to UnixWare. As the umbrella agreement, the Software Agreement is also the ultimate agreement under which a prior SVRX licensee has agreed to keep confidential any UnixWare source code (and derivatives based on it) that the licensee subsequently licensed. Novell's decision to amend, modify, or waive the terms of such a Software Agreement would thus permit Novell to undercut SCO's rights even with respect to UnixWare, a business that SCO indisputably acquired.

196. Similarly, before it entered into the APA, SCO itself had licensed SVRX source code and built derivatives based on that code. Under Novell's interpretation of the APA, Novell could amend, modify, or waiver any or all of SCO's rights under that "SVRX license" § which would thus preclude SCO from using source code it had used for decades.

197. The same is true for the TLA, which by Novell's lights must constitute one of the contracts relating to SVRX. Under the TLA, Novell could use SVRX source code in its own products but subject to particular restrictions. If (as Novell contends) any contract relating to any of the SVRX releases identified in Item VI of the Assets Schedule is an "SVRX License," then the TLA must qualify, and then Novell could amend, modify, or waive any of SCO's rights under that Agreement. That would create the completely non-sensical result that as a result of Section 4.16(b), Novell was free to lift the restrictions on the use of the SVRX code set forth in the TLA. Novell offers no reasoned grounds for excluding the TLA from such a result.

198. In sum, Novell's "waiver" rights under the amended APA do not extend to the terms of the Software or Sublicensing Agreements with IBM as to which Novell sought to waive SCO's rights to either terminate or pursue claims for breach.

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C. The Covenant of Good Faith and Fair Dealing.

199. In the alternative, SCO has sought a declaration from the Court that even if Novell had the right to waive SCO's claims, the exercise of its 4.16(b) rights is constrained by the implied duty of good faith and fair dealing, and that under the facts presented, Novell's action has breached those implied obligations.

1. The Governing Law.

200. The Tenth Circuit, in remanding, indicated that this Court must consider the applicability of the implied covenant even though the language of Section 4.16(b) purports to give Novell unfettered discretion regarding its waiver decisions. SCO, 578 F.3d at 1224-25.

201. "California recognizes at least two exceptional situations where the covenant of good faith may inform the interpretation of even an express grant of contractual authority. First, where the express discretion makes the contract, viewed as a whole, contradictory and ambiguous, the implied covenant may be applied to aid in construction. Second, the covenant may aid in the interpretation of a contract seemingly expressly granting unbridled discretion in those relatively rare instances when reading the provision literally would, contrary to the parties' clear intention, result in an unenforceable, illusory agreement." SCO, 578 F.3d at 1225.

202. The implied covenant should apply because Novell's interpretation makes Section 4.16(b) contradict other provisions of the APA, and would result in an unenforceable, illusory agreement. SCO, 578 F.3d at 1224-25. The interpretation of the APA that Novell proposes directly implicates the Tenth Circuit's citation of April Enterprises, Inc. v. KTTV, 147 Cal. App. 3d 805, 816 (Cal. Ct. App. 1983). In that case, by the express terms of a contract, one party had the right to syndicate episodes of a television show, while the other had the right to erase episodes of the show. Both parties shared revenues from compensation. Although the contract expressly granted one party the right to erase episodes, the court applied the covenant of good

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faith, holding that the contract was contradictory and ambiguous as to whether tapes could be erased while the other party was negotiating for syndication. Id.

203. Novell's proposed reading of Section 4.16(b) creates the same contradiction and ambiguity in the APA. If Novell could change any part of any of the contracts that embody the UNIX-based business that Novell had transferred, as the Tenth Circuit observed, it could destroy that business.

204. The implied covenant is violated where a party exercises its rights in bad faith or in an objectively unreasonable way, regardless of the actor's motive. Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342, 372-73 (1992); Badie v. Bank of Am., 67 Cal. App. 4th 779, 795-96 (1998). Under the objective test, the covenant "requires the party holding such power to exercise it for any purpose within the reasonable contemplation of the parties at the time of formation -- to capture opportunities that were preserved upon entering into the contract." Carma, 2 Cal. 4th at 372; accord Badie, 67 Cal. App. 4th at 796.

2. Novell's Waiver Actions Violate the Implied Covenant.

205. Under the foregoing standards, the Court concludes that Novell has breached the implied covenant. The sole rationale that Novell has offered for its exercise of its alleged rights -- that it was seeking to avoid a situation in which it might end up somehow having to return royalties to IBM -- does not withstand scrutiny.

206. The parties agree that in 1996 IBM secured a buy-out of the royalties it had been paying under its Product Schedule License underlying AIX. The parties also appear to agree that IBM was not paying any royalties under the Sequent Scheudles that IBM acquired in the late 1990s; there was certainly no evidence at trial that IBM was paying any such royalties.

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207. The evidence thus established that in exercising its alleged waiver rights, Novell was not seeking to protect the payment of any ongoing royalties. Mr. LaSala testified concerning the reasons Novell exercised its Section 4.16(b) rights against SCO in 2003 by purporting to waive SCO's claims against IBM for breach of its Software and Sublicensing Agreements. Mr. LaSala explained that SCO's termination of those agreements "could have a significant negative implication for Novell" because IBM had paid Novell "about $10 million" "for a fully paid up irrevocable perpetual license." (1910:20-1912:4; 1949:23-35.)

208. This basis for Novell to waive SCO's rights to have a court determine the validity of its claims of breach cannot withstand scrutiny. On the one hand, if SCO were not to prevail on its contract claims against IBM, there would be no arguable effect on IBM's prior buyout. (1950:21-1951:3.) On the other hand, if SCO were to prevail, there would be a finding or verdict that IBM has acted in breach of its Software and Sublicensing Agreements and that SCO had the right to terminate those Agreements, and thus IBM would have no basis to demand a refund. (Cf. 1950:1-1951:20.) The Court cannot find, and Novell has not identified, any legal basis on which in that posture -- as a party in breach of the agreements at issue -- IBM could argue over against Novell that it must return to IBM the money IBM had paid for its buy-out. When confronted with this line of analysis on cross examination, Mr. LaSala responded "I don't know" and ultimately admitted that IBM "would not have come and asked us for the $10 million." (1950:1-25.) These same points apply with respect to SGI's prior buyout and Novell's waiver of SCO's rights with respect to that licensee. (Ex. G21.)

209. Moreover, the waiver cannot be defended on the grounds that Novell believed SCO's position to be in error. If SCO's position were correct and IBM had breached contractual restrictions on the use of UNIX and UNIX-derived technology, the courts could so determine

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and there is no justification for Novell substituting itself for the Court in making such decisions. Indeed, Amendment X, which arose from the prior 1996 dispute among IBM, Novell and SCO, specifically provided that "Notwithstanding the above, the irrevocable nature of the above rights will in no way be construed to limit Novell's or SCO's rights to enjoin or otherwise prohibit IBM from violating any and all of Novell's or SCO's rights under this Amendment No. X, the Related Agreements, or under general patent, copyright, or trademark law." (Ex. O8 ¶1.)

[Novell's justification would be the contract. And as for Amendment X, while nothing limited NOvell's rights, nothing said they couldn't waive. And as for SCO's rights, they don't own the copyrights at issue, so what rights would they have?]

210. Similarly, Novell's waiver decision cannot be justified on the basis of Novell (or IBM) business interests in the success of the Linux operating system arising years later. "The fundamental purpose of the implied covenant of good faith and fair dealing is that neither party will do anything which will injure the right of the other to receive the benefits of the agreement." Major v. W. Home Ins. Co., 169 Cal. App. 4th 1197, 1209 (2009) (citations and quotations omitted); Bosetti v. U.S. Life Ins. Co. in City of New York, 175 Cal. App. 4th 1208, 1235 (2009) (same). Accordingly, the covenant "imposes upon each party the obligation to do everything that the contract presupposes they will do to accomplish its purpose," Bosetti, 175 Cal. App. 4th at 1235, and a party breaches the covenant if it engages "in a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving the party of the benefits of the agreement." Nieto v. Blue Shield of Cal. Life & Health Ins. Co., 181 Cal. App. 4th 60, 86 (2010) (citations and quotations omitted). That would be a meaningless restriction if a party's own economic self-interest, arising from activities apart from the contract in question, were sufficient justification for their action. In this connection, there was no consideration given by Novell to the effect of the purported waiver on SCO's rights. (1949:3-25 (LaSala).)

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211. The implied covenant, as noted, permits a party to realize benefits within the reasonable contemplation of the parties at the time of contracting. The Court therefore concludes that in invoking Section 4.16(b) as it did, Novell was not seeking to protect interests that it was entitled to protect in keeping with its implied covenant of good faith and fair dealing.

212. Accordingly, the Court concludes that if it did have the broad waiver rights it has claimed, Novell breached the implied covenant of good faith and fair dealing in exercising such rights with respect to SCO's contract claims against IBM.

3. Novell's "Waivers" Are Invalid and Unenforceable.

213. The implied covenant of good faith and fair dealing supplements the express terms of the contract, McClain v. Octagon Plaza, LLC, 159 Cal. App. 4th 784, 806 (2008), and generates "a contractual obligation." City of Hollister v. Monterey Ins. Co., 165 Cal. App. 4th 455, 460 (2008). A breach of the implied covenant therefore is a breach of the contract itself. Schwartz v. State Farm Fire and Cas. Co., 88 Cal. App. 4th 1329, 1339 (2001).

214. Where a party has exercised its contractual discretion in breach of the contract, the party's actions are not valid or enforceable. In Badie v. Bank of America, 67 Cal. App. 4th 779 (1998), for example, the court addressed certain language in Bank of America's account agreements with four of its credit-card account customers that allowed the Bank to change any "term, condition, service or feature" of a customer's credit account. Invoking the provision, the Bank added an alternative dispute resolution (ADR) clause to the account agreements. Reversing the trial court's disposition of the issue, the court concluded that in adding the ADR clause, the Bank had breached the implied covenant of good faith and fair dealing in the account agreements. Id. at 796-806. The court therefore held that the "clause is not a part of the Bank's

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contract with the four individual plaintiffs here and may not be enforced against them." Id. at 807.

215. The Court therefore concludes that Novell's waivers of SCO's claims against IBM, even if within the scope of Section 4.16(b), were in breach of contract and are therefore invalid and ineffective.

VII. NOVELL'S AFFIRMATIVE DEFENSES FAIL.

A. Substantial Performance.

216. Novell's affirmative defense of substantial performance does not apply to SCO's claim for specific performance. "Specific performance cannot be enforced in favor of a party who has not fully and fairly performed all the conditions precedent on his part to the obligation of the other party." Cal. Civ. Code § 3392 (emphasis added). The statute pertains only to a party's failure to substantially perform a "condition precedent," in the event that the parties had agreed to impose any such conditions precedent. The statute's limited scope makes sense, as a "condition precedent" is a condition "before some right dependent thereon accrues, or some act dependent thereon is performed." Cal. Civ. Code § 1436 (emphasis added).

217. The APA does not identify any "conditions precedent" to the sale of the UNIX and UnixWare copyrights, and Novell did not present any evidence at trial that there were any such conditions precedent. Specifically, SCO's obligation to remit a portion of the payments it received under its 2003 agreement with Sun cannot be a "condition precedent" to Novell's sale of the UNIX and UnixWare copyrights to SCO in 1996, seven years prior. "Provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction." Wm. R. Clarke Corp. v. Safeco Ins. Co., 15 Cal. 4th 882, 885 (1997) (citing Rubin v. Fuchs, 1 Cal. 3d 50, 53 (1969)); see also Frankel v. Bd. of Dental Examiners, 46 Cal. App. 4th 534, 550 (1996) (courts shall not construe a term of the contract so

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as to establish a condition precedent absent plain and unambiguous contract language to that effect").

[I think I can safely call paragraphs 216 and 217 gobbledy gook. SCO is saying, to the extent I understand what it is saying, that its claim for specific performance survives Novell's pointing out that SCO failed to uphold its part of the bargain because all SCO is talking about is earlier events. You can read its specific performance claim here, and it's SCO's position that it was the intent of the parties to the APA to transfer the copyrights; hence it wants that to happen. The fact that later on it failed to pay Novell all it was supposed to under the APA shouldn't nullify SCO's claim to what the APA said was allegedly supposed to happen prior to its failure. OK. That's the gobbledy gook part. As Novell points out, you can't ask a court to enforce a contract term if you yourself failed to live up to the terms of the contract, but SCO is saying, yes we can, because at the time of the APA, we hadn't failed *yet* and there were no conditions precedent that it failed to fulfill, only after the fact.

They are the Amazings. The cases are weird to me also. If you read Rubin, referenced in Wm. R. Clarke Corp. v. Safeco Ins. Co., while it does include the sentence SCO quotes, it does so selectively, in that it goes on to say, "Instead, whenever possible the courts will construe promises in a bilateral contract as mutually dependent and concurrent." I would read that as saying that SCO can't enforce a contract it didn't live up to itself, regardless of when it breached. Maybe, as we've seen happen before, SCO read only the crib notes on these cases, without taking the time to read the full context? In any case, I can't see how they help SCO's argument.]

218. Novell's affirmative defense of substantial performance does not apply to SCO's claim for breach of the covenant of good faith and fair dealing for three independent reasons.

219. First, SCO's breach of contract claim concerns Novell's breach of the covenant of good faith and fair dealing. Under California law, Novell is obligated to satisfy those obligations independent of SCO's performance. "A breach by one party to a contract does not absolve another party to the contract of the duty of good faith and fair dealing." Aguilar v. Millot, 2007 WL 1806860, at *7 (Cal. Ct. App. June 25, 2007) (citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 578 (1973)).

220. Second, Novell has continued to accept the benefits of SCO's continued performance under the APA, including its continued administration and remittance of SVRX Royalties for years after the 2003 Sun Agreement (and as recently as this year), which were estimated at trial to be "hundreds of millions of dollars" that SCO remitted to Novell. (354:8-15 (Chatlos); Ex. 754; 2066:1-12 (Tolonen).) On those facts, Novell cannot now disavow its duties of good faith and fair dealing under the APA. Roseleaf Corp. v. Radis, 122 Cal. App. 2d 196, 204-205 (1953); 15 R. Lord, Williston on Contracts § 44:52 (4th ed. 2009).

221. Third, the law is that "[t]here is no simple test for determining whether substantial performance has been rendered and several factors must be considered, including the ratio of the performance already rendered to that unperformed, the quantitative character of the default, the degree to which the purpose behind the contract has been frustrated, the willfulness of the default, and the extent to which the aggrieved party has already received the substantial benefit of the promised performance. Homebridge Mortg. Bankers Corp. v. Vantage Capital Corp.,

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2008 WL 5146957, at *5 (S.D.N.Y. Dec. 5, 2008) (citing Hadden v. Consolidated Edison Co. of N.Y., Inc., 34 N.Y.2d 88, 96 (1974)).

[SCO's argument is that it performed quite a bit of what it was supposed to do under the contract. So the court shouldn't penalize it for failure to pay Novell millions it owes, as ordered by Judge Dale Kimball and affirmed by the Court of Appeals. It complied with its obligations up until then, SCO is saying, and shouldn't that count for something?]

222. There was no evidence presented at trial that SCO did not "substantially perform" its obligations under the APA. To the contrary, the evidence showed that SCO performed under the APA for more than a decade.14

[Um. Might SCO have forgotten that it fought for and won a prohibition on mentioning all that to the jury?]

B. Unclean Hands.

223. In its Amended Trial Brief, Novell claimed that "SCO should be denied relief on all of its claims because it has unclean hands." (Docket No. 767 at 12.) Novell claimed that it would show at trial that, if SCO owned the copyrights, it "misused the copyrights by trying to collect royalties from companies that might not infringe the copyrights, and by refusing to give those companies the information they needed to either decide if they infringe the copyrights or change their code so they would not infringe." (Id. at 13.)

224. As a general rule, the "unclean hands" defense is for the Court alone to consider. Utah Labor Comm'n v. Paradise Town, 660 F. Supp. 2d 1256, 1263 (D. Utah 2009); Pelt, 611 F. Supp. 2d at 1286; Parduhn v. Bennett, 112 P.3d 495, 506 (Utah 2005). Accordingly, the Court may determine as a matter of law not to apply the defense at all.

225. The sole basis on which Novell contended that the defense applies is "copyright misuse." As Novell has framed it, the defense cannot and does not apply in this case.

72

226. Copyright misuse is a defense to a claim for copyright infringement in a court of equity, Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, 454 F. Supp. 2d 966, 994-95 (C.D. Cal. 2007) (citing authority); Home Design Servs., Inc. v. B&B Custom Homes, LLC, Civil Action No. 06-cv-00249-WYD-GJR, 2008 WL 2302662, at *2 (D. Colo. May 30, 2008); In re ISOs Antitrust Litig., 989 F. Supp. 1131, 1134 & n.1 (D. Kan. 1997), or else arguably a defense to a type of antitrust violation, Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 64-65 (1993). The leading commentator identifies no other context in which the defense applies. See Nimmer on Copyright § 13.09 (2009).

227. In this case, no antitrust claim was asserted, and SCO's claim for copyright infringement was not at issue at trial because this Court previously stayed that claim pending arbitration, and the claim remains stayed. Novell's "unclean hands" defense thus does not apply and fails as a matter of law.

228. Even if the Court were to consider the defense, it fails as a matter of law for lack of any support in the case law. The defense "is recognized only rarely," where the copyright owner has engaged in some transgression that "is of serious proportions and relates directly to the subject matter of the infringement action." Nimmer, supra, § 13.09[B]. In those rare circumstances, the defense applies only if a copyright owner has leveraged its copyright to undermine the Constitution's goal of promoting invention and creative expression. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 454 F. Supp. 2d 966, 995 (citing authority).

229. Moreover, with respect to the allegation that SCO failed to disclose the infringing code in Linux, it is undisputed that there are copyright notices in UNIX. Indeed, where a manufacturer's refusal to license software to third parties does not constitute "copyright misuse,"

73

Trial Sys. Corp. v. Southeastern Exp. Co., 64 F.3d 1330, 1337 (9th Cir. 1995), it cannot be that SCO's alleged misconduct should qualify.

230. Finally, the "alleged wrongdoing of the plaintiff does not bar relief unless the defendant can show that he has personally been injured by the plaintiff's conduct." Id. At trial, Novell made no showing of how it was personally injured by the alleged misconduct by SCO.

231. Novell's grounds for the alleged "copyright misuse" thus fail as a matter of law even if the Court were to conclude that Novell's "unclean hands" defense applies in this case.

CONCLUSION

Based on the foregoing Findings of Fact and Conclusions of Law, the Court concludes and orders as follows:

(1) The parties must prepare and execute documentation, including in satisfaction of Section 204 of the Copyright Act, sufficient to transfer from Novell to SCO the UNIX and UnixWare copyrights in existence at the time of the APA;

(2) Novell lacked the authority to direct SCO to waive its claims against IBM, and those purported waivers are without any force or effect; and

(3) In directing SCO to waive its claims against IBM, Novell breached the implied covenant of good faith and fair dealing under the amended APA, and for that additional reasons those purported waivers are without any force or effect.

DATED this 19th day of April, 2010.

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

74

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

Counsel for The SCO Group, Inc.

75

CERTIFICATE OF SERVICE

I, Brent O. Hatch, hereby certify that on this 19th day of April, 2010, a true and correct copy of the foregoing SCO'S PROSPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW was filed with the court and served via electronic mail to the following recipients:

Starling A. Brennan
David R. Wright
Kirk R. Harris
Cara J. Baldwin
WORKMAN | NYDEGGER
[address]

Thomas R. Karrenberg
Heather M. Sneddon
ANDERSON & KARRENBERG
[address]

Michael A. Jacobs
Eric M. Acker
Grant L. Kim
MORRISON & FOERSTER
[address]

Counsel for Defendant and Counterclaim-Plaintiff Novell, Inc.

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

76

1 With respect to SCO's slander of title claim, SCO will file a renewed motion for judgment as a matter of law regarding copyright ownership under Fed. R. Civ. P. 50(b), and, in the alternative, for a new trial under Fed. R. Civ. P. 59. If this Court grants the Rule 50 motion, SCO's claim for specific performance is moot, and if this Court grants a new trial under Rule 59, the Court may defer ruling on the claim for specific performance.

2 Any finding of fact that is appropriately considered a conclusion of law shall be regarded as such, and, likewise, any conclusion of law determined to involve a factual finding shall be regarded as a finding of fact to the extent appropriate.

3 Novell tried certain of its claims against SCO in a bench trial (Kimball, J.) in April and May 2008, and on July 16, 2008, the Court issued Findings of Fact and Conclusions of Law. (Docket No. 542.) To the extent not reversed by the Tenth Circuit, those factual findings are applicable here.

4 Novell Vice President Duff Thompson confirmed that, as is evident from the plain language of Schedule 1.1(a) of the amended APA, Novell intended to transfer to SCO all of the legal claims that Novell otherwise would have relating to the UNIX and UnixWare business being sold to SCO, which indisputably included the UNIX and UnixWare source code. (248:20- 249:23.) Novell did not offer any evidence to the contrary. # In Section 4.16, paragraph (b), the last sentence ("Buyer shall not ... Merged Product") is amended to read as follows: -- Notwithstanding the foregoing, Buyer shall have the right to enter into amendments of the SVRX Licenses (i) as may be incidentally involved through its rights to sell and license UnixWare software or the Merged Product [as such latter term is defined in a separate Operating Agreement between the parties to be effective as of the Closing Date, a copy of which is attached hereto as Exhibit 5.1(c)], or future versions of the Merged Product, or (ii) to allow a licensee under a particular SVRX License to use the source code of the relevant SVRX product(s) on additional CPU's or to receive an additional distribution, from Buyer, of such source code. In addition, Buyer shall not, and shall have no right to, enter into new SVRX Licenses except in the situation specified in (i) of the preceding sentence or as otherwise approved in writing in advance by Seller on a case by case basis. --

5 Until the penultimate day of trial, Novell continued to reserve the right to argue to the jury that SCO had acquired some type of "exclusive license" under the amended APA. When the prospect of such an argument arose during the charging conference, however, SCO pointed out that under the Copyright Act, if SCO had obtained an "exclusive license," then it necessarily had acquired ownership of the copyrights. (3/25/10 Jury Instruction Conf. at 35-36.) See 17 U.S.C.A. § 101; Traicoff v. Digital Media, Inc., 439 F. Supp. 2d 872, 877-79 (S.D. Ind. 2006) (surveying the relevant precedent); accord 1 The Law of Copyright § 4:44 (2009) (explaining that "the obvious conclusion is that an exclusive license is a transfer of copyright ownership under the statute"). The Court instructed the jury accordingly. (Jury Instruction No. 33B.) In fact, at the conference, Novell's counsel made clear that Novell's view was that SCO does not have any sort of "exclusive license" in the way that term is used in the Copyright Act or case law. (3/25/10 Jury Instruction Conf. at 31-34.)

[What a strange argument this is. Take a look at Traicoff v. Digital Media. Does it say that an exclusive licensee is a copyright owner? On the contrary, by my reading it says that the exclusive licensee is an owner of whatever rights are licensed to them exclusively by the copyright owner. They don't become the copyright owner; they are the copyright owner of the right or rights licensed to them. The issue in the case was whether an exclusive licensee can transfer its rights without the permission of the copyright owner. And why would SCO include this, in that Novell, according to this, didn't see SCO as an exclusive licensee. But if Traicoff means anything, it seems to me to be saying that an exclusive licensee could enforce its particular rights, despite not being the copyright owner. The court quotes approvingly of In re Patient Educ. Media, Inc., 210 B.R. 237, 240 (Bankr.S.D.N.Y.1997) (dictum): "The holder of the exclusive license is entitled to all of the rights and protections of the copyright owner to the extent of the license. Accordingly, the licensee under an exclusive license may freely transfer his rights ... ." It goes on to argue that "In addition, the Act explains that the '"Copyright owner", with respect to any one of the exclusive rights comprised in a copyright, refers to the owner of that particular right.' Id. From these definitions, it follows that a conveyance of an exclusive license of any of the exclusive rights comprised in a copyright constitutes a transfer of copyright ownership in those exclusive rights, and the exclusive licensee becomes the copyright owner of those exclusive rights. Section 201(d)(1) of the Act[4] allows the ownership of a copyright to be transferred in whole or in part by any means of conveyance." So this Indiana court viewed copyright ownership as divisible, something you can transfer partially or altogether. But here's my question: how could SCO be an exclusive licensee, in that others were already licensed to use the same code, like IBM, HP, etc.? According to SCO's proposed jury instructions, "An exclusive license means that only the exclusive licensee can use the copyrighted material, whereas an implied license means that several licensees can use the copyrighted material." Novell's position is that SCO had the exclusive right to use Unix code to develop UnixWare. That's all.

One of Groklaw's reporters tells us what really happened, as he saw it unfold:

Yes, SCO (in the person of Ted Normand) did point that out. (And received utterly dumbfounded stares from nearly every person in the courtroom.)

Then Michael Jacobs said, "Uhh... no. (picks up piece of paper) I could say 'Ted, would you go make some copies of my proposed jury instructions?' and it wouldn't transfer the copyright to those jury instructions to you."

Normand continued to insist that the law states that "exclusive license" is tantamount to copyright ownership. However, one might note that what SCO wanted (see #6) and what they got (see #33B) on this instruction are quite different.

Here's SCO's proposed jury instruction #6:
SCO'S PROPOSED INSTRUCTION NO. 6:

The Element of Copyright Ownership: Relevance of Copyright Ownership

With respect to who owns the property at issue, and your consideration of the amended Asset Purchase Agreement, you should consider the nature of a copyright.

Copyright is the exclusive right to copy. The owner of a copyright has the exclusive right to make and distribute copies of the copyrighted work, to display publicly the copyrighted work, and to license the right to use the copyrighted work to other people. The owner of a copyright also has the exclusive right to bring claims in court to enforce the copyright against people who are infringing on the copyright. The owner can also license that right to someone else, but only through an express, exclusive license.

You therefore should also consider the issue of a "license" to use copyrighted material. There are different types of licenses. One distinction is between "express" and "implied" licenses.

An "express" license is found in a contract that clearly states that one party to the contract has a "license."

An "implied" license is found in a contract that does not use the word "license," but from whose terms you can conclude that one party has the right to use the copyrighted material.

Implied licenses usually are found where one party has created a work at the other's request and handed it over, intending that the other copy and distribute it.

Another distinction, which is related to the difference between an "express" and an "implied" license, is the difference between an "exclusive" and a "non-exclusive" license to use copyrighted material.

An exclusive license means that only the exclusive licensee can use the copyrighted material, whereas an implied license means that several licensees can use the copyrighted material.

The distinction between an "exclusive" and a "non-exclusive" license to use copyrighted material is relevant for two mains reasons.

First, an implied license can only be non-exclusive.

Second, an implied licensee, because he is a non-exclusive licensee, cannot bring lawsuits to enforce the copyrights against people who may be violating them. [cases cited omitted]

And here is what they got from the judge for the jury instruction:
In determining which party owns the property at issue, and your consideration of the amended Asset Purchase Agreement, you may consider the nature of a copyright.

Copyright is the exclusive right to copy. The owner of a copyright has the exclusive right to do and to authorize any of the following:

(1) to reproduce the copyrighted work in copies;

(2) to prepare derivative works based upon the copyrighted work;

(3) to distribute copies of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.

The term "owner" includes the author of the work, an assignee, or an exclusive licensee. In general, copyright law protects against production, adaptation, distribution, performance, or display of substantially similar copies of the owner's copyrighted work without the owner's permission.

A copyright owner may enforce these rights to exclude others in an action for copyright infringement. Even though one may acquire a copy of the copyrighted work, the copyright owner retains rights and control of that copy, including uses that may result in additional copies or alterations of the work.

Possession of certificates of copyright registrations is immaterial to ownership of the copyrights, but may be considered for other purposes, such as the intent of the parties.

The opening section tells us that the jury was to consider all this in determining the owner of the copyrights, which they did, ruling that it wasn't SCO, so from that standpoint, it was weighed and found wanting. I would add Instruction No. 34A also:
A copyright owner may transfer, sell, or convey to another person all or part of the copyright owner's property interest in the copyright. The property interest in the copyright includes the right to exclude others from reproducing, preparing a derivative work, distributing, performing, displaying, or using the copyrighted work. To be valid, the transfer, sale, or conveyance must be in writing. The person to whom a right is transferred is called an assignee. The assignee may enforce this right to exclude others in an action for copyright infringement.

A copyright owner may also transfer, sell, or convey to another person any of the exclusive rights included in the copyright. To be valid, the transfer, sale, or conveyance must be in writing. An exclusive licensee has the right to exclude others from copying the work to the extent of the rights granted in the license and may bring an action for damages for copyright infringement.

Nonexclusive licenses, on the other hand, do not transfer copyright ownership and can be granted orally or implied from conduct. An implied license can only be nonexclusive. A nonexclusive licensee cannot bring suit to enforce a copyright.

An implied nonexclusive licenses may arise when (1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes the particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work.

So, there it is, just like the case SCO cited: you can give someone an exclusive license to any of the rights that as owner you may have without giving them all, and the licensee would the become the owner of that particular slice of rights without necessarily becoming the copyright owner of all the rights of the original owner. You can actually do more than that, or less than that, as Novell pointed out in its proposed jury instruction No. 11, its answer to SCO's instruction No. 6:
Divisibility of Copyright Ownership

The various rights included in a copyright are divisible and any of the exclusive rights comprised in a copyright may be transferred or licensed (on an exclusive or non-exclusive basis) to other parties.

Authority: Kalantari v. NITV, Inc., 352 F.3d 1202, 1207-08 (9th Cir. 2003) ("Upon obtaining a copyright, an author automatically acquires certain rights that are inherent in the very nature of a copyright. Specifically, the copyright owner obtains the six exclusive rights of copyright... as well as the right to transfer any or all of those rights."); Bagdadi v. Nazar, 84 F.3d 1194, 1197-98 (9th Cir. 1996) ("[T]he various rights included in a copyright are divisible and ... 'any of the exclusive rights comprised in a copyright ... may be transferred... and owned separately'") (citing 17 U.S.C. Section 201(d)(2) ["Any of the exclusive rights comprised in a copyright ... may be transferred ... and owned separately. The owner of any particular exclusive right is entitled, to the extent of that right, to all of the protection and remedies accorded to the copyright owner by this title"]); Ninth Circuit Model Civil Jury Instructions, Section 17.11.

SCO's description of what they say transpired makes it sound like Novell ran away in terror from this topic. But reading all the above, do you think that is an accurate portrayal? In this case, Novell's position would likely be that *if* SCO had an exclusive license, it was a limited one, giving them, for example, the exclusive right to develop UnixWare going forward, and if they had that exclusive right, they would be able to protect their interest by means of copyright infringement actions. SCO claims Novell never took the position that SCO even had an exclusive license, but SCO says many things, we've seen over time, so we'll have to wait for the transcripts to be made available to know for sure. But the overall picture is that the jury was given the instruction, so they did consider all of the possibilities and they still said SCO was not and is not the owner.

6 Although Novell suggested otherwise to the jury at trial, the language of Amendment No. 2 replaced, as a matter of law, the old language in the Excluded Assets Schedule of the APA. SCO, 578 F.3d at 1210-11. The new language controls this Court's interpretation of the deal. Id. Accordingly, the old language of the APA concerning the exclusion of copyrights thus itself could not serve as a basis to conclude that the copyrights are not required or not intended to have transferred.

7 Novell witness Tor Braham agreed with that characterization of the "without limitation" language. Mr. Braham testified:

If you are making a list of something under a general statement, then the list doesn't -- if there's something that's not on the list, it doesn't necessarily mean that it's not included. So, it enables you to talk about something and give examples but not necessarily give every single example, so your list is representative but not necessarily complete. It may be complete. It may not be. But the -- what you're saying is that, by virtue of making the list, you're not necessarily making it complete.
(2375:21-2376:2.) He thus acknowledged with respect to the language: "It includes the assets, without limitation, meaning at least the following, but there may be more." (2376:3-5.)

8 SCO was permitted to enter into new source code licenses for both UnixWare (the latest version of UNIX) and the older versions of UNIX when licensed together with UnixWare. (APA, Amendment No. 1 ¶ J; Docket No. 542 at 6.)

[That's a breezy way to put it, leaving out some mighty important details that color the overall picture differently. Here's how the APA puts it, with some emphasis by me:

4.16 SVRX Licenses.

(a) Following the Closing, Buyer shall administer the collection of all royalties, fees and other amounts due under all SVRX Licenses (as listed in detail under item VI of Schedule 1.1(a) hereof and referred to herein as "SVRX Royalties"). Within 45 days of the end of each fiscal quarter of Buyer, Buyer shall deliver to Seller or Seller's assignee 100% of any SVRX Royalties collected in the immediately preceding quarter. Buyer shall diligently seek to collect all such royalties, funds and other amounts when due (and shall investigate and perform appropriate auditing and enforcement under such licenses at Buyer's cost including auditing two (2) SVRX licensees identified by Seller during each quarter in which SVRX Royalties are collected). In consideration of such activities described in the preceding sentence, Seller shall pay to Buyer within 5 days of receipt of SVRX Royalties from Buyer as set forth in the preceding sentence, an administrative fee equal to 5% of such SVRX Royalties.

(b) Buyer shall not, and shall not have the authority to, amend, modify or waive any right under or assign any SVRX License without the prior written consent of Seller. In addition, at Seller's sole discretion and direction, Buyer shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by Seller. In the event that Buyer shall fail to take any such action concerning the SVRX Licenses as required herein, Seller shall be authorized, and hereby is granted, the rights to take any action on Buyer's own behalf. Buyer shall not, and shall have no right to, enter into future licenses or amendments of the SVRX Licenses, except as may be incidentally involved through its rights to sell and license the Assets or the Merged Product (as such term is defined in the proposed Operating Agreement, attached hereto as Exhibit 5.1(c)) or future versions thereof of the Merged Product.

(c) Seller further covenants that immediately following the Closing Date neither it, nor any of its officers, directors or employees shall (i) take any material action designed to promote the sale of SVRX products or (ii) provide material compensation to any employee designed and intended to incentivize such employee to promote the sale of SVRX products, except for actions incidental to unrelated business activities of Seller.

Here's what Amendment 1 says:

10. In Section 4.16, paragraph (b), the last sentence ("Buyer shall not ... Merged Product") is amended to read as follows:

-- Notwithstanding the foregoing, Buyer shall have the right to enter into amendments of the SVRX Licenses (i) as may be incidentally involved through its rights to sell and license UnixWare software or the Merged Product [as such latter term is defined in a separate Operating Agreement between the parties to be effective as of the Closing Date, a copy of which is attached hereto as Exhibit 5.1(c)], or future versions of the Merged Product, or (ii) to allow a licensee under a particular SVRX License to use the source code of the relevant SVRX product(s) on additional CPU's or to receive an additional distribution, from Buyer, of such source code. In addition, Buyer shall not, and shall have no right to, enter into new SVRX Licenses except in the situation specified in (i) of the preceding sentence or as otherwise approved in writing in advance by Seller on a case by case basis. --

Now, read SCO's breezy sentence again. Is it accurate? Ballpark? Even close? If you were the judge, and you read all this, what would you now be thinking about SCO's narratives?]

9 The evidence thus does not support Novell's argument that SCO's attorneys understood the copyrights to have been excluded from the deal. There is no evidence that the issue was ever discussed in the meeting of Santa Cruz's board of directors, and there is no evidence that the outside attorneys for SCO ever discussed that particular exclusion with Novell's outside attorneys. (2428:23-2429:4 (Braham).) One of Novell's witnesses did take the position that SCO "had Brobeck, Phleger as their voice" in the negotiations of the APA (2358:13-21 (Braham)), and the evidence showed that the Brobeck law firm put its name to the SCO filing from early 1996 in which SCO expressly represented that it had acquired the UNIX copyrights and was the UNIX copyright owner. (Ex. 127 §§ 3.4, 4.9, signature block.)

[Well, Groklaw's reporters told us that Tor Braham's testimony on the stand at trial included this:

Mr. Singer asks in the week leading up to the signing, when Santa Cruz saw the exclusion, was there pushback?

Braham replies that SCO's Mr. Higgins asked regarding the exclusions, "Is this really required?"

Mr. Higgins would be Jeff Higgins, SCO's lawyer from Brobeck, who SCO failed to call to the stand. So I would call that evidence that SCO's lawyer knew about the copyright exclusions and discussed it with Novell's lawyer. Wouldn't you?]

10 Ms. Amadia's testimony is therefore consistent with Mr. Sabbath's direct testimony that the parties understood that copyrights were to transfer and that a declaration provided to IBM's counsel, to the extent it was inconsistent, did not accurately reflect his testimony.

11 Novell suggested that the transaction by which SCO acquired the UNIX assets from Santa Cruz in 2002 reflects the view of the parties to that transaction that Santa Cruz did not own the UNIX or UnixWare copyrights (Ex. O10), but that argument is of no moment to the specific performance relief SCO seeks in its proposed findings. The premise of that relief is that Novell has not to date transferred to SCO the copyrights. Moreover, a review of the full text of that assignment, including Schedule C, shows that the language Novell argued from applies only to the registration and recordation of copyrights, not ownership of the copyrights, which is clearly represented as being assigned to Caldera.

12 The primary purpose of Item VI of Schedule 1.1(a) (and of the Schedule as a whole) was to identify the assets being transferred to SCO; Item VI therefore identifies "all contracts" relating to the list of SVRX products, as all such contract were being transferred to SCO under the APA.

13 Novell asked Mr. Maciaszek to confirm that "the IBM SVRX license" included the IBM Software Agreement and Sublicensing Agreement, but Mr. Maciaszek chose to use his own language and stated that those agreements "would be two components of their total licenses." (1704:12-17.) In addition, Mr. Maciaszek's testimony is without regard to the actual use of the phrase in the APA itself, and thus disregards the only sensible way the phrase can be interpreted to mean therein.

14 To the extent Novell relies on the additional royalties that Novell was awarded in 2008 under its claim for portions of the SCOsource agreements, that judgment is no basis for Novell's claim that SCO did not substantially perform under the APA. Even in the context of those claims, the Court found against Novell on the substantial portion of their claims. Novell originally sought more than $30 million from more than twenty agreements SCO entered into in 2003 and 2004, and the Court (Kimball, J.) found that SCO acted properly in retaining the payments it received under all of those agreements but one, and awarded Novell less than 10% of its claimed damages (and less than 2% of the over $200 million in total royalties that SCO has remitted under the APA) on the basis of a single section of a single agreement. Those findings and evidence underscore SCO's substantial performance under the APA for more than a decade.

[Actually, if you read the opening words by Novell's attorney Michael Jacobs at that bench trial, you will see the inaccuracy for yourself:

MR. JACOBS: Your Honor, in this bench trial, we seek a recovery of exactly $19,979,561 from SCO, based on the Court's earlier findings of breach of fiduciary duty, conversion, unjust enrichment. This is an amount we seek from SCO based on its licenses to Sun, Microsoft and what we're referring to as the SCOsource licenses. And we'll be going through those in the course of both my opening statement and this trial. In view of the Court's earlier findings, our case rests on four basic points, and the evidence will, over the course of this trial, Your Honor, prove these points.

First. Contrary to what SCO would have the Court believe in this trial, when it was active, SCOsource was all about SVRX. It was not about SCO-written code or Santa Cruz-written code. It was not about UnixWare, in the sense that it was not about the code that Santa Cruz contributed to the code base that evolved over time and became UnixWare. It was, rather, all about SVRX, the rights that SCO claimed to have acquired from Novell but the Court has found that it did not.

As you can see with your own eyes, Novell did not ask for $30Million and then the court cut it down from there. Novell began the trial by dropping one claim, and not because they didn't think they were right, but just from a practical strategy.]


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