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SCO v. Novell Trial, Day 7, Tuesday, March 16, 2010: It's Darl, Darl, Darl - as text
Wednesday, September 29 2010 @ 06:35 AM EDT

Here's the transcript of Day 7 of the SCO v. Novell trial in Utah, March 16, 2010, as text, the second trial, with the Hon. Ted Stewart presiding, and it's Darl McBride, all day long on the witness stand. He was on the stand the day before, and he'll be returning for more on the next day, but this day is by far the most intriguing so far.

We find out something we never noticed, but Morrison & Foerster's Eric Acker did, and Acker uses it in his questioning of Darl. You know that SCO accused Novell of slander of title, and part of SCO's shtick was that on the day that SCO announced its fabulous financials from the Microsoft and Sun license deals, on May 28, 2003, Novell ruined everything and sent SCO's stock into the tank by choosing that same day to announce that Novell, not SCO, owned the UNIX copyrights. In opening statements, both SCO lawyers, Boies Schiller's Stuart Singer and Brent Hatch, went on and on about the damage to SCO's stock after Novell made its announcement that day.

Guess what Acker demonstrates? That actually what really happened is SCO had already announced their projected financials prior to May 28, on May 14th, in a press release, and on that day, without Novell saying a word, the SCO stock only went up by the end of the day from $3.34 at the start of the day and to a closing price at $3.55. By May 28, it was at around $10, and early in the morning of May 28, despite SCO announcing its fabulous numbers at a 9 AM conference call, the SCO stock began trending downward *before* Novell's announcement. At the time of Novell's press release, it was at around $8 and it went down by the end of the day to $6 something. Who can say that it was Novell at all, considering the pattern from the morning onward? Plus $6 is higher than it was on May 14th, when SCO had the stage to itself and told the world about its wonderful numbers.

Now *that's* good lawyering. It pretty much evicerates SCO's claim. Because SCO was depending on the concept that their stock was going to go to the moon, had it not been for Novell saying what it did, but that is not what happened at all on May 14, and then on May 28th, the stock started to trend downward after SCO announced its numbers before Novell said a word. After all that is on the table, SCO finds itself in a leaking boat, and the water up to their ankles. If SCO had prevailed on its slander of title claim, at a minimum this testimony could be used to make any damages very, very small.

I can't believe SCO wants a do over. But we find out why some might want it. Darl admits on this day that he stands to make millions if SCO were to prevail, thanks to him owning millions of options and shares. He began buying shares in Caldera in 2000, as he mentioned in a July 2002 "Dear Shareholder" letter [PDF]: "I became a shareholder of Caldera, along with many of you, at the time of their IPO in March 2000. My goal over the next few years is to make a profit on my initial investment in Caldera." Indeed.

Here's how the interchange goes, with Acker pounding Darl and Darl trying to squirm away every which way:

Q. And your earnings announcement on May 28, 2003, was for the quarter that ended a month earlier, on April 30, 2003, right?

A. Yes. That's right.

Q. And so the quarter had actually been closed for a month before May 28, right?

A. Roughly, yes.

Q. And the revenue and earnings you reported on May 28 was about 21 million in the top line revenue and income of a little over 4 million, right?

A. Yes.

Q. But that wasn't the first time you told the public those numbers, was it?

A. I don't recall.

Q. Let me show you Exhibit M-14.

THE COURT: M?

MR. ACKER: M. Yes, Your Honor.

Q. BY MR. ACKER: M-14 is a SCO press release dated May 14, 2003; isn't that right?

A. Yes. That's correct.

Q. And you're announcing a couple things in this press --

I move for admission of M-14, Your Honor.

MR. SINGER: No objection.

THE COURT: It will be admitted.

(Novell Exhibit M-14 received in evidence.)

Q. And you're announcing a couple of things in this press release. You're announcing, one, what you expect your earnings to be at the end of the quarter, correct?

A. Yes.

Q. And you're also saying that we did this great deal in the SCO -- in the licensing campaign we executed this deal with Microsoft, right?

A. Yes. That's right.

Q. You don't say "Microsoft," but that's what we're talking about, right?

A. I'm not sure if it was Microsoft or SUN. We had a couple of different deals going on at that point in time. I'd have to break this down a little it. It was either Microsoft or SUN.

Q. And the reason you put out these press releases was to tell people: "Hey, we had a great quarter and we did this great deal," is so that the news gets out to the market and they buy your stock, right?

A. That's not correct. That's not why we put them out.

Q. But that's the reason for telling the market what's going on, so that they know what's going on with the company?

A. The reason we put this out was, as a publicly traded company, when you have material information that's hit your company, whether it's good or bad, you have an obligation to publish it, so this was a material change, so part of that was published.

Q. So you had an obligation on May 14 to tell the investing public the following:

Lindon, Utah, May 14, 2003. The SCO Group -- and then you have a NASDAQ ticker -- announced today the signing of another major SCOsource licensing agreement. This agreement marks the second substantial licensing agreement since the formation of SCOsource in January of this year. The SCOsource division was created to manage the substantial UNIX intellectual property owned by SCO.

And then you also told them:

SCO updated its guidance on expected results for its second fiscal quarter ended April 30, 2003. The company expects to report net income of approximately 4 million or 29 cents per diluted share or an estimated revenue of 21 million.

Correct?

A. Yes. That's correct.

Q. And those were the numbers that hit the street on May 28, $4 million in net income and 21 million in revenue, right?

A. I don't see that in front of me. It was close to that if not that.

Q. So you told the investing public that two weeks before Novell said anything in the press release about the ownership of the UNIX copyrights, correct?

A. Yes.

Q. And do you know how much your stock went up that day?

A. I don't have it in front of me.

Q. Would it surprise you to know that, based on these numbers, your stock went up 39 cents?

A. I don't have a reason to believe one way or another.

Q. Let me show you a document so we can take a look at that. And this is Exhibit Q-33. And you see, Mr. McBride, what I've handed to you? Exhibit Q-33 is a daily report of the movement of the SCO stock price over a period of time. And if you could take a look on the fourth page in, there's a date, May 14, 2003 date.

First I would move for admission of Q-33, Your Honor.

MR. SINGER: Objection. There is no foundation. I have no idea what this is.

THE COURT: I think we're going to need more foundation, Mr. Acker.

MR. ACKER: Well, let me just ask Mr. McBride some questions and see if he'll disagree with the information in this document.

Q. BY MR. ACKER: You see, sir, that on May 14 this chart indicates your stock opened at $3.34, and it finished the day at $3.55. Do you see that?

A. Yes, I do.

Q. Do you have any reason to disputes that that's what your stock did that day?

A. I don't know without looking at it.

Q. I'm sorry, sir?

A. I don't know offhand. I just don't know.

Q. Okay. You don't know one way or another. And that's the day that you told the market:

We did the second SCOsource license, and this is what our numbers are going to be at the end of the month.

Right?

A. Yes.

Q. Okay. Now -- now, before the market opened on May 28 --

If we could pull up the SCO's opening slide for that May 28 stock drop, Mr. Lee.

THE COURT: Which is?

MR. ACKER: This is a slide used by SCO in its opening statements, Your Honor.

THE COURT: All right.

Q. BY MR. ACKER: Now, so, on May 14 your stock is trading a little over $3.00 and the news is out on the street that you're going to have $21 million in revenue and $4 million in income and you've signed the second Microsoft deal. And your stock, at the beginning of the day on May 28, is a little over $10 before the market opens. Do you see that? It's on the screen, Mr. McBride.

A. Oh. Okay. Okay. I've got it.

Q. So your stock opens at ten bucks on the 28th. And then you make your second announcement regarding your earnings. You recall that your conference call was about 9:00 o'clock in the morning on central mountain time?

A. We usually had them in the morning. I don't have any reason to disagree with that.

Q. And you see what happens to your stock after starting at $10 a share, after -- even with your announcement, your reannouncement of these earnings, it drops down to below $9.00, just a little over $8.00. Do you see that?

A. Okay. Yes.

Q. And that all happens before Novell says anything about ownership of the UNIX copyrights, correct?

A. I don't know what time they --

Q. Well, your lawyers -- your lawyers claim that the time the statement was made is a dotted line going up and down the chart. Do you see that?

A. Okay. So let's take that one, then. Okay.

Q. And so, before that statement is made, your stock has dropped from $10.00 to just a little over $8.00, despite the fact that you have announced to the street for the second time your revenue for the second quarter, right?

A. Yes.

Q. So, before Novell said anything about ownership of the UNIX copyrights on May 28, 2003, your stock was dropping, despite the fact that you made your second announcement about your revenue the second quarter, right?

A. It had gone down a little bit.

Q. But even after the end of the day when -- after SCO makes its announcements, the stock is still trading at $6.00, a little over $6.00 a share, right?

A. Yes.

Q. And so it's $3.00 higher than it actually closed when you made your first announcement of your revenue two weeks earlier on May 14, right?

A. Give or take some pennies. It's in that range.

Isn't that amazing? I can't believe SCO wants to appeal. Here's that May 14 press release, if you'd like to read it for yourself. After announcing the second deal, it said this about the money:
SCO updated its guidance on expected results for its second fiscal quarter ended April 30, 2003. The Company expects to report net income of approximately $4.0 million, or $0.29 per diluted share, on estimated revenue of $21.0 million.

Of the $21.0 million in anticipated second-quarter revenue, approximately $12.8 million is expected to come from the sale of its operating system platform products, and $8.2 million is expected to come from its SCOsource licensing initiative. The Company's current fiscal year ends October 31, 2003.

Conference Call

The Company will host a conference call at 9 a.m. MDT on Wednesday May 28, 2003, to discuss second-quarter fiscal 2003 results.

Note that the SCO conference call was at 9AM on May 28. Here's the transcript we did at Groklaw of that conference call. Here's an earlier Groklaw article on the stock story on May 28, 2003, where I noticed that SCO's story seemed to have some problems matching the events.

By the way, if you would like to go directly to the transcript of the day's testimony and skip my remarks, here is Part 1, Part 2, and Part 3.

And if you'd like to jump to transcripts of other days of the trial, here you go:
March 2010
M Tu W Th F
08 09 10 11 12
15 16 17 18 19
22 23 24 25 26

Here's the report from the courtroom that day, live, if you would like to compare notes.

So, Darl, Darl, Darl. I don't know about you, but I never get enough Darl McBride. And in fact, that turns out to be a good thing, because even after spending all day on the stand, he isn't done by the end of the day, so he'll be back on the stand again.

Acker handled cross examination of Darl at the first trial before Judge Dale Kimball also, if you recall, back in 2008. I have the impression that MOFO assigns Acker to the witnesses they would like to pulverize, witnesses they suspect may not tell the truth, the whole truth, and nothing but the truth without a helping hand from them. But let's begin at the beginning now, and work our way through the day's events.

On the Question of Letting the Jury Hear About Prior Litigation Events:

The day begins with the usual discussions with the judge and both sides bringing to his attention various issues they wish resolved before the jury is brought in. And this day is significant because the day begins with Sterling Brennan, for Novell, raising the issue about the jury getting to hear about prior decisions in the case. It's significant because that is one issue that SCO is appealing, because eventually the judge did allow them to hear at least some of it, in connection with SCO expert Christine Botosan's testimony. Brennan gives SCO fair warning that if they ask her the questions he thinks they will, SCO will open the door to Novell being allowed to mention prior litigation events. Here's the part of question four that SCO is asking the appeals court to answer in the affirmative:

4. Did the district court abuse its discretion by (i) changing course from its rulings in the first two weeks of trial, in which it found that such evidence was extremely prejudicial to SCO, and allowing Novell to inform the jury of judicial decisions in Novell’s favor that this Court had reversed;
So that's the issue, and now we get to see how it all played out. Brennan begins by pointing out that Botosan has prepared a kind of alternate universe in order to calculate damages SCO could be entitled to if it were to prevail. It didn't, but at the time, it was not yet known what the outcome would be. She had prepared two reports, one of them an events study, looking at stock performance in light of various events, like SCO suing IBM, in order to figure out what SCO's stock would have been. While she measured the impact of the announcement that SCO had filed suit against IBM, she left out of her study significantly negative events, such as Judge Dale Kimball ruling on a motion in early 2004 that the APA didn't look like it transferred the copyrights or even the day SCO announced it was suing Novell. I can't help but point out that neither was reversed by the appeals court. Here's a snip of Brennan's argument:
As the Court may recall from the Daubert motions, Dr. Botosan conducted what is known as an events study, pegged certain events and marked those as against variations in SCO's stock price performance relative to the NASDAQ composite index, and if there was a variation that she believed was not explained by the market, then looked to see whether there was an event that occurred that could be explained or a predictor for the variation.

Of the events that she seized on, some of them are litigation activities. For example, the filing of the lawsuit by SCO against IBM. She identifies that as a significant predictor of a variation in SCO's stock performance. There are events that she does not include. For example, the filing of this lawsuit against Novell in early 2004. There are other events, litigation related, that she does not include in her analysis that we believe would be subject to cross-examination, and by virtue of offering her opinions would open the door to various litigation events that occurred during the period of her damages analysis.

In 2004 there is significant litigation activity in this case when Judge Kimball made his initial ruling that it did not appear that the asset purchase agreement constituted a transfer of copyright assets, and that in any event it was unlikely that that agreement met the written description or written requirement for transfer of the copyright ownership. That was in the public domain. That was information that the market could react to. That was information that potential licensees could react to. Dr. Botosan's opinion is premised entirely on the prognostication or prediction of what both the marketplace would do in reaction to certain events and, more importantly, what potential licensees might do.

Why not, then, look at events throughout the period that SCO's damages are calculated from, 2003 through 2007?

SCO's response, through Brent Hatch, is that she only looked at 2003 events for the events study:

MR. HATCH: Well, he is kind of mixing two things, because he is talking about causation again and then damages. On the event study, which talks about causation, those are events in 2003. The particular event that he is most concerned about apparently is Judge Kimball's summary judgment ruling which came down in August of 2004. Excuse me, 2007. The damages study, and that is where he moves to damages, the damages study went through October of that year, because that was the month leading up to the trial, so we are only going to talk about a couple of months there.

So I think in large part what Novell is trying to do is essentially they are trying to bootstrap in information that is not relevant. It is not relevant to the causation study, which is only the 2003 time period, and it really does not have an effect on damages.

But Novell asks the judge to let them ask her in cross examination why she stopped there in the events study, why not look at later events, since the damages period includes all those years? Surely they have the right to cross examine her as to the efficacy of her study:
So if, in fact, the opinion that is going to be offered through direct examination is what is the mind-set, the state of mind of the market for potential licensees in either 2004, 2005, 2006 or 2007, which is her damages period, then in all fairness Novell ought to be able, since they would open the door, to examine the witness regarding other events. In fact, these are not even predicted events, these are actual events that would have a significant impact on the reaction both in the market and to potential licensees.

I have pointed out Judge Kimball's initial ruling in 2004 which is within the damages period and because, according to Dr. Botosan's report, and the deposition testimony that was taken, she also includes damages, a very significant amount of damages for 2007, and that is the very year where Judge Kimball, of course, issued his ruling finding in favor of Novell.

So, Your Honor, I wanted to alert the Court that if they are going to proceed with this line of testimony, they would be clearly opening the door and Novell in every respect ought to be able to examine Dr. Botosan regarding these events.

The judge is inclined to grant Novell's request, as you would be too. You don't have to be a lawyer to sense what is fair. Some of you would probably argue that indeed it helps.

Next they discuss a couple of housekeeping issues. For example, Novell has a new exhibit it wishes to use, the transcript of the SCO November 2003 conference call. SCO doesn't want the jury to hear about the terms of Boies Schiller's retention discussed that day in the call, so Novell agrees to remove all such portions of the exhibit. But you can read it here, if you wish to. SCO has removed the mp3 from its original place on its website. But I remember listening to it, because it was the one that David Boies attended, where he and Darl threatened Linux end users. Here's one of my favorite parts:

Berr: Gentlemen, there's been suspicion, you know, from Linux users, that you guys are being funded ... this litigation is being funded by, Microsoft, or that you have been coordinating with Microsoft. I was wondering if Darl or Mr. Boies would either care to address that?

Boies: I have not had any conversation, nor, in so far as I know, and I think I would know, has anybody from my firm had any conversation, either with Microsoft, or with Microsoft representatives. This has been entirely litigation that we have undertaken on behalf of SCO. And obviously the recent equity transaction -- Dollar Series A Preferred transaction -- is something that as I think Darl indicated, will provide adequate financing for the litigation without looking to any other companies.

Just reading it again makes me laugh. He's talking about the BayStar investment that was announced the previous month, which investment BayStar's Lawrence Goldfarb said pointblank in a Declaration in the SCO v. IBM case was indeed inspired by Microsoft. He says they guaranteed the investment and introduced BayStar to SCO, both things Microsoft denied. And as you know, Microsoft is world famous for being honest as the day is long.

Here's the transcript of the October SCO conference call on the BayStar investment. But the part SCO doesn't want mentioned in the November conference call is the part in the call when SCO announced Boies was to be given a million dollars and a significant chunk of SCO stock, something unusual enough that it evoked questions about it at the event and elsewhere:

McBride: ... We are pleased today to announce that we are deepening our relationship with the law firm of Boies, Schiller & Flexner and other associated firms by expanding the scope of their representation. Throughout the course of this year, Mr. Boies and his colleagues have served us extremely well, focusing primarily on contract issues related to IBM. With today's announcement, we are confirming a significant expansion of that scope to include broader protection and enforcement of our Unix System V source code, our copyrights and related intellectual property.

On a related note, in connection with our recent 50 million dollar private equity placement completed on October 16, we will provide our law firms with 400,000 shares of SCO common stock and 1 million dollars in cash. This consideration will result in a charge to earnings of approximately 8.9 million dollars in our 4th quarter that ended October 31, 2003. This 8.9 million dollar charge is comprised of a non-cash expense of 7.9 million related to the issuance of the 400,000 shares I mentioned, and a cash expense of 1 million dollars.

I would like to add that we are very pleased to have Mr. Boies's firm and his colleagues join us as significant shareholders in SCO....

Finally, I'd like to comment on the additional copyright issues we referenced in our press release. For the last several months, we have consistently stated and maintained that our System V code is in Linux. We have been careful and responsible in the manner in which we have addressed these issues with the software industry, with Linux end users, and with members of the open-source community. The claims that SCO has are both broad and deep. These claims touch not ... just not IBM, but other vendors as well. They also touch certain industry consortia, and corporate Linux end users. Our claims are not trivial. The violations of our intellectual property are not easily repaired. As we have stated over the last several months, it is our intention to vigorously protect and enforce SCO's intellectual property, our System V source code, and our copyrights. We are now fully prepared to do that. As a result of our October private placement, we have a significant war chest to fund this effort. As a result of the expanded scope of representation of Boies, Schiller & Flexner and their associated firms, we have more then ample legal talent and resource for this effort.

Ah, SCO's salad days, when they were mean as a snake and happily bullying Linux users right and left. How awful it felt at the time to hear him speak like that. And even now, I find it chilling, don't you?

The terms of the Boies Schiller retention changed later, with the firm asking instead of stock for cash up front. I suspect the latter is the part they didn't want the jury to hear about, as it reeks of a certain lack of confidence in the ultimate outcome, I'd say, which one might posit was positively prophetic.

McBride Takes the Stand:

Anyway, with all the issues thrashed out, in walks Mr. McBride and he retakes the stand, and Mr. Singer begins his direct examination. He had begun his testimony the day before, so now it resumes. Interestingly, he is asked about his shares in the company. He says he now holds only 26,000 shares. But in March of 2003, the month SCO sued IBM, look what he got, 200,000 options. He already had obtained in October of 2002 5,000 shares and 3,000, and in June he got another 7,003 at the princely price of 0.001 per share, with the notation that at that point he had 15,003 shares. So he's added some since. He says that he still has a significant amount of options, and Acker asks how many, precisely:

Q Over time you acquired a significant number of stock options to purchase SCO stock, correct?

A Yes, that's correct.

Q Today you have over a million such options, correct?

A That's correct.

Q In fact, of that million, 600,000 of those options are fully vested, right?

A I don't know exactly how many are vested. I think it would be more than that, but yes.

Q Of those 600,000 that you initially received upon becoming CEO in 2002, your strike price is 76 cents, isn't it?

A That's correct.

Q So what that means is that if SCO is successful in this lawsuit and the SCO stock goes to $1.76, you stand to make $600,000, right?

A I think the way you did the math, that's correct.

Q If the SCO stock price goes to $2.76, you stand to make $1.2 million, correct?

A Correct.

Q If the SCO stock price goes to $5.76, you stand to make $3 million, correct?

A Correct.

Q It's a lot of money, isn't it, Mr. McBride?

A Yes, it is.

Q That is not considering additional stock options you have and stock ownership, correct?

A That's correct.

Q So you have a significant financial stake in the outcome of this case, don't you, sir?

A I have a material -- what should I say -- interest in the outcome of this case here, there is no doubt about that.

So that's what's in it for Darl. As you know, dreams don't always come true, though. As of today, the stock is priced at 4 cents. But there is the appeal, and if Darl owns this much, imagine the others, so that explains why they bother with an appeal. If the odds are against you, but the possible prize is so large, there are those who will continue to salivate against all odds.

Then Singer asks Darl what business Caldera was in when he became CEO in 2002, and get a load of his answer:

Q. What I would like to do now, is go back to 2002 and when you became C.E.O. What was SCO's business at the time?

A. The core business of S-C-O was selling operating systems.

Q. Which particular products were being sold?

A. There were two main products being sold, the UNIX operating system and then they had started to dabble in trying to sell the Linux operating system.

That, of course is precisely backward. Caldera had been from its inception a pure Linux vendor, which then in 2001 purchased the UNIX products from Santa Cruz and began to dabble in UNIX. In that Dear Shareholder letter, in fact, there are some excerpts from recent Caldera press releases quoted, and Caldera is described by itself as a Linux Industry leader. He is, of course, pretending to be Santa Cruz, I gather, as you can see by this answer:
A. Yes, I can. The company had gone through a serious decline when I joined. In fact, I had been brought in for a turn around, to try and get those revenues to go back up again. The company was once a high flying seller of this UNIX operating system, had over $200 million per year in revenue, that was in the late nineties, and then by the time that you get to 2002 you see that revenue coming all the way down to 50, $60 million. It was heading south rapidly. It was not in good shape when I joined the company.
A little later, he adds this remarkable story:
A. Yes. I mentioned that we had been dabbling with Linux and we have been trying to get in there. We actually had formed a group or joined in a group called United Linux. The idea was that we have our UNIX system over here, and if people want to try this Linux system, even though it is a smaller part of our company, we have an offering there. It was back to this idea of what are some new things that we can go to our customers with.
Linux a new thing to offer the customers. Unix was the new thing for Caldera.

He also pretends that the company needs the copyrights to run its business:

Q. Let me interrupt you three, if I might, for a moment, Mr. McBride, and ask is ownership of the UNIX copyrights required for SCO's business?

A. Yes, absolutely.

Q. Can you explain why ownership of the UNIX copyrights is required?

A. Well, you can't make copies of things if you don't have the copyright protection. You can't go out and do deals with people. You can't enforce your rights if somebody tries to take advantage of your property. There are a number of reasons. It 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.

As you can see, he indicates they couldn't even make copies of things without the copyrights or do deals. So he's not talking about SCOsource there. He's talking about the *Unix* business. Perhaps he forgot that he already told the SEC the company didn't need the copyrights. But notice how this conflicts with SCO's wording in its appeal brief:
The district court also cited testimony from SCO witnesses Darl McBride and Ryan Tibbitts for the proposition that SCO could run its UnixWare product business without the copyrights (A3010-11), although their testimony carefully and consistently pointed out that protecting the underlying technology from infringement in contrast to simply licensing a software product required the copyrights. (A2421:997(McBride); A2640-41:1844-46(Tibbitts); A2642:1850- 51(Tibbitts).)
That's just not what I'm reading in Darl's testimony at all.

That's not the only statement that seems to me to clash with reality. Acker rakes Darl over the coals for telling the world that SCO owned UNIX patents, even though he could read in the APA that they were excluded and that the exclusion was not altered in Amendment 2. Darl claims, when Singer tries to rehabilitate him later, that he didn't say that after January of 2003. But he did. All you have to do is go through our Quote Database on Groklaw for Darl quotes, and you find him saying it again. Here's Darl making the claim to eWeek's Peter Galli in an article published on February 26 of 2003, for example:

In an interview with eWEEK on Wednesday, McBride said the company had received a lot of positive response to its SCOsource initiative, including calls from companies who were concerned they could be infringing on its intellectual property. ...

But the unlicensed use of its Unix shared libraries was just the "tip of the iceberg as there are so much IP were dealing with here, ranging from copyright, trade secrets, patents, source code and licensing issues.

"Because this range of IP-related issues is so broad-based and there is such a wide-range of players involved, were just making sure we move forward very sure-footedly. We don't want to start running before we can walk. Were trying to take things in the right order," McBride said.

And that's not the only time. Here's Darl in a May 23, 2003, article in BusinessWeek:
Q: Microsoft just purchased a Unix license from you. What's significant about that?

A: They agree with our approach to intellectual property. They've taken a patent license on our technology to build better integration between Unix and Windows. I believe that sends a statement to others with respect to what it means to honor intellectual property.

If that's what Microsoft paid for, they wuz robbed. And without a doubt, the public was misled.

I'm not done yet. A few days later, on the significant day of May 28, 2003, here's Darl in MarketWatch threatening to sue Linus for patent infringement:

McBride added that unless more companies start licensing SCO's property, he may also sue Linus Torvalds, who is credited with inventing the Linux operating system, for patent infringement
If you read the Novell May 28 press release, one of the things it tried to correct was SCO telling the world that it owned Unix patents:
Defending its interests in developing services to operate on the Linux platform, Novell today issued a dual challenge to The SCO Group over its recent statements regarding its UNIX ownership and potential intellectual property rights claims over Linux.

First, Novell challenged SCO's assertion that it owns the copyrights and patents to UNIX System V, pointing out that the asset purchase agreement entered into between Novell and SCO in 1995 did not transfer these rights to SCO.

Included in the press release was a Novell letter from then-CEO Jack Messman to Darl that said, among other things, this about patents:
SCO continues to say that it owns the UNIX System V patents, yet it must know that it does not. A simple review of U.S. Patent Office records reveals that Novell owns those patents.
So as of May 28, 2003, SCO was still claiming to own the patents, and that was part of what Novell was setting straight.

Here's Darl on the subject in his testimony, with Acker asking the questions:

Q. You also stated in your press release, when you announced SCOsource in January of 2002, that Santa Cruz -- SCO, the plaintiff in this case, also owned the UNIX patents. You said that in the press release, didn't you?

A. There was a press release that went out that mentioned UNIX patents.

Q. And you also know that in the APA, in the language that you looked at and the exclusion language of the APA, excluded patents as being transferred as part of the APA, right?

A. Yes.

Q. And there is nothing in Amendment Number 2 that says anything about patents, is there?

A. No, there is not.

Q. And so, the information that you have is that patents were excluded in the original deal by the plain language of the agreement, correct?

A. Yes.

Q. And there's nothing in Amendment Number 2 that says anything about patents, correct?

A. Correct.

Q. But you, as CEO of SCO, put out a press release to the world in January, 2002, or 2003, saying that you owned those patents, didn't you?

A. I wouldn't quite characterize it that way....

Q. In January of 2003, you announced the SCOsource in Linux World at New York, correct?

A. Yes. That's correct.

Q. If we could bring up Exhibit N-12, please. And if we could highlight the first line under SCOsource.

And what you told the community, the software community, was that you believed that you owned the UNIX copyrights, correct?

A. Yes.

Q. And you also believed that you owned the UNIX patents, right?

A. Yes.

Q. And we know that's not true, that you don't own the UNIX patents or SCO never did, correct?

A. Over time, we came to that understanding. We had been trying to clarify the situation with Novell, but at that time, that was our understanding.

Q. You came to the understanding that you didn't own the patents, right?

A. That's correct.

Q. And you came to that understanding you didn't own the patents because the plain language of the exclusion in 1.(b) of the asset purchase agreement says that, right?

A. No.

Here's the January 2003 press release they are talking about. SCO made the same patent claim in a letter to partners that same day.

And here's Stuart Singer trying to rehabilitate Darl:

Q Now let's turn back to some of the points that were raised in cross-examination. There was some questioning earlier today about the fact there was initially made -- I think the first press release is a statement about patents and copyrights. Do you remember that line of cross-examination?

A Yes, I do.

Q Did the company, that is SCO, determine after that that there were no patents which were owned?

A Yes, we did.

Q Did the company ever bring a patent infringement claim against anyone?

A No, we did not.

Q Did the company ever seek to sell a SCOsource license at that point based on patents as opposed to copyrights?

A No, we did not.

Q In subsequent press releases, did you refer to copyrights?

A No -- yes, we referred to copyrights. We didn't refer to patents after those January press releases were issued.

I think one could argue that by insisting to this very day that SCO got whatever Novell got from AT&T, hook, line and sinker, that this also is a claim to patents, if you think about it. But even without that, it's rather obvious that SCO continued to make the patent claim after January of 2003. In addition to all the others I've collected, here's Darl's letter to partners that Internet Archive still has, dated July of 2003, when the company announced it was stopping its Linux distribution:
This communication is about recent efforts SCO has made to license and protect our patents, copyrights and intellectual property pertaining to the UNIX® operating system.
And as to SCO not trying to sell any licenses to patents, they surely did so. SCO's May 2003 announcement of the deal with Microsoft said it was about patents and copyrights, something Microsoft confirmed:
The SCO® Group (SCO) (Nasdaq: SCOX), the owner of the UNIX® operating system, today announced it has licensed its UNIX technology including a patent and source code licenses to Microsoft® Corporation. The licensing deal ensures Microsoft's intellectual property compliance across all Microsoft solutions and will better enable Microsoft to ensure compatibility with UNIX and UNIX services.
SCO's press release is here, dated May 19, 2003, and the headline reads, "SCO Announces UNIX Licensing Deal With Microsoft -- SCO Licenses UNIX Patents and Source Code to Microsoft". And here's ZDNet UK quoting Microsoft's Brad Smith, saying that is what they licensed from SCO:
Microsoft is acquiring the rights to Unix technology from SCO Group, a move that could impact the battle between Windows and Linux in the market for computer operating systems.

According to a statement from Microsoft, the company will license SCO's Unix patents and the source code.

Patents, plural. This was very widely reported. But SCO didn't have any to license. And as Acker made Darl confess, he knew it at some point, a point Darl claims was in or around January of 2003. The deal was in May of that year.

Even when EV1 took a license, the language of the SCOsource license it signed in March of 2004 included wording implying the "IP" being licensed might include patents and copyrights:

1.11 "Update" means the updates or revisions in Object Code format of the Software that You may receive. To the extent that the SCO IP includes patents, "Update" shall include all extensions, divisionals, continuations, continuations-in-part, examinations and reissue patents of such patents, as well as patent applications thereof. TO the extent that the SCO IP includes copyrights "Update" shall include any and all renewals and extensions thereof.
If you recall, the very first SCOsource press release [PDF], the one in December of 2002, did say that the covered IP included patents, in fact it stressed patents:
The first offering from SCOsource will be SCO System V for Linux -- an end-user licensed product for use on Linux systems. SCO System V for Linux has two key components that protect and expand the use of Linux as a business server platform. First, SCO System V for Linux provides unbundled licensing of SCO's UNIX System shared libraries for use with UNIX applications running on Linux. Second, users of SCO IP Pack licensed systems are protected from future claims based on unlicensed use of SCO UNIX intellectual property in Linux....

Customers frequently cite intellectual property concerns as a barrier to their adoption and use of Linux. To alleviate this uncertainty, SCO today is announcing a program that protects customers from any claims to SCO UNIX source code as it pertains to Linux. Customers who purchase a one-time SCO System V for Linux license will be protected and can be assured that the SCO UNIX source code in Linux is authentic and safe from IP patent issues.

That's rather obviously an end user license, which Darl testified had not yet been announced. If you are going to tell stories on the witness stand, it's best to get your story straight. Because at Groklaw, we remember it all with great clarity. And while I expect this from SCO, what is Stuart Singers's excuse? Note this exchange:
Q In your cross-examination you were asked about vendor licenses such as Microsoft and Sun. Do you recall that?

A That's right.

Q And at that time -- I think the question was were these SCOsource licenses. At that time had you announced a right to use -- license to the public in the first quarter or second quarter of 2003?

A No, we had not.

Q So in April 2003, was that yet on the market?

A No, it was not.

But they announced it in December of 2002. Notice the crafty question: did you announce it in 2003? I mean, really. No, because it had already been announced in December of 2002.

[Update: At the first trial in 2008, Chris Sontag testified on the first day that he wasn't sure if that press release was or wasn't released to the public, but he said for sure they used the materials in briefing analysts. He also tried to claim that the patents referenced were patents on other things, despite the description in the press release of January 2003 describing the IP like this: "SCO's patents, copyrights and core technology date back to 1969..."]

SCO's lawyers, knew about it, because SCO attached it as an exhibit [PDF], bearing Bates range SCO1275727-46, to Brent Hatch's Declaration, in support of SCO's Opposition to Novell's Motion for Summary Judgment on its 4th Claim for Relief in 2007. How, then, can they say such contradictory things in court? It's a submitted exhibit. Aren't they afraid someone besides me will notice?

That's still not the end. As you can see in this June 26, 2003 letter from Novell to SCO, SCO still had posted on its website then that it owned the patents:

Dear Darl:

I write to address SCO's recent statements (to the press, in a securities filing, in your amended complaint in the IBM case, and in other materials) that SCO owns all of the intellectual property rights associated with UNIX and UnixWare. For example, your June 6 press release states that SCO owns "all rights to the UNIX and UnixWare technology," and the description of your "SCOsource" program on your Web site states that SCO owns "the patents, copyrights and core technology associated with the UNIX System."

SCO's statements are simply wrong.

And if you recall, the SCOsource license SCO made public in August 2003 included this wording:
6.2 SCO Products and related materials, and all copyrights, patent, trade secret and other intellectual and proprietary rights therein, are and remain the valuable property of SCO and its suppliers.
But the worst, to me, about all this is that SCO knew in January of 2003 that it didn't own the patents, or it had every reason to know. I deduce that because the Michael Davidson memo telling SCO that way back in August of 2002:
Note that the scope of the project was limited to looking for evidence of copyright infringement (we didn't consider patents because SCO didn't own the rights to any patents...
Remember the Wired article calling Darl the "Linux Killer"? That article said Darl started analyzing the IP assets once he became CEO in 2002:
In 2002, when Darl McBride bounced into the top spot at SCO, he began studying its patents and other intellectual property assets.
Presumably, that study would include the SEC filings. And in this Caldera 10Q from 2001, it listed what it got from Tarantella, and no patents were listed:
Intangible assets acquired:
Distribution/reseller channel
Existing technology (consisting primarily of UnixWare and OpenServer)
Acquired in-process research and development
Trade name and trademarks
Distribution agreement
Goodwill
My point in reminding everyone of all this is that I can't see how SCO had any basis for any patent claim ever, in January of 2003 or later. Not that it stopped them.

The transcript of this particular day is in three parts, as mentioned and here they are as PDF and text: part 1 [PDF] [Text], part 2 [PDF] [Text] and part 3 [PDF] [Text].

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

977


IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH
CENTRAL DIVISION

THE SCO GROUP, INC., a )
Delaware corporation, )
Plaintiff, )
vs. )CASE NO. 2:04-CV-139TS
NOVELL, INC., a Delaware )
corporation, )
Defendant. )
_______________________________)
AND RELATED COUNTERCLAIMS. )
_______________________________)

BEFORE THE HONORABLE TED STEWART
--------------------------------
March 16, 2010

Jury Trial
Volume VII

978


A P P E A R A N C E S

For Plaintiff: BRENT HATCH
[Address]
Salt Lake City, Utah
STUART SINGER
[Address]
Fort Lauderdale, Florida

EDWARD NORMAND
JASON CYRULNIK
[Address]
Armonk, New York

For Defendant: STERLING BRENNAN
[Address]
Salt Lake City, Utah

ERIC ACKER
MICHAEL JACOBS
[Address]
San Francisco, California

Court Reporters Ed Young
Becky Janke
Patti Walker
U.S. Courthouse
[Address]
Salt Lake City, Utah
[Phone]

979


I N D E X

Witness Examination By Page
Darl McBride Mr. Singer (Direct Cont.) 990
Darl McBride Mr. Acker (Cross) 1053
Darl McBride Mr. Singer (Redirect) 1153

Exhibit Received
Defendant's Exhibit Y-10 995
Defendant's Exhibit Y-11 1004
Plaintiff's Exhibit 174 1005
Plaintiff's Exhibit 241 1017
Plaintiff's Exhibit 532 1028
Plaintiff's Exhibit 533 1030
Defendant's Exhibit H-18 1031
Defendant's Exhibit T-19 1034
Plaintiff's Exhibit 394 1051
Defendant's Exhibit N-12 1064
Defendant's Exhibit I-12 1064
Defendant's Exhibit P-12 1064
Defendant's Exhibit C-12 1095
Defendant's Exhibit O-14 1103
Defendant's Exhibit A-16 1106
Defendant's Exhibit P-17 1107
Defendant's Exhibit X-17 1109
Defendant's Exhibit A-15 1111
Defendant's Exhibit M-14 1116
Defendant's Exhibit N-13 and T-13 1127
Defendant's Exhibit J-16 1133
Defendant's Exhibit L-17 1138
Defendant's Exhibit J-19 1140
Defendant's Exhibit P-45 1142
Plaintiff's Exhibit 748 1160

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March 16, 2010 8:30 a.m.

P R O C E E D I N G S

THE COURT: Good morning.

MR. BRENNAN: Good morning.

THE COURT: Mr. Brennan, you have something?

MR. BRENNAN: I do. Thank you, Your Honor.

In the interest of avoiding surprise, and to make sure that we have fully apprised the Court of developments as we see them and raise issues, we have been informed by counsel for plaintiff that they intend likely today to call as one of their witnesses one of their designated experts, Dr. Christine Botosan. This is the issue. Dr. Botosan in her analysis forms two general opinions. One is a causation opinion and the other is a damage opinion premised on the lost profits analysis. The period for which she calculates damages runs through the end of 2007. There is significance to that for several reasons, but let me first back up and explain how this is connected to her analysis regarding causation.

As the Court may recall from the Daubert motions, Dr. Botosan conducted what is known as an events study, pegged certain events and marked those as against variations in SCO's stock price performance relative to the NASDAQ composite index, and if there was a variation that she

981

believed was not explained by the market, then looked to see whether there was an event that occurred that could be explained or a predictor for the variation.

Of the events that she seized on, some of them are litigation activities. For example, the filing of the lawsuit by SCO against IBM. She identifies that as a significant predictor of a variation in SCO's stock performance. There are events that she does not include. For example, the filing of this lawsuit against Novell in early 2004. There are other events, litigation related, that she does not include in her analysis that we believe would be subject to cross-examination, and by virtue of offering her opinions would open the door to various litigation events that occurred during the period of her damages analysis.

In 2004 there is significant litigation activity in this case when Judge Kimball made his initial ruling that it did not appear that the asset purchase agreement constituted a transfer of copyright assets, and that in any event it was unlikely that that agreement met the written description or written requirement for transfer of the copyright ownership. That was in the public domain. That was information that the market could react to. That was information that potential licensees could react to. Dr. Botosan's opinion is premised entirely on the

982

prognostication or prediction of what both the marketplace would do in reaction to certain events and, more importantly, what potential licensees might do.

So if, in fact, the opinion that is going to be offered through direct examination is what is the mind-set, the state of mind of the market for potential licensees in either 2004, 2005, 2006 or 2007, which is her damages period, then in all fairness Novell ought to be able, since they would open the door, to examine the witness regarding other events. In fact, these are not even predicted events, these are actual events that would have a significant impact on the reaction both in the market and to potential licensees.

I have pointed out Judge Kimball's initial ruling in 2004 which is within the damages period and because, according to Dr. Botosan's report, and the deposition testimony that was taken, she also includes damages, a very significant amount of damages for 2007, and that is the very year where Judge Kimball, of course, issued his ruling finding in favor of Novell.

So, Your Honor, I wanted to alert the Court that if they are going to proceed with this line of testimony, they would be clearly opening the door and Novell in every respect ought to be able to examine Dr. Botosan regarding these events. This is not simply an analysis of what was

983

Novell's state of mind, because the expert testimony now goes to what is the state of mind of third parties.

Similarly, Dr. Pisano, we are told they may also call, and is the one that conducted the analysis based on surveys, again, prognostications. Here we have actual real world events that play a significant role, and we ought to be able to cross-examine both Dr. Botosan and Dr. Pisano regarding these developments should they seek to recover damages at any point beyond 2003.

THE COURT: Thank you.

Mr. Hatch.

MR. HATCH: Your Honor, of course, this is the first time we have heard of this listening to it today, but Dr. Botosan's regression analysis only involves events in 2003. We don't intend, given the prior discussions with the Court, we don't intend to specifically identify court hearings or talk about court hearings, and those were part of her report, and, as I understand it, that does not come in as evidence, but we'll be discussing her event study analysis and oral opinions and as we did when we had the Daubert hearing.

THE COURT: Mr. Brennan is saying, if I understand him, that regardless of whether you plan to discuss them that her report would have to reflect those events.

MR. HATCH: Well, he is kind of mixing two things,

984

because he is talking about causation again and then damages. On the event study, which talks about causation, those are events in 2003. The particular event that he is most concerned about apparently is Judge Kimball's summary judgment ruling which came down in August of 2004. Excuse me, 2007. The damages study, and that is where he moves to damages, the damages study went through October of that year, because that was the month leading up to the trial, so we are only going to talk about a couple of months there.

So I think in large part what Novell is trying to do is essentially they are trying to bootstrap in information that is not relevant. It is not relevant to the causation study, which is only the 2003 time period, and it really does not have an effect on damages.

THE COURT: Mr. Brennan.

MR. BRENNAN: Well, clearly we have the right to cross-examine the witness regarding the efficacy of the events study. If the witness, that is Dr. Botosan, cherry picked, in other words said I am going to pick a regression period that does not include other events, and I am going to cut it off before there are signal events that could have an impact, we should be entitled on cross-examination to ask about that.

Here is a perfect example. Her event study runs through the end of 2003. Why stop there? What is

985

significant about the end of 2003? Why not go another 20 days into early 2004? January 20th is when this litigation was filed. We will be able to show through stock analysis, the very premise that Dr. Botosan's testimony is based on, that a precipitous change in SCO's stock price was the day that this lawsuit was filed.

In addition, the causation is not necessarily cut off at a particular date, particularly when they are seeking damages all the way through 2007. So, yes, there are two lines of analysis. The first is her causation analysis. There is nothing in the law that says that we can't go beyond the arbitrary period that she picked and say, well, let's look at events that happened right after 2003. Let's look at early 2004. Let's look at what happened to SCO's stock price in 2005, 2006, 2007, because that is their damages period.

Now, moving to the other side, the lost profits analysis, they are seeking multi-millions of dollars of damages, more than $50 million of damages in 2007 alone. In that year Judge Kimball issued his summary judgment ruling. We don't need to wait until 2007. In 2004 Judge Kimball ruled on a motion to dismiss that the asset purchase agreement did not transfer copyrights, and that it was highly unlikely that amendment number two met the writing requirement for transfer of ownership of a copyright.

986

Now, whether or not that ultimately proved to be correct or not, that was in the marketplace. Dr. Botosan is going to present to this jury events in the marketplace and make prognostications. So as long as they are going to put on expert witnesses who are going to testify as to what happened in 2004, 2005, 2006 and 2007, and seek multi-millions of dollars of damages on the premise of how the market would have reacted, what was the state of mind of people in the market for causation, and what was the state of mind of potential licensees, Novell has every right then to look at all of the events, other events that would have occurred in those same periods. They will open the door if they present this testimony, Your Honor.

THE COURT: Counsel, the Court will try to give you some more precise parameters, but the Court is inclined to allow the cross-examination request by Mr. Brennan. I will say to you that if the issue of Judge Kimball's motion for summary judgment comes up, then this Court is ultimately going to have to reveal to the jury that that decision was reversed. We'll just have to play that by ear. If I think I can give you more guidance, I will give you something before she testifies, but I do believe that it is within the realm of your cross-examination --

MR. BRENNAN: Thank you.

THE COURT: -- that you be allowed to do that.

987

The Court received a letter from the plaintiffs regarding the deposition testimony of three former SCO employees whose depositions were taken in the IBM case.

First of all, counsel, it is much preferable that you bring this to the Court's attention by way of motions not by way of letters, okay, if you can remember that in the future.

MR. SINGER: Yes, Your Honor.

THE COURT: Mr. Brennan, I am going to assume that you want to respond to that.

MR. BRENNAN: We do. Our intention was to put something together today and we can get it to Your Honor.

THE COURT: You do not intend to use the depositions today, do you, Mr. Singer?

MR. SINGER: No, we do not, Your Honor.

THE COURT: Get us something as early this afternoon as possible, Mr. Brennan. That would be very helpful.

MR. BRENNAN: We'll do that, Your Honor.

THE COURT: Mr. Singer.

MR. SINGER: Your Honor, there is an additional issue. We received last night notice from Novell that they intended to add two exhibits to their exhibit list. One of them involves an H.P. transaction, and we don't have a problem with the late notice on that. We are not saying it

988

is admissible, but we will deal with it like any other exhibit.

The other one, however, is a different matter. It is an exhibit that essentially involves the financial terms of the retention of our law firm in 2003, and does not seem to have any particular relevance beyond that. It has, of course, been disclosed now at the eleventh hour with Mr. McBride already on the stand. We strongly object to the use of that document.

MR. ACKER: Your Honor, it is Exhibit P-45, and what it is is a transcript of a conference call that Mr. McBride and others had in November of 2003. I am fully willing to redact any reference to the Boies Schiller law firm or how much they were paid. I simply want to use it for statements that Mr. McBride and others made to the investing public in November of 2003.

THE COURT: If the portions pertaining to your law firm and the amounts paid, and what ever else it may be, if those are redacted do you have a continued opposition to it?

MR. SINGER: We would like to see from Mr. Acker what parts he plans to show the jury, because the retention of the law firm is -- in fact, my partner, David Boies, is involved in this conference and starts at the headline and goes throughout the article, so we would like to see how it is planned to be redacted to see if we have an objection.

989

MR. ACKER: I will represent to the Court and to Mr. Singer that I won't show any portion of that part of the conference call to the jury or ask it be admitted.

THE COURT: Mr. Acker, I am going to trust you on this and just presume that you'll be very prudent and not allow anything inappropriate pursuant to Mr. Singer's opposition.

MR. ACKER: I will do that, Your Honor.

THE COURT: All right.

MR. SINGER: We don't have anything further, Your Honor.

THE COURT: Mr. McBride?

Would someone get him?

Ms. Malley, if you would please bring the jury in.

Mr. McBride, if I could get you to please re-take the witness chair.

Thank you.

(WHEREUPON, the jury enters the proceedings.)

THE COURT: Good morning, ladies and gentlemen of the jury. In case you're wondering why the blinds are shut, it is because we didn't want you to see that the sun is shining outside and have any desire to be out there. All right.

Mr. Singer, were you through your examination with Mr. McBride?

990

MR. SINGER: No, Your Honor, I have more.

THE COURT: Go ahead, please.

MR. SINGER: Thank you.

DIRECT EXAMINATION (Cont.)

BY MR. SINGER

Q. Good morning, Mr. McBride. I would like to start by bringing up SCO Exhibit 1 and amendment two which is part of SCO Exhibit 1. Do you recognize this as amendment number two?

A. Yes, I do.

Q. Yesterday in your testimony you were saying that you had obtained some comfort from finding the language in amendment number two with respect to the transfer of copyrights. Can you explain that?

A. Yes. My initial concern was when I read the asset purchase agreement, and the excluded assets section said the copyrights were excluded. That was why I was trying to get some comfort around that. When this amendment number two came in it gave me exactly the comfort that I was looking for, because this effectively replaced the language that was in the A.P.A. with this new language which said we had the copyrights for UNIX and UnixWare necessary to run our business.

Q. You also testified yesterday with respect to certain

991

letters on June 9th and June 12th from Jack Messman pertaining to the waiver of SCO's claims against IBM. Do you remember that testimony?

A. Yes, I do.

Q. I want to ask you this morning whether or not you know if Novell had any continuing interest in a royalty stream from IBM at the time of these letters in June of 2003?

A. No, they did not.

Q. At one time was there such an interest?

A. Yes, there was. At the time of the asset purchase agreement in September of 1995 there was an interest. However, one year later that was replaced or that was taken out in a buyout. IBM effectively bought out their interest of ongoing royalties, so there was not anything ongoing at the point in time when they were sending me these letters.

Q. I would also like to ask you, Mr. McBride, if you're still the C.E.O. of SCO Group?

A. No, I am not currently.

Q. When did you lose your job?

A. That was in October of last year.

Q. Do you have any stock holdings in SCO Group?

A. Yes, I do.

Q. Approximately how much?

A. As far as the shares that I own it is a little over 26,000 shares.

992

Q. Do you hold a substantial number of options?

A. Yes, I do have a material number of options that I hold as well.

Q. What I would like to do now, is go back to 2002 and when you became C.E.O. What was SCO's business at the time?

A. The core business of S-C-O was selling operating systems.

Q. Which particular products were being sold?

A. There were two main products being sold, the UNIX operating system and then they had started to dabble in trying to sell the Linux operating system.

Q. Which UNIX based products were being sold?

A. Which were UNIX based?

Q. Yes.

A. We had two main products. One was called UnixWare and the other one was OpenServer.

Q. Explain what OpenServer was.

A. OpenServer was a product that a lot of store owners and a lot of companies, large companies and small companies would use to run their business. It was very popular in retail environments and with companies like McDonald's, Good Year Tire, BMW, let's see, C.V.S. Pharmacy, Walgreens. There were a number of large organizations that would use these in their branch offices.

993

Q. How about your server base, how large was that at the time?

A. Between both products, both of the UNIX products we had over two million servers worldwide.

Q. What are some examples of SCO's UNIX customers?

A. Well, besides the ones I mentioned, and, again, when you have two million servers obviously that touches a lot of customers. A lot of retailers had them. Many governments around the world had them. For example, the United States government uses SCO UnixWare. Even today before you can launch an F-16 fighter jet off from a deck, it has to get an okay from a SCO UnixWare system. Until it has this encrypted key that says launch, it does not go. The German train system, basically our SCO UNIX runs the entire network of trains in Germany. The postal service in China runs on SCO UNIX. Large banks in Russia and India and other parts of the world run on SCO UNIX. There are a number of small organizations that run it too, but I'm kind of giving you the flavor of the big brands or the big ones that you would recognize.

Q. You mentioned McDonald's, I believe?

A. Yes, McDonald's is another one.

Q. How does McDonald's make use of SCO UNIX?

A. Well, every time you pull through to order a Happy Meal or a Big Mac, there is a server back there that is

994

processing these orders. The attendant will take your order and enter it into a computer, and the SCO UNIX is the think that is processing that transaction. So there are over 10,000 McDonald's, I think all of them here in the United States that run on SCO UNIX. When you go into McDonald's and you see the green screen computer behind the clerk there, you see these orders rolling through, behind that is OpenServer, SCO UNIX.

Q. Mr. McBride, what was the financial condition of the company in July of 2002?

A. It was in pretty rough shape when I joined the company.

Q. Can you elaborate on that?

A. Yes, I can. The company had gone through a serious decline when I joined. In fact, I had been brought in for a turn around, to try and get those revenues to go back up again. The company was once a high flying seller of this UNIX operating system, had over $200 million per year in revenue, that was in the late nineties, and then by the time that you get to 2002 you see that revenue coming all the way down to 50, $60 million. It was heading south rapidly. It was not in good shape when I joined the company.

Q. How much money on research and development was being spent during that time period?

A. There was millions, tens of millions of dollars being

995

spent on research and development for new products.

Q. I would like you to turn to Exhibit Y-10 that appears in your binder of exhibits.

A. Okay.

Q. Is Y-10 a memorandum or letter that you sent to shareholders of Caldera on August 12, 2002?

A. Yes, it is.

Q. Is Caldera the company whose name was changed to SCO Group, Inc.?

A. That is correct. It was changed just right after this letter went out.

MR. SINGER: I move the admission of Y-10.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Defendant's Exhibit Y-10 was received into evidence.)

BY MR. SINGER

Q. Mr. McBride, explain the purpose of your letter to shareholders on August 12, 2002.

A. It was to inform them of my findings having been on board now for not quite two months, as to what the state of the company was, what the assets were that I had found inside of the company. Generally it was a road map as to where I hoped to take the company going forward and how to capitalize on the assets that the company did have.

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Q. Can you look at the first paragraph and explain what you were doing during the first month that you became C.E.O.?

A. Do you want me to read that?

Q. You can read it to yourself. The question is to explain what you were doing when you joined the company.

A. Right. It was, again, going through this diligence process, focussing on the assets that we had and trying to understand how we can take those assets into the marketplace and try to come up with some new ideas, instead of the revenue going south, trying to figure out how to get it to go up again.

Q. You state here that your findings were encouraging.

A. Yes.

Q. Explain why. Feel free to point to any of the bullet points or discuss any of the bullet points in the course of that.

A. Sure. If you look at the bullet points -- I can't see them right now. If you could blow up that section there just a bit. Thank you. I would almost take these in order of importance as to how I wrote them out here in the letter. The first thing that I found that was incredibly valuable was the ownership rights to the UNIX operating system. If you look at the world of operating systems, worldwide you would essentially

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see two very big systems. You would see one that was UNIX and you would see one called Windows. As we all know, Windows has become pervasive in our daily use and lives, but as big as windows is, UNIX is much bigger in the business environment. Through my understanding and research and really coming down to what our assets were, we had this asset purchase agreement and we had this document that says in it, in part, SCO owns all right and interest in the UNIX operating system, in UNIX and UnixWare. SCO owns all versions of UNIX and UnixWare.

Q. Let me interrupt you three, if I might, for a moment, Mr. McBride, and ask is ownership of the UNIX copyrights required for SCO's business?

A. Yes, absolutely.

Q. Can you explain why ownership of the UNIX copyrights is required?

A. Well, you can't make copies of things if you don't have the copyright protection. You can't go out and do deals with people. You can't enforce your rights if somebody tries to take advantage of your property. There are a number of reasons. It 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.

Q. Can you continue with your explanation of the points that you were making in memorandum Y-10.

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A. Sure. Again, UNIX was the first big thing we saw. We mentioned the customers, and that was a big deal. When you have seven of the top ten retailers in the country that run on your servers, that is a good thing. NASDAQ is another example. Every stock trade that goes through NASDAQ runs through a SCO UNIX server. So the customer base was something that we felt like we could go back to and offer them new products and new offerings.

Q. Can you describe the importance of the distribution channel?

A. Sure. As we mentioned earlier, we have these big companies that we're talking about, but you also have a lot of small companies, thousands and thousands of small companies that run their business on SCO UNIX. If you were to go over here to Wasatch Marine in Salt Lake City, a little company like that, they have built their operating business on a SCO UNIX server. The problem is when you go to a small company like Wasatch Marine, we don't have the capacity with the 300 people in the company to reach out and service thousands of those kinds of customers. So what you see in bullet number three, was we had over 16,000 resellers worldwide that had signed up to support and be an extension, if your will, of SCO's sales force but also of SCO's service and support team.

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We were selling into 82 countries and we had 12 offices around the world, so we had a very broad reach through that distribution channel.

Q. Can you explain item four?

A. Yes. We felt like we had this very good business and we had a market capitalization at the time of $10 million, but we were competing against other companies doing similar things that had a market value of, in the case of Red Hat, our number one competitor, who had $800 million. We believed that from a shareholder standpoint that we were undervalued, and that it was an opportunity that we could have for our investors to make more money in the stock as we went forward.

Q. Can you explain item number five?

A. Yes. I mentioned that we had been dabbling with Linux and we have been trying to get in there. We actually had formed a group or joined in a group called United Linux. The idea was that we have our UNIX system over here, and if people want to try this Linux system, even though it is a smaller part of our company, we have an offering there. It was back to this idea of what are some new things that we can go to our customers with.

Q. Finally, can you talk about item number six?

A. Yes. The company did not have any debt. Although the revenues were coming down and we were in a loss position on

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a quarter-by-quarter basis, we felt like if we could get the loss situation turned around, and we didn't have debt, we were undervalued as a company, we felt like we had an upside for investors.

Q. Were you aware in 2002 of what SCO's market share had been in the late 1990s?

A. Yes. When we talk about SCO, the SCO UNIX product line, which at the time was owned by the Santa Cruz Operation, it had revenues that exceeded $230 million, and market capitalization that was multiples more than that.

Q. In terms of the share of the market, though, of servers, of UNIX servers --

A. At that point in time when the company was selling a couple hundred million dollars a year, the market share for UNIX, the UNIX operating system that the company held was 43 percent. Additionally, if you take just the UNIX on Intel, which is really where the company specialized, which was the P.C. Intel type chips, the company had an 85 percent market share.

Q. What had been happening to the sales of UNIX over the time frame of the late the 1990s to when you joined the company in 2002?

A. They had been falling precipitously.

Q. Did you develop an understanding why the company's

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sales were falling precipitously?

A. Yes. It was mainly due to the competition from this Linux operating system.

Q. Can you explain how Linux became a competing operating system?

A. Yes. Linux, as we talked a little bit about yesterday, in the initial phases was somewhat of a hobbyist tool, a hobbyist operating system. It was like a garage band operating system with college students and free programmers and people getting together and coming up with this fun little operating system. Somewhere along the way, though, there was a transition where it went from being a fun little garage band toy to being a major operating system that big companies used. What happened along the way is we had a joint venture partnership with the IBM Corporation that went sour, and later we found that important materials of ours had found their way via IBM into Linux, which made it a very viable operating system for businesses to buy.

Q. Now, why would IBM want to spend money on something like Linux that was being distributed for free?

MR. ACKER: Objection, calls for speculation, Your Honor.

THE COURT: Overruled.

THE WITNESS: IBM's main business was selling

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hardware systems and selling service to support those systems. The fact that Linux was there as a free operating system played right into their strategic hands. They liked the fact that they could go out and sell a system and get people to buy an entire package from them, and they could sell the value saying, look, you got your software for free. That was a big strategic opportunity for them.

BY MR. SINGER

Q. Did there come a time, Mr. McBride, when you became concerned that Linux contained within it propriety UNIX technology?

A. Yes, I did.

Q. Can you explain how that came to your attention?

A. Sure. I joined the company in June of 2002. The company is in a free fall in terms of revenue. Up to that point in my life I had done a lot of start-ups. I had done companies that were at zero going up, and now I'm looking at you take a company that is coming done and turn it around. My first thought was, well, this can't be that hard. They have a lot a revenue. It ends up that it is a difficult proposition. What I did first when I came in is I brought together the top 12 managers of the company and asked each of them what is going on with the company? What can we do to turn this around? How can we get our revenues returned? In the

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course of discussing opportunities with those 12 managers, one of them, who was the Linux evangelist, who had come to me in my one-on-one interview with him, said to me that there were UNIX materials that were being misused with Linux, and that it was a problem for the company, but it could also be an opportunity if we played it right. That was really the first introduction that I had that there was misuse going on inside of Linux.

Q. Did you have people investigate that further?

A. Yes, I did.

Q. Did you determine what part of UNIX you were initially concerned with that had been put into Linux?

A. Yes. The individual we're talking about, his name is John Terpstra, and he is a very bright individual and has been around the Linux environment for many years. He informed me that the main area he was concerned with was something called shared libraries. Attached to the shared libraries was this thing called a dynamic linker. That was the main thing that he had introduced to me that he felt like was problematic.

Q. Did you develop a program to license those libraries for use with Linux?

A. Yes, we did. As I talked through this with Mr. Terpstra, the idea that he had, and I supported it, was this concept of saying,

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well, instead of going to all these people who are running Linux and saying, you know, you can't use that, take it out, the idea was to go to them and say, okay, you're using this. We have a license here, and those are our materials, but we will sell you a license and then it would be a win win. They would be able to continue to use those libraries and we would be able to get some royalty or some revenue from it.

Q. Could you look at Exhibit Y-11.

A. Okay.

Q. Was this a press release that you planned to issue on December 11, 2002?

A. Yes. That is correct.

MR. SINGER: I move the admission of Y-11.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Defendant's Exhibit Y-11 was received into evidence.)

BY MR. SINGER

Q. What was this press release about?

A. This was a press release that was going to announce our introduction of this licensing program for those shared libraries that we just talked about.

Q. What was the date that was set for this press release?

A. That was December 11 in 2002.

Q. Was this press release issued at that time?

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A. No, it was not.

Q. Did you delay the announcement?

A. Yes, we did.

Q. Why is that?

A. Two days before the announcement IBM approached us and was understanding that we were going to make this announcement and was not happy about it, and asked us to hold off on the announcement so that we could have time to talk about it.

Q. What was your understanding of why IBM didn't want you to make this announcement at this time?

MR. ACKER: Objection, calls for speculation.

THE COURT: Sustained.

BY MR. SINGER

Q. Did you subsequently issue a press release announcing the program?

A. Yes, we did.

Q. I would like you to turn to Exhibit 174 for SCO. Is this a press release that, in fact, was issued on January 22, 2003?

A. Yes. That is correct.

MR. SINGER: I move the admission of Exhibit 174.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 174 was

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received into evidence.)

BY MR. SINGER

Q. Mr. McBride, can you take the jury through the points which are being made here in terms of the announcement of a SCOsource division? What was that?

A. We had gone through this now and we had been working on this for several months, and the decision was -- we have had this really rough run with our products getting beat up by this free operating system called Linux, and now we're going to come back out and put together a licensing program. We are going to announce this library licensing deal that we have been talking about, but we had to put them inside of a group. We formed a new group which was different from our products group. Our products group continued to sell to McDonald's and other people. The SCOsource division, on the other hand, had a charter to take SCO's valuable intellectual property and go out and license them in different ways to different people. SCOsource then is the division, and later had product names that were branded SCOsource, but it starts off SCOsource is the division for licensing these properties.

Q. Can you move to page 2 of the release.

MR. SINGER: Mr. Calvin, if you would highlight the first paragraph.

BY MR. SINGER

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Q. Read the quote that is attributed to you.

A. Sure. SCO was the developer and owner of SCO UnixWare and SCO OpenServer, both based on UNIX System Five technology. SCO owns much of the core UNIX intellectual property and has full rights to license this technology and enforce its associated patents and copyrights. SCO is frequently approached by software and hardware vendors and customers who want to gain access to pieces of key UNIX technology. SCOsource will expand our licensing activities, offering partners and customers new ways to take advantage of these technologies.

Q. Turn to the third paragraph.

MR. SINGER: Mr. Calvin, highlight that paragraph.

BY MR. SINGER

Q. Who was Mr. Sontag?

A. Chris Sontag was the vice president over the SCOsource division.

Q. Can you read to the jury the statement in the press release that Mr. Sontag made.

A. Sure. The most substantial intellectual property in UNIX comes from S-C-O. While Linux is an open search product it shares velocity and architecture and A.P.I.'s with UNIX. Starting today, SCO's libraries will be available to third party application developers, O.S. vendors, hardware

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providers, service vendors and end users. SCO will help customer legitimately combine Linux and UNIX technology to run thousands of UNIX applications. SCOsource plans to create other new licensing programs to make our rich inventory of UNIX system technology available to the market.

Q. Now, were you seeking to sell the SCOsource products to your existing customers who were using UnixWare on OpenServer?

A. No. This was primarily going out to a new set of customers.

Q. If there were customers who had bought a Linux product for SCO, would they have to buy this product?

A. No.

Q. Now, at the time of the actual launch of this product, which this is January 22, 2003; is that correct?

A. That is correct.

Q. Did anything occur at that time to cause you to be concerned about copyrights?

A. Yes.

Q. Can you explain that.

A. Let me back up just a little bit. In December IBM had come to us and was very concerned about our announcement of this SCOsource licensing division and the subsequent products that came from it. We negotiated back and forth with them a couple times and they did not want us to go

1009

launch this product. Ultimately we came to a disagreement and said we are going to. On the day that we launched it I was at a trade show in New York called Linux World. I received a call from a senior executive from IBm by the name of Karen Smith, who was very upset and wanted to sit down and have a meeting to talk about what happened with this announcement. We had a breakfast meeting the next day. She again was very upset. She was very upset that the announcement went out. We talked for a couple of hours and there were other discussions about their UNIX license that was becoming an issue at the time as well. In the context of those discussions, Karen Smith said to me, well, we are not worried about you being able to sue us or others, because you never got the copyrights from Novell in that transaction in 1995.

Q. Did she say what her source of information was?

A. She implied that there were discussions going on with Novell.

Q. Had you previously taken any steps to assure yourself that SCO, in fact, owned the UNIX copyrights?

A. Ask that again.

Q. Had you previously taken any steps to assure yourself that SCO did own the UNIX copyrights?

A. Yes, I had.

1010

Q. Can you explain what you did?

A. In the fall time frame of 2002 when we started putting together this licensing program and this licensing division, the first thing that I did was to do a lot of research and due diligence to get an understanding of all of the agreements and all of the intellectual property that we owned. I had a number of attorneys that we engaged at that time. The first person that I called was my older brother, Kevin, who is an attorney, one of the smartest people I know, and he came in and did an initial analysis. He is not an intellectual property attorney, but he connected me with some that were. We had an intellectual property attorney come in and start looking at the agreements. As we went through those agreements, the word that was coming back to us was --

MR. ACKER: I object. I think we need a sidebar on this.

THE COURT: Okay.

(WHEREUPON a sidebar discussion was begun.)

MR. ACKER: I suspect we're going to get into some sort of advice of counsel that he in fact was told they did own the copyrights, and this was the subject or discussion in Mr. McBride's deposition and the privilege was asserted when we started to inquire into this area. So they can't on

1011

the one hand not let us get at this during the course of discovery, and now try and present it to the jury.

MR. SINGER: It is not my intent to get into such a statement. My point is simply getting Mr. McBride to say why he approached Novell for clarification on this issue. I will try and focus the questions to make that clear, and I am not planning to get into anything Mr. -- advice of counsel or otherwise.

MR. ACKER: The problem is is that clearly the implication of this line of questioning is just that, and he in fact just said that it was what my brother told me that everything was okay, and there is no other reason to ask that other than to --

MR. SINGER: That is not in fact what --

THE COURT: Do not ask anymore questions about specific legal advice based upon the representations that you raised the privilege on in the course of deposition. I can't allow you to do that.

MR. SINGER: I understand.

THE COURT: All right.

(WHEREUPON, the bench conference was concluded.)

BY MR. SINGER

Q. Mr. McBride, in this fall 2002 period, did you look at the A.P.A.?

A. Yes, I did.

1012

Q. Did you see the language which is pertaining to an exclusion of copyrights?

A. Yes, I did.

Q. At that time were you aware of amendment number two?

A. No, I was not.

Q. Did you contact Novell in the fall of 2002?

A. Yes, I did.

Q. Who did you speak with?

A. I spoke with a handful of attorneys, but the one that I spent most the time talking to was a person by the name of Greg Jones.

Q. Tell us about your conversation with Mr. Jones.

A. I talked to Greg and I called him on the phone. He was somebody I had known when I was working at Novell years earlier. I talked to him about how I was now the C.E.O. of SCO and that we had our UNIX business that we had bought from Novell back in the nineties. We were putting together this licensing division and we were going to go out and license and enforce and protect our intellectual property, but in the process of doing that my research and diligence had shown that there was an oddity, if you will, in the asset purchase agreement that didn't make any sense to me, which was this excluded asset saying that copyrights were excluded from the asset purchase agreement.

1013

Q. If you had been aware of amendment number two, would you have called Mr. Jones?

A. No, I would not have.

Q. What did Mr. Jones say to you?

A. Mr. Jones was as stumped as I well. He said, well, that does not make any sense. We talked about it and he ultimately agreed to go try and find some documentation that would clear up the problem.

Q. Did that happen?

A. I don't know what he did on his side exactly. He represented to me that he was going to go off and look and then report back to me.

Q. Did he report back?

A. Yes, he did.

Q. What did he say?

A. We talked a number of times, several times over the coming months. The first thing that he came back with was that they had looked around the office and they didn't see anything, and realized that their UNIX files were in archives off site and they didn't have access to them, and that they didn't want to take the time or energy to go look in their archives.

Q. Did you discuss any alternative to doing that?

A. Yes. Then at Mr. Jones' request, his idea was why don't you guys put together a clarification letter, and we

1014

all know what happened here, and rather than us going and chasing down this language, why don't we just -- if you could just draft a clarification letter and send it over and I'll try and get somebody to sign it indicating that the copyrights did in fact transfer in 1995.

Q. Did that happen?

A. The first part of it happened in that we did send him over the proposed or requested clarification letter.

Q. Was it ever signed and returned?

A. The second part did not happen. They did not sign that.

Q. Did Mr. Jones ever state that SCO did not own the UNIX copyrights?

A. No, not at all.

Q. Did Mr. Jones ever state that Novell continued to own the UNIX copyrights?

A. No.

Q. Did you at any time ask Novell to transfer the copyrights?

A. No, not at all.

Q. To your knowledge did anyone else at SCO do so?

A. No.

Q. Now, going back to the issue of Linux and UNIX, did there come a time when your concern expanded from the libraries that were used with Linux to other parts of the

1015

UNIX system?

A. Yes.

Q. Explain that.

A. Well, over time we engaged a team of technology experts to come in and evaluate what was going on inside of the Linux code base and the UNIX code base. As those evaluations progressed, there were additional concerns coming back that there was more infringement going on than just the libraries.

Q. What did you discover concerning that issue?

A. What did I discover?

Q. Yes.

A. What we discovered ultimately is that UNIX and its technology was showing up in material ways inside of Linux.

Q. Did SCO bring a lawsuit against IBM in March of 2003?

A. Yes, we did.

Q. Why did you do so?

A. We brought that for breach of contract.

Q. Why did you do so?

A. IBM had taken material amounts of technology that was under license to our UNIX group and our UNIX System Five technology, and had donated and had moved it over to Linux and had given it to Linux to help it grow up to be this more mature operating system. That was against the contract rights that they had with us.

1016

Q. Did you put IBM on notice that you would terminate their license?

A. Yes, we did.

Q. Did that begin a period of discussions with IBM about the resolution of those issues?

A. Yes. That is correct.

Q. Is that the notice that we talked about yesterday afternoon that Novell acted to waive SCO's rights to on June 12, 2003?

A. Correct.

Q. Did there come a time, Mr. McBride, when SCO decided to expand the SCOsource licensing program?

A. Yes.

Q. Was there more than one type of SCOsource license that you developed?

A. Yes.

Q. Can you explain what the vendor license was?

A. Yes. The vendor license was the idea of taking our valuable UNIX technology, UNIX the UnixWare, and going to other large companies and selling them a source code license where they could take UNIX and they could go develop and do things like we had been doing with it.

Q. Was there another type of license called a right to use license?

A. Yes. That is correct.

1017

Q. Can you explain what that is?

A. The right to use license was a little different than the vendor license. The vendor license was where you would go to a large company and say here is all of our technology, develop your own products around that. The right to use license, on the other hand, was taking the same technology but putting it in the form of an end user agreement, and allowing end users of Linux to run Linux to their heart's content, and any of the intellectual property there that mapped over to UNIX would be covered with this right to use license.

Q. Did you send out a lot of letters to major corporations?

A. Yes, we did.

Q. I would like you to look at SCO Exhibit 241. Is this a letter which you sent on May 12, 2003?

A. Yes.

MR. SINGER: I move the admission of Exhibit 241.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 241 was received into evidence.)

BY MR. SINGER

Q. Mr. McBride, is this a letter which SCO sent on May 12, 2003 or about that date to a lot of different companies?

1018

A. Yes. That is correct.

Q. What was the purpose? Well, let's walk through the letter first.

A. Okay.

Q. Well, let's talk about the first paragraph.

MR. SINGER: If we could blow that up, Mr. Calvin.

BY MR. SINGER

Q. Why were you telling these companies about your rights in the UNIX operating system?

A. We wanted to establish a foundation that we were the owner of this operating system before we started talking about the licensing plan. At this point we were not talking licensing, we were putting them on notice that we had concerns about the misuse of our intellectual property inside of Linux.

Q. Was it important to you to put them on notice?

A. Yes.

Q. Can you go to the next paragraph of the letter, or the next couple of paragraphs actually.

MR. SINGER: Mr. Calvin, can you put the balance of those up?

BY MR. SINGER

Q. Can you explain what you meant by the statement that the development process for Linux is different substantially from the development process for other enterprise operating

1019

systems?

A. Yes. The Linux development environment was one where anybody around the world could go and take things and contribute them into this pool of code, if you will. When people contributed into this pool of code there was not a process to guarantee that the code going in was protected and free of copyright material.

MR. SINGER: Mr. Calvin, can you blow up the last two paragraphs of this page so that the jury can see those.

BY MR. SINGER

Q. Can you explain what you were seeking to tell people about in the last couple paragraphs on page 1?

A. What we're talking about here is with this Linux system, which was really trying to replicate what UNIX did, it was trying to copy SCO, and there were cases we were finding where our code was showing up inside of Linux. In some of these cases people who were contributing this code worked for companies that had licenses to SCO UNIX technology. There was a big concern about someone having access to our code, and then going out and donating it to Linux, and the authoring process here not being supervised and not having the legal integrity whether that code was clear or not was something that was going to create a liability for the end user of Linux when it was all said and done.

1020

Q. Is that different than the way most software was distributed?

A. Yes.

Q. Can you explain?

A. Most software or proprietary software is usually developed inside of a company, and it is basically one company that is putting it together and then they go to market with it, and then they stand behind it and they warrant that this is our material.

Q. Was that true of Linux?

A. No, it was actually the opposite. There was an end user license agreement that goes with Linux that says because you got this operating system for free, if there are any problems with it, then it is your problem, is basically what the license says, to paraphrase.

Q. What was the reaction to this letter from companies that received it?

A. It was mixed.

Q. What was the different type of reaction that formed that mix?

A. Of the people who received this, hundreds of people called in and wanted to talk about the situation. Some were interested in getting a license, which at the time we didn't even have a license. We were just putting them on notice as to the issue. Some people were interested in a license.

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Some people called and said why did you send this letter? We don't even do Linux. Then others, you know, were not excited about the prospect of having to have a license or having to face the prospect of going into a battle over this.

Q. Did any corporations ask for a way to become compliant with your intellectual property?

A. Yes, they did.

Q. Now, was there an adverse reaction from other parts of the technology community?

A. There was an extremely adverse reaction from the Linux part of the community. Not all of them. There were some that were saying, yes, I understand what you're saying, but the hard core loyalists, if you will, had a severe negative reaction to what we were doing.

Q. Did you enter -- let me rephrase that. Was the quarter that ended April 30th a good quarter for SCO?

A. Yes, it was.

Q. We're talking about April 30, 2003?

A. Correct.

Q. Turn to Exhibit 254. That is a press release May 28, 2003. Is that what this document is, a press release on May 28, 2003?

A. Yes.

1022

MR. SINGER: I move the admission of Exhibit 254.

THE COURT: It is already admitted.

BY MR. SINGER

Q. Mr. McBride, can you take a look at Exhibit 254, and tell us whether that accurately reflects your understanding of the financial performance of SCO during the quarter that ended on April 30, 2003?

A. Yes, it does.

MR. SINGER: Again, can you blow up that first paragraph?

BY MR. SINGER

Q. Now, Mr. McBride, we talked yesterday about what happened in May and June with respect to you and your conversations with Mr. Messman. I would like to ask you about the financial performance at the end of June of 2003 and ask you to take a look at Exhibit 229. Is this a presentation to the board of directors of SCO on June 26, 2003?

A. Yes, it is.

Q. Was this a financial presentation?

A. Yes. That is correct.

Q. Do you know whether the financial information contained here were taken from the books and records of SCO?

A. Yes.

Q. Does that include both the historical and forecasted

1023

financial information?

A. Yes.

Q. Was it a regular part of SCO's business to create such documents and maintain such records?

A. Yes.

Q. Are you knowledgeable about these issues and able to address them?

A. Yes, I am.

MR. SINGER: I move the admission of SCO Exhibit 229.

MR. ACKER: I object on a couple of grounds, Your Honor. One, it appears that there are two documents stapled together. The second document at the back is a review draft and it appears to be unrelated to the power point. I don't think this power point is a proper business record. It is not a financial record of the company, it is simply a power point and it is hearsay on those grounds. It does appear to be two documents, and the back document appears to be a draft of something.

MR. SINGER: I have no problem with removing the back document. The first part of the document constitutes a series of financial charts, and I can go through them one by one, if necessary, to show that those come from the financial records prepared in the ordinary course of SCO's business.

1024

THE COURT: The Court will overrule the objection and allow you to proceed, but I do want the back part taken out.

MR. SINGER: Yes.

BY MR. SINGER

Q. Can we turn to the first page of the document? Actually, if we look at the first document, the first page, is that a breakdown of the revenue by product line?

A. Yes.

Q. Where it says E next to a particular bar on the graph, does that mean estimated?

A. Yes.

Q. And in June of 2003?

A. That is correct.

Q. Can we turn to page -- look at the Bates stamp number -- it is page 921. Can you explain what this page is?

A. Yes. This is a breakdown of our revenue by business line and product.

Q. And certain periods are listed as actual and others are forecasted?

A. Yes.

Q. Can you explain and tell the jury what the numbers are on the line which says SCOsource on the left-hand side?

A. Sure. SCOsource, again, relates to -- as you can see,

1025

up until January 31 there was no revenue coming from that. When I joined the company and we had this revenue problem and we came up with the SCOsource division, but the first quarter of having any revenue in the SCOsource division shows up in our second fiscal quarter of 2003 ending April 30th. The first quarter then you see with revenue is the actual revenue, and that is the revenue that we reported in our earnings report that quarter that we mentioned just a moment ago.

Q. Are these figures in millions?

A. These figures are in millions as it mentions up above.

Q. What was the forecast for 2003, for the year?

A. The forecast for the year was 27.25 million.

Q. Did you also have a forecasted number for the SCOsource division for 2004?

A. Yes, we did.

Q. What number was that?

A. 40 million.

Q. Did this represent your best estimates at the time of this report?

A. Yes, it did.

Q. Did you proceed with SCOsource licensing in the summer of 2003?

A. Yes, we did.

Q. I would like you to take a look at SCO Exhibit 748.

1026

This has your name on the front page.

A. Yes, it does.

Q. Can you explain what this document is without talking about the contents of it?

A. I need to see the second page to see what the --

Q. It is also in your book.

A. This is an overview. This was a power point presentation overview of the company at the time.

Q. Take a look in your book at Exhibit 748.

A. Okay.

Q. Was this presentation used with companies that were interested in SCOsource products?

A. Yes, it was.

MR. SINGER: I move the admission of 748.

MR. ACKER: Objection. It is hearsay, Your Honor.

MR. SINGER: I am not seeking to admit it for the truth of the matter, but rather as part of the presentation that was made to customers showing the operation of the program.

MR. ACKER: I don't know how it is relevant. He wants the truth of the matter asserted in here, Your Honor. There are allegations and assertions in here that he can't prove and he wants to do it with this document and it is hearsay.

THE COURT: I am going to sustain the objection.

1027

I think it is clearly being offered for what it says.

BY MR. SINGER

Q. Did you provide customers with information in the summer of 2003 regarding the SCOsource program?

A. Yes, we did.

Q. Did you create a code room at SCO in the summer of 2003?

A. Yes, I believe it was June of 2003.

Q. Can you explain what the code room was?

A. The code room had a couple of things in it. As was mentioned in one of our earlier documents, we had thousands and thousands of agreements with various companies, so we had all of these UNIX agreements in different binders. Those were in the code room. They indicated who all of our licensees were. The second thing we had in the code room was sample code of the infringement that we had found to that point between UNIX and Linux. The code room was set up because there was a lot of demand. Once these letters went out a lot of companies responded and said we want to see some code. We don't need to see the whole thing, we just need to see a sample so that we understand what you're saying has some legitimacy to it. The code room was set up to let people come in and see the examples of here is the Linux code and here is the UNIX code and here is how we are

1028

showing that they are infringing.

Q. Did you register copyrights in July of 2003?

A. Yes, we did.

Q. Did these include copyrights that you had obtained from Novell?

A. Yes.

Q. Can you explain why it was important to you to register copyrights at that point in 2003?

A. In order to enforce your copyrights, you actually have to have them registered with the copyright office.

Q. Can you identify Exhibit 532? Is this a press release that you issued on July 21, 2003?

A. Yes. That is right.

MR. SINGER: I move the admission of Exhibit 532.

MR. BRENNAN: No objection.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 532 was received into evidence.)

BY MR. SINGER

Q. Tell us what the purpose of this press release was, Mr. McBride.

A. It was to let the world know that we had actually registered our copyrights with UNIX and UnixWare.

Q. Can you turn to the fourth paragraph? Well, let's turn first to the first paragraph.

1029

Can you read this paragraph out loud for the jury, please.

A. Sure. The SCO Group today announced that it has received U.S. copyright registrations for the UNIX System Five source code, a jurisdictional prerequisite to enforcement of its UNIX copyrights. The company also announced that it will offer UnixWare licenses tailored to support run time binary use of Linux for all commercial users of Linux based on kernel version 2.4X and later. S-C-O will hold harmless commericial Linux customers that purchase a UnixWare license against any past copyright violations, and for any future use of Linux in a run only binary format.

Q. If we go down to the fourth paragraph, can you read that paragraph, please.

A. Yes. Hundreds of files of misappropriated UNIX source code and derivative UNIX code have been contributed to Linux in a variety of areas, including multi processing capabilities. The Linux 2.2X kernel was able to scale to two to four processors. With Linux 2.4X and the 2.5X development kernel, Linux now scales to 32 and 64 processors through the addition of advanced symmetrical multi processing capabilities taken from UNIX System Five and derivative works in violation of S-C-O's contract agreements and

1030

copyrights.

Q. Did you publicly announce a SCOsource I.P license for users in Linux?

A. Yes.

Q. Would you turn to SCO Exhibit 533. Is this a press release dated August 5, 2003 by SCO?

A. Yes. That is correct.

MR. SINGER: I move the admission of 533.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Plaintiff's Exhibit 533 was received into evidence.)

BY MR. SINGER

Q. What was the purpose of this press release on August 5, 2003?

A. It was to announce that we had now formally put together the SCOsource licensing program, and to let them know that there was this binary license to run SCO's intellectual property in Linux.

MR. SINGER: Can you expand the first paragraph of the press release, please.

BY MR. SINGER

Q. Now, earlier you had said that there were two different types of licenses, a vendor license and a right to use license.

1031

A. Right.

Q. Which one was being referred to here?

A. This was the right to use license.

Q. Did you also have deals with vendors for vendor licenses going on during this time period?

A. Yes, we did.

Q. I would like to ask you whether or not Hewlett-Packard was one of those companies?

A. Yes, they were.

Q. Take a look at Exhibit H-18. Is this a letter which you wrote to Ms. Fiorina, the chief executive officer of Hewlett-Packard on August 4th of 2003?

A. Yes.

MR. SINGER: I move the admission of H-18?

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Defendant's Exhibit H-18 was received into evidence.)

BY MR. SINGER

Q. Can you explain at this point in time what the status was of the discussions with H.P. regarding a SCOsource vendor license?

A. Yes. We were in discussions with them about a vendor license, and while those discussion were going on H.P had

1032

asked us to give them an okay letter for the marketplace, to indicate that their use of UNIX, which was a different product that we had had with them for a long time, and they had a UNIX license like IBM did, and they wanted a comfort letter to go to their customers to show that they were not suffering from the same kind of infringement -- not infringement, but rather breach of contract problems that IBM was. They asked us for a comfort letter to indicate that. That is what this letter was.

Q. Did you provide that comfort letter?

A. Yes.

Q. Can you turn to the last paragraph of the letter. Can you read that?

A. Yes. We wish to clarify that in our code review of the referenced Linux kernels today, SCO has not identified any infringing Linux code attributed to Hewlett-Packard. It appears from our review, that Hewlett-Packard has made admirable efforts to abide by its obligations under the H.P. agreements, including those involving Compac, Dec and Tandem. It is our position that H.P. is in full compliance with its obligations under the H.P. agreements. We appreciate your diligence in these matters.

Q. Did SCO enter into a release agreement that formally indicated that?

1033

A. Yes, we did.

Q. Is that attached to the letter?

A. Yes, it is.

Q. At the same time was there a discussion about Hewlett-Packard purchasing a Linux vendor license?

A. Yes.

Q. Explain that.

A. Separate from this discussion then was the idea that H.P. would come in and take a vendor license for Linux. We went into negotiations from I think early August into the September time frame.

Q. Were you personally involved in those discussions?

A. Yes, I was.

Q. Who did you have those discussions with?

A. With the vice president of intellectual property at Hewlett-Packard, a gentleman by the name of Joel Byers.

Q. Can you tell us how far those negotiations went?

A. They went very deep, near conclusion.

Q. I would like you to take a look at Exhibit T-19. I don't think this is good, the correct exhibit. Can you tell us what T-19 is without going into the contents at this point?

A. Yes. T-19 is a draft agreement that was put together by Hewlett-Packard for the two of us to come together on one of these vendor licenses.

1034

MR. SINGER: I move the admission of T-19.

MR. ACKER: No objection.

THE COURT: It will be admitted.

(Defendant's Exhibit T-19 was received into evidence.)

BY MR. SINGER

Q. Did Exhibit T-19 come from Hewlett-Packard? Let me rephrase that. Was this the product negotiations with Hewlett-Packard?

A. Yes.

Q. If we turn to page 2, at the bottom, Section 2.1 --

A. Yes.

Q. It starts on the bottom of this page and continues to the next.

MR. SINGER: Perhaps Mr. Calvin can clip the next page, and we can put both parts up on the screen for you.

BY MR. SINGER

Q. Can you explain what the covenant not to sue on other non-contaminated Linux refers to?

A. That we would not be going after Linux users for basically the misuse of Linux.

Q. And in return for this was Hewlett-Packard going to make payments to SCO?

A. Yes, they were.

Q. Those payments, are they identified on page 900 of the

1035

agreement, the draft agreement?

A. Yes, they are.

MR. SINGER: Can we expand, Mr. Calvin, section three that says payments?

THE COURT: When you say page 900, maybe you want to tell them you are referring to the Bates number.

MR. SINGER: There is a number in the lower right-hand corner of the pages and we call it a Bates stamped number. It is an identification number. When I am referring to 900, it is the last three digits of that number which Mr. Calvin uses to retrieve these documents.

BY MR. SINGER

Q. Are these the payment terms that Hewlett-Packard and SCO had been negotiating?

A. Yes, they were.

Q. Was this the H.P. proposal or the SCO proposal for a $5 million initial payment and subsequent payments of $5 million for every three months for a 15-month period?

A. This was H.P.'s proposal.

Q. What would the total of those payments led to in reference to SCO?

A. $30 million.

Q. Was this transaction finalized and put into affect?

A. No, it was not.

Q. What is your understanding as to why that did not

1036

occur?

A. We went deep into the discussions here, and ultimately Mr. Byers came back and informed me that it was difficult for H.P. to complete the transaction as long as Novell was out there saying that they still owned the UNIX copyrights.

Q. Did the transaction ever become consummated with SCO?

A. No, it did not.

Q. I would like you to turn, if you would, to Exhibit T-42. Is T-42 a company overview which you prepared in or about September of 2003?

A. That is correct.

MR. SINGER: I move the admission of T-42.

MR. ACKER: Same objection, Your Honor. This is a power point loaded with hearsay.

MR. SINGER: It is Novell's exhibit to which they have listed --

MR. ACKER: That does not mean it is admissible.

THE COURT: Can you elicit any more foundation?

MR. SINGER: I will seek to.

BY MR. SINGER

Q. Can you explain the purpose for which T-42 was used, again, without going into the content of the document?

A. T-42 was used to describe the company and what was going on at the company.

1037

Q. I direct your attention to pages 63 and 64. Were these pages used with customers in connection with the marketing of SCOsource licenses?

A. That is correct.

Q. Were these used by you personally?

A. Yes.

Q. Do you know if they were used by other members of the sales force?

A. Yes, I believe they were.

Q. Did this document come up in the course of discussions with potential customers of SCOsource licenses?

A. Yes.

MR. SINGER: Your Honor, I believe this can be admitted for purposes of showing part of what otherwise would be admitted on 8033 of the intent of the customers in doing these deals. This shows what they were being shown that led the customers to respond and to be interested in a SCOsource license.

MR. ACKER: Mr. McBride certainly can testify as to what he personally said to customers, but this is a document that is a classic hearsay document, if they are going to use it to say what it was that was communicated, and the document itself is speaking and that is hearsay.

MR. SINGER: I think the difference is we are not using this to prove that the matters put forth on these

1038

pages are true, we are using it to put forth that this is what was told to customers which led to their interest in acquiring the vendor license.

MR. ACKER: It is still hearsay, Your Honor.

THE COURT: Was this record prepared as a part of the regularly conducted business activity of SCO?

THE WITNESS: Yes, it was.

MR. ACKER: I don't know how to define hearsay, other than the document is speaking and saying facts.

MR. SINGER: It is an admission under the business records --

MR. ACKER: Well, it is not a business record. This is a power point. It is not a business record of regularly conducted activity.

THE COURT: The Court is out of an abundance of caution going to not admit the document, based on the foundation I have heard so far.

MR. SINGER: Yes.

Your Honor, we may come back to it.

BY MR. SINGER

Q. Let me ask, did you continue in the September of 2003 time frame making presentations to customers?

A. Yes, we did.

Q. Did you seek to answer questions that customers might have as to the basis for the claims that SCO had regarding

1039

the potential infringement of its copyrights?

A. Yes. That is correct.

Q. Now, did there come a time when Novell went public with a press release regarding its UNIX ownership claims?

A. Yes.

Q. I would like you to turn to SCO Exhibit 517. I believe this already exhibit is in evidence. We looked at this yesterday. Is this a press release that you were familiar with in December of 2003?

A. Yes, it is.

Q. Was December 22nd, 2003, again, the date of a SCO earnings release?

A. Yes. That is correct.

Q. Did you understand that the December 22, 2003 press release from Novell could be an assertion of its ownership of the UNIX copyrights?

A. Yes. That is correct.

Q. Now, would you turn to Exhibit A-24.

A. Okay.

MR. SINGER: Can I ask if A-24 has been moved into evidence?

THE COURT: A-24 is in.

BY MR. SINGER

Q. Mr. McBride, is A-24 an earnings release for SCO that

1040

was announced December 22, 2003?

A. Yes. That is correct.

MR. SINGER: Can we blow up the first paragraph of that.

BY MR. SINGER

Q. Can you read for the jury the first paragraph of the press release.

A. The SCO Group, Inc., the owner of the UNIX operating system and the leading provider of UNIX based solutions today reported revenues --

THE COURT: Mr. McBride, would you slow down when you are reading. If you go too fast the court reporter --

THE WITNESS: I have been reading a little bit fast. I was afraid of boring people if I went slow, but I will read slowly, Your Honor.

The SCO Group, Inc., the owner of the UNIX operating system and the leading provider of UNIX based solutions, today reported revenue of 24.3 million for the fourth quarter of its fiscal year ended October 31, 2003, a 57 percent increase over revenue of 15.5 million for the comparable quarter a year ago.

BY MR. SINGER

Q. Can you read the second paragraph.

A. Sure. Fourth quarter revenue from UNIX products and services

1041

was 14 million. In addition, revenue generated from the company's SCOsource licensing initiative was 10.3 million, which was derived from licensing agreements reached with MicroSoft Corporation and Sun Microsystems, Inc. earlier in fiscal 2003.

Q. As you moved forward into December of 2003 and into 2004, did Novell's December announcement have an affect on your SCOsource business?

MR. ACKER: Objection. That calls for speculation, Your Honor.

THE COURT: I'll sustain the objection.

BY MR. SINGER

Q. Were there business opportunities that you continued to engage in in December and January?

A. Yes.

Q. Was one of them Google?

A. Yes.

Q. Was Google an attractive business opportunity for SCO?

A. Yes, they were.

Q. Can you explain what the nature of that business opportunity was?

A. Google had hundreds of thousands of servers that were running on Linux, and at the time it was believed to be one of the largest customers of Linux worldwide. If they would take a license to our SCOsource material, obviously it would

1042

be very valuable to the company.

Q. Did you personally have phone conversations with Google?

A. Yes, I did.

Q. Was Google interested in a SCOsource license?

A. Yes.

MR. ACKER: Objection, calls for speculation and asks for hearsay.

MR. SINGER: With respect to the hearsay objection, I would say under 8033 the statements of a customer with respect to the reasons why it would or would not do business are admissible. If the Court would like, we have authorities on that point.

With respect to the form of the question, I would be happy to rephrase it.

THE COURT: Rephrase the question, please.

BY MR. SINGER

Q. Did you have phone conversations with Google in which the subject was Google's interest in a SCOsource license?

A. Yes.

Q. In those conversations, did Google indicate that they were interested in negotiating for a SCOsource license?

A. Yes.

THE COURT: Mr. McBride, if you see Mr. Acker start to respond, would you just wait before you answer?

1043

THE WITNESS: Yes, Your Honor.

MR. ACKER: Your Honor, I am just going to make a blanket objection that he is trying to elicit statements, out of court statements to prove the truth of the matter when we don't have the witness here. That is exactly what we are doing. He is talking about phone calls with people that are not going to testify at this trial.

MR. SINGER: Your Honor, may I approach with certain case authorities on this point?

THE COURT: Why don't we take a break and we can discuss it during the break.

Ms. Malley.

THE CLERK: All rise for the jury.

(WHEREUPON, the jury leaves the proceedings.)

THE COURT: Mr. McBride, you don't need to sit there, if you don't want to. If you want to take advantage of the break, please feel free to.

THE WITNESS: I will take you up on that offer, Your Honor.

THE COURT: Do you want some time to do this, Mr. Singer? We can come back from the break and --

MR. SINGER: I am sorry. I missed what the Court said.

THE COURT: Would you prefer me leaving and let you put together that you want to, and then we can address

1044

it when we come back?

MR. SINGER: That would be preferable to us, Your Honor.

THE COURT: Let's do that. We will take ten minutes and then come back and deal with this.

MR. SINGER: Thank you, Your Honor.

(Recess)

***** Part 2 *****

MR. ACKER: Your Honor, I think maybe I can cut this off. I've learned something here today. Mr. Stewart is right. As long as it goes both ways --

THE COURT: I'm Mr. Stewart.

MR. ACKER: I'm sorry. You're always right.

MR. SINGER: I think that's Judge Stewart.

MR. ACKER: Yeah, it is Judge Stewart. He's always right. Mr. Singer is right, and I have no objection as long as the hearsay comes in both ways. That is, if he wants to put in statements of customers as to why they did or did not take SCOsource licenses, then we will do the same.

THE COURT: The analysis we've been able to do, based on a couple of Tenth Circuit cases, would indicate that he may he testify as to statements made that they were interested and, if he can prove that they would have engaged in business and he can demonstrate that they decided not to, but he would not be permitted to testify as to why they decided not to.

There are a couple of cases that my law clerks were able to find that would indicate that there is that limitation. He can not speculate as to what was the reason for ultimately not consummating the deal.

Now, if you two somehow or another want to agree to violate the rule jointly, I'm not sure that

1045

that's very wise.

MR. SINGER: Your Honor, we're also learning something because when he looked into this, we found Second and Third Circuit authority which said that customer motives were admissible under 8033 to the Hearsay Rule but we didn't discover Tenth Circuit authority. Would the Court be able to share with us that?

THE COURT: This is from the case of United States of America vs. Ledford. It's 443 Fed 3d 702. It's a Tenth Circuit decision from 2006. Let me just read the relevant part:

Under the state-of-mind exception -- which I presume we're all operating under -- itself, a statement is not excluded by the Hearsay Rule if it is, A, a statement of the declarant's then existing state of mind, etc. It then cites the rule.

Then, going on, it says: Thus the Federal Rules of Evidence contemplate an exception to the exception. A statement that would otherwise be admissible under the state-of-mind exception is inadmissible if it is a statement of memory or belief offered to prove the fact remembered or believed. Case law makes it clear that a witness may testify to a declarant saying "I am scared," but not "I am scared

1046

because the defendant threatened me." The first statement indicates a natural state of mind or admission, while the second statement expresses belief about why the declarant is frightened.

The phrase "because the defendant threatened me" is expressly outside the state-of-mind exception because the explanation for the fear expresses a belief different from the state of mind of being afraid.

Now, admittedly, it's a criminal case, but I don't know of any reason why it should be distinguished.

MR. SINGER: The authority that we are relying on, Your Honor, and I'm happy to provide copies if I may.

THE COURT: If you would, please.

MR. SINGER: This is Hydrolevel Corporation vs. American Society of Mechanical Engineers, 635 F.2d 118. Second Circuit.

THE COURT: Do you have the relevant portion marked or something?

MR. SINGER: Yes. It is highlighted. It is at page 11 as the opinion is printed.

THE COURT: Have you given copies of these to Mr. Acker?

MR. SINGER: Yes, we have. But, you know, we recognize these are out of different Circuits. This is

1047

the Third Circuit in Freeser vs. Serv-a-Portion, 909 F.2d 1524. I think, in light of the Court's Tenth Circuit authority, we would be happy to be governed by the Tenth Circuit authority if the Court is inclined to follow on this and to proceed just within what I understand to be the scope of this, that we can talk with Mr. McBride about the fact that there was a business opportunity that they were interested in, the opportunity was lost, but not to elicit either through correspondence or through testimony as to the reasons that he was given why that customer was lost.

THE COURT: I believe that's what the Tenth Circuit tells us we are allowed to do.

MR. ACKER: Well, if that's the rule we are going to operate under, then I think we have to strike Mr. McBride's testimony regarding why HP obtained a license and what Mr. Buyers allegedly said to him in a telephone call.

THE COURT: Mr. Acker, I was expecting you to object, and you didn't. And I don't believe that, in light of your failure to object timely, that I can now go back and expect a jury to remember what it was that I'm striking from.

MR. ACKER: And then I'm just alerting the Court and counsel that I'm going into the reasons why it

1048

is that HP did or did not take a license.

THE COURT: And I think I've got to allow you to do that certainly, but this point forward.

MR. ACKER: I understand.

THE COURT: All right. Do we understand each other then, counsel?

MR. SINGER: I believe so, Your Honor.

THE COURT: All right.

(Jury brought into the courtroom.)

THE COURT: Okay, Mr. Singer.

Q. Mr. McBride, I think we were in the course of discussing Google.

A. Yes.

Q. Was there an offer made by SCO to Google for selling SCOsource licenses?

A. Yes.

Q. Do you recall what SCO's offering price was for a SCOsource license?

A. Yes. There was a discount off from our at-the-time list price, which was 699. It was a discount off from that price because of their volume amount they had, down to a hundred dollars per server.

Q. Did that deal get done?

A. No, it did not.

Q. And did you have a business opportunity with

1049

Dell?

A. Yes.

Q. Were you personally involved in those discussions?

A. Yes, I was.

Q. What type of license was the business opportunity that you presented to Dell consist of?

A. Dell was basically going to be a reseller of our SCOsource product line.

Q. And what was the time frame of those discussions?

A. That was in the early 2004, January, February, 2004 time frame.

Q. And were you able to bring that discussion to a satisfactory conclusion?

A. No.

Q. In January, 2004, did Novell announce its own program with respect to selling indemnification for Linux users?

A. Yes, they did.

Q. And can you explain what -- well, actually, let's take a look at the exhibit, Exhibit 394. Was this an announcement by Novell of a Linux indemnification program?

A. Yes, that's right.

1050

MR. SINGER: I move 394 into evidence.

MR. ACKER: No objection, Your Honor.

THE COURT: It will be admitted.

(SCO Exhibit 394 received in evidence.)

Q. BY MR. SINGER: And what is indemnification? Can you explain your understanding of that?

A. Basically, they were looking to give legal protection to people who were using Linux.

Q. Was this a program that would compete with the SCOsource licenses that SCO was offering?

A. Yes. Absolutely.

Q. And is it your under -- what is the time frame in which this was announced by Novell?

A. My understanding is, if I recall correctly, it was announced and launched in January of 2004.

Q. Were there requirements, as part of the program, that the customers buy a certain minimum amount of Novell goods in order to be eligible for this protection?

A. That was my understanding.

Q. Can we turn to -- and perhaps Mr. Calvin can enlarge it -- the terms and conditions of the program which appear on the right-hand column of this exhibit.

A. Okay.

Q. Are you referring to the statement that the

1051

Novell indemnification program is available to all qualified Novell customers? Requirements include meeting the $50 thousand annual minimum purchase requirement for licenses, upgrades and updates within the year preceding a claim against your indemnified Linux product?

A. Yes. That's right.

Q. Going forward into 2004, how did the SCOsource program fair?

A. Very poorly.

Q. Can you elaborate?

A. So, after having a record -- a banner year record, it was our first year, but we launched SCOsource in 2003, had a great year. The revenues were rolling nicely as we moved into 2004, and on the heels of Novell's second announcement on our earnings date, that they in fact did own UNIX, it put a severe damper -- "damper" is probably too light of a word -- on our ability to sell SCOsource licenses.

Q. What happened to the SCOsource division? Had you built up a sales force for SCOsource?

A. Yes. We had, I believe, four or five people working in the sales force, in addition to some other people on the international side.

Q. What happened to that sales force?

A. We had -- ultimately, it became too high of a

1052

hurdle for us to get over, and time after time it became problematic to sell in light of the Novell ownership claims and also their indemnification program, and before 2004 was over, we had to shutter the SCOsource division and shut it down. I think the specific question was the employees related to that were laid off.

MR. SINGER: I have nothing further at this time. Thank you.

THE COURT: Mr. Acker.

MR. ACKER: Thank you, Your Honor.

CROSS EXAMINATION

BY MR. ACKER:

Q. Let me give you copies of your previous testimony, Mr. McBride.

A. Thank you.

Q. You may need that, too.

A. Oh.

Q. Good morning, Mr. McBride.

A. Good morning, Mr. Acker.

Q. It's good to see you again.

A. Likewise.

Q. I want to take a step back a little bit, and during your answers to the questions that Mr. Singer posed, you talked about the time that you worked at Novell. Do you recall that?

1053

A. Yes, I do.

Q. But you left Novell in February of 1996, correct?

A. That's correct.

Q. And you were not involved in the negotiation of the asset purchase agreement between Novell and Santa Cruz while at Novell; is that right?

A. That's correct.

Q. Also true and you agree that you were not involved in the details of the structure of the asset purchase agreement in 1995, fair?

A. That's fair.

Q. And, also, it's certainly the case that you were not present at the Novell board of directors' meeting in September of 1995, when the directors approved the asset purchase agreement, correct?

A. Correct.

Q. And, obviously, if you weren't in the room, you don't know what was said, correct?

A. Correct.

Q. And you don't know what it is that the Novell board of directors approved, correct?

A. (Witness nods.)

Q. Is that right, sir?

A. I know what was approved by the board of

1054

directors as a result of what came out of their meetings that were later published, but, beyond that, I don't know.

Q. Well, you weren't in the room, correct?

A. No. I was not in the room.

Q. Have you ever read the minutes of the board of directors' meeting?

A. Yes, I have.

Q. You have read those?

A. Yes, I have.

Q. And you understand that those minutes say that what the board of directors did is approved an asset purchase agreement that excluded the transfer of the UNIX copyrights, correct?

A. No.

Q. That's not correct? Is that right? Is that your testimony?

A. Pardon?

Q. That is your testimony, that the board of directors meetings don't say that?

A. Not the way you asked it.

Q. Isn't it true -- let me try again. Isn't it true that the board of directors' meetings in September of 1995, where the Novell board approved the APA, it says the copyrights will be excluded?

1055

A. The way you asked it that time, I would agree. I would say yes.

Q. And so the only information that you have about what occurred at the board of directors' meeting is reading the minutes, right?

A. No.

Q. The only documentation you've ever seen about the board of directors' meeting is reading the minutes, correct?

A. I don't recall if I have other documentation that I have read.

Q. And the documents that you have said, say that what the board did at Novell in 1995 is approved a deal where copyrights were excluded, right?

A. I agree with you that there are board minutes that say the copyrights were excluded. I guess we don't agree on which copyrights.

Q. And you didn't review the APA again until 2002, or that's actually the first time you ever laid eyes on it, right?

A. Yes. That's correct.

Q. So, a deal is done at Novell in 1995 that you're not part of, correct?

A. That's correct.

Q. And the board of directors at Novell approves

1056

that deal, and you're not at that meeting. Right?

A. That's correct.

Q. And you're not involved in the negotiations of that deal, correct?

A. That's correct.

Q. And the first time that you ever actually lay eyes on the piece of paper that embodies that deal is seven years later, right?

A. That's correct.

Q. Now, you also testified, just a bit ago, that to run your business at SCO before you were terminated as CEO, you had to own the copyrights to UNIX. Did I hear that right?

A. Yes. That's right.

Q. Well, when Santa Cruz -- before you were involved with the company, when Santa Cruz was selling OpenServer in 1996, 1997, and even before the APA in 1994 and 1995, they didn't own the UNIX copyrights, did they?

A. No, they did not.

Q. And they were out in the marketplace with their flavor of UNIX, OpenServer, selling OpenServer without the copyrights, right?

A. Without which copyrights?

Q. Before the APA, Santa Cruz did not own the UNIX

1057

copyrights, correct?

A. They had their own copyrights for OpenServer.

Q. But what they had for OpenServer for the UNIX portion of OpenServer was a license, right?

A. For the portion that related to that, yes, but they did have their copyrights.

Q. And with that license, they were able to run their business selling OpenServer, correct?

A. The license plus the copyrights to OpenServer.

Q. Right. But they didn't have the copyrights, at least according to you, before 1995, right?

A. No. No. No. No, I don't agree with that statement.

Q. You also stated in your press release, when you announced SCOsource in January of 2002, that Santa Cruz -- SCO, the plaintiff in this case, also owned the UNIX patents. You said that in the press release, didn't you?

A. There was a press release that went out that mentioned UNIX patents.

Q. And you also know that in the APA, in the language that you looked at and the exclusion language of the APA, excluded patents as being transferred as part of the APA, right?

1058

A. Yes.

Q. And there is nothing in Amendment Number 2 that says anything about patents, is there?

A. No, there is not.

Q. And so, the information that you have is that patents were excluded in the original deal by the plain language of the agreement, correct?

A. Yes.

Q. And there's nothing in Amendment Number 2 that says anything about patents, correct?

A. Correct.

Q. But you, as CEO of SCO, put out a press release to the world in January, 2002, or 2003, saying that you owned those patents, didn't you?

A. I wouldn't quite characterize it that way.

Q. So let's go back to when you first joined the company in 2002. This was your first job as a CEO at SCO when you joined in June of 2002, correct?

A. Did you say it was my first job as a CEO or CEO of SCO?

Q. First job as a CEO of a publicly traded company?

A. That's correct.

Q. And that was a big deal, wasn't it?

A. Yes.

1059

Q. And when you joined SCO in 2002, it was not in great financial shape, right?

A. That's what I said earlier, that's right.

Q. The company was in a turnaround, right?

A. Correct.

Q. Hadn't been profitable in the last fiscal year that ended at the end of October of 2002, correct?

A. That's correct.

Q. It suffered a net loss of more than $24 million; isn't that right?

A. I don't have those numbers in front of me, but they clearly were not profitable.

Q. And the shoulder equity had decreased to such an extent that there was a possibility of you being delisted from the NASDAQ stock exchange, correct?

A. What time frame are you talking about?

Q. December of 2002.

A. I don't think the delisting issue was in December, if I recall correctly.

Q. And it was under these circumstances that you went to the board with this new SCOsource program, right?

A. Yes.

Q. And you believed that that was the course of action you had to take in order to save the company; is that right?

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A. I wouldn't say it quite like that.

Q. Well, the reason you undertook SCOsource was in order to turn around this dire financial situation at SCO, wasn't it?

A. It was a key component of it, of turning around the company, yes.

Q. And, in order to implement this new strategy of SCOsource, you had to hire lawyers, right?

A. Lawyers were part of the team that we brought together. There were others.

Q. And you hired those lawyers. You had them on board, the Boies, Schiller firm, as of December of 2002, right?

A. Yes.

Q. And it was your belief, in late 2002, that the SCOsource licensing strategy would only result in significant revenue for SCO if the company was willing to engage in litigation or the legitimate threat of litigation, true?

A. I believed that we needed to be able to stand firm and enforce our property if people were not willing to license.

Q. And so you were changing the business plan of SCO from one of being a software company to being a litigation company, correct?

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A. Incorrect.

Q. But, in order for SCOsource to work, you believed in 2002 you had to have a law firm and you had to either sue or be willing to sue; isn't that true?

A. We believed that we needed to be willing to sue people who would not -- if people would misuse our materials, we believed, yes, we would need to file lawsuits.

Q. And then, in January of 2002, you announced the SCOsource program at the Linux World Conference in New York?

A. Yes.

Q. In January of 2003, you announced the SCOsource in Linux World at New York, correct?

A. Yes. That's correct.

Q. If we could bring up Exhibit N-12, please. And if we could highlight the first line under SCOsource.

And what you told the community, the software community, was that you believed that you owned the UNIX copyrights, correct?

A. Yes.

Q. And you also believed that you owned the UNIX patents, right?

A. Yes.

Q. And we know that's not true, that you don't own

1062

the UNIX patents or SCO never did, correct?

A. Over time, we came to that understanding. We had been trying to clarify the situation with Novell, but at that time, that was our understanding.

Q. You came to the understanding that you didn't own the patents, right?

A. That's correct.

Q. And you came to that understanding you didn't own the patents because the plain language of the exclusion in 1.(b) of the asset purchase agreement says that, right?

A. No.

Q. And this was a big deal, wasn't it?

A. What was a big deal?

Q. Your announcement?

A. This was an important announcement for us.

Q. And it caused quite a stir in the software community, didn't it?

A. In some parts. That would be accurate.

Q. And there was a great deal of press coverage, correct?

A. Yes. It was reported widely.

THE COURT: Mr. Acker, are you going to ask for admission of N-12?

MR. ACKER: Yes, Your Honor we'd move for

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admission of N-12.

MR. SINGER: No objection.

THE COURT: It will be admitted.

(Novell Exhibit N-12 received in evidence.)

Q. BY MR. ACKER: Let me show you some of that press coverage. Let me hand you a couple documents, Mr. McBride, we have marked as Exhibit I-12 and Exhibit P-12.

MR. SINGER: I am assuming these are not coming in for the truth of the matter but simply press releases. We have no objection.

MR. ACKER: I'd move for admission of both I-12 and P-12, Your Honor.

THE COURT: They will be admitted.

(Novell Exhibits I-12 and P-12 received in evidence.)

Q. Have you had a chance to look at I-12, Mr. McBride?

A. Yes.

Q. And that's an article that was written by somebody you know, Maureen O'Gara, right?

A. Yes. That's correct.

Q. And she's a reporter in the software industry; is that correct?

A. That's right.

MR. ACKER: And if we could highlight the first

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paragraph, please, Mr. Lee.

Q. BY MR. ACKER: And this article came out just before the announcement. There was actually a release of the announcement on the 22nd before it actually came out; isn't that true?

A. Say that again.

Q. There was a leak of the announcement of the SCOsource program before it was actually announced; isn't that true, Mr. McBride?

A. I'm not aware of that.

Q. In the first paragraph Ms. O'Gara writes:

The financially challenged SCO group, the current avatar of pioneer Linux distributor Caldera International has been threatening behind the scenes to demand that the Linux users, regardless of whatever distribution they are using, pay SCO money to ensure that their Linux systems do not infringe on its UNIX System V IP.

That was what the press reported around the time of SCOsource in January of 2002; isn't that true, Mr. McBride?

A. No.

MR. ACKER: Let's go down to the next paragraph, below, sources, under the word "sources," Mr. Lee.

Q. BY MR. ACKER: Sources say the scheme, which

1065

pretty much sounds like a protection racket, we won't sue if you pay, isn't engraved in stone, but an undated weeks' old SCO press release that details the plan and was read to us has been quietly making the rounds. At press time, we got word that a major player, believed to be IBM, thought it had dissuaded SCO from going through with the idea.

Wasn't it the case, Mr. McBride, that many in the Linux community and the software community thought that your SCOsource program was in fact a protection racket?

A. That wasn't my understanding.

MR. ACKER: Let's go to the next paragraph, Mr. Lee, on the right column.

Q. BY MR. ACKER: We begin:

It is unclear whether the alleged IP is unassailable and that valid patents or copyrights actually exist or that UNIX libraries are actually in Linux. Reportedly there has been a lot of patent research going on in the Linux community lately, and there are supposedly serious doubts SCO has much of anything.

Wasn't it also the case, Mr. McBride, that when you announced this SCOsource scheme in January of 2003, that many in the software community thought, one, that it

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was a protection racket, and, two, you could not prove copyright infringement?

MR. SINGER: Object to the form of the question, using the term "scheme."

THE COURT: I'll overrule the objection.

Q. BY MR. ACKER: Isn't that true?

A. What was the question again, now?

Q. Isn't it true that many in the software community and the Linux community, after you announced SCOsource, thought that it was a protection racket and that you were never going to be able to prove copyright infringement. Isn't that true?

A. I don't know how many people had that opinion.

Q. But you heard that, didn't you?

A. I didn't hear that at this point in time.

Q. Well, you heard it after you announced it, didn't you?

A. No.

Q. It's your testimony that you never heard, after announcing SCOsource at Linux World in 2003, that no one ever said to you either in press reports or directly that there's no way you can prove that there is any UNIX in Linux. Is that your testimony, Mr. McBride?

A. That is a different question than the one you

1067

asked me before, Mr. Acker. The way you asked it there, I would agree with you.

Q. So people were saying: This is crazy, you are never going to prove there is any UNIX in Linux because there isn't any UNIX in Linux; isn't that true?

A. There were definitely some that had that opinion.

Q. And wasn't it a great many that had that opinion, Mr. McBride?

A. I don't know how to count how many people had that opinion.

Q. And isn't it fair to say that after you came out with the SCOsource program in January of 2002, and after you had told your board of directors this is the way we are going to turn the company around, that you had staked your own personal representation on being right, that, one, you owned the UNIX copyrights, and, two, you could prove infringement?

A. I don't know if I would answer the question -- say that exactly the way you did. There is no doubt that my reputation was on the line here, but this, at the end of the day, was not about my reputation. It was about a number of people at SCO that were advising me that all of us were coming to the conclusion that this was the path that we were going to go down.

1068

Q. Once you launched this and went down that path, you were committed, correct?

A. Yes. That's correct.

Q. Now, yesterday, in your testimony to the jury, you described the Linux operating system in 2003 as an upstart operating system, right?

A. No.

Q. Well, you did use that word. Do you want to change that testimony?

A. When I was talking about the upstart operating system, I was referring to the state of the operating system in the'90's time frame. In the 2003 time frame, it was becoming more and more robust.

Q. And you would agree with me that in 2002, actually, you, yourself, SCO, had your own Linux product?

A. We did.

Q. And you were offering that Linux product until -- up until April of 2003, you were out selling it and issuing press releases regarding your Linux product?

A. Yes. That's correct.

Q. And then, the next month, you did a flipflop, didn't you, in May of 2003?

A. No.

Q. Wasn't it May of 2003, on May 14, you decided

1069

that, despite the fact that we were in the Linux business and we were selling software and despite the fact that we had been touting it in late 2002, into April of 2003, now we're committed to SCOsource, so we're going to stop selling Linux; isn't that right?

A. In 2002, 2003, the time frame you are talking about, when we found there was absolutely UNIX in Linux, we felt it disingenuous for us to be out there promoting Linux at the same time we were trying to get our intellectual property defended with respect to that infringement.

Q. So you gave up selling software and were going to focus on the licensing scheme, right?

A. That's totally wrong.

Q. You gave up selling Linux, and you were going to focus on SCOsource; isn't that true, Mr. McBride?

A. We announced that we were going to discontinue, as I recall, our Linux sales, and we would continue to sell our software, UNIX, UnixWare, OpenServer, which represented about 98 some-odd percent of our revenues, and that we were introducing a new product line, SCOsource, which is a licensing version that under-stitched the product business. So we basically had two product lines we were announcing. We've got, you know, our product lines, and then over here we have our

1070

license materials, so that's quite a bit difference than the way I think you characterized it.

Q. But SCOsource, when you say a product line, it wasn't an actual software product you were selling, right? You were selling licenses?

A. It was a license. It was a license as much as somebody who has a music collection that decides not to sell directly, to come back and offer a royalty if somebody wants to come and use that music for something that they use on a commercial. It gets commercialized. It was a licensing business, which is very much a valid way of selling your intellectual property.

Q. Let's go back to your review of the APA. After 1996, when you left Novell, you hadn't seen the APA until 2002 and then you picked up the document in 2002 while at SCO, correct?

A. Yes. That's right.

Q. And you did not have Amendment Number 2, and you hadn't seen that document until June 4 or 5 of 2003, right?

A. Yeah. I think it was -- was it -- it was June 5. That's right.

Q. And so, when you were reading the APA before that time and making your decisions about how to proceed, all you had was the original document, right?

1071

A. Well, I had the original document, and then I had a lot of advisors that had weighed in and given me advice with respect to the strength of that document.

Q. In fact, you had been reading the APA for months by January of 2003; isn't that right?

A. Yes. That's correct.

Q. And why don't we bring up the APA if we could and exclusion 1.1(b), Schedule 1.1(b).

And when you read the APA, Mr. McBride, while you were at SCO in 2002 and 2003, you saw this language in the Excluded Assets Schedule of the APA, and particularly the Excluded Assets Schedule Roman Numeral V, correct?

A. Yes.

Q. And you saw what it said was that excluded from the deal or excluded from the transfer was intellectual property and, specifically, all copyrights and trademarks except for the trademarks UNIX and UnixWare, right?

A. That's what it says.

Q. And those were the words you read in 2002 and 2003, correct?

A. Those were a few of the words I read. I think it was -- the asset purchase agreement, I think, is over 60 pages, but certainly within the 60 pages I read, this is one of the lines that was in there.

1072

Q. And when you read this section, you thought to yourself, this is a problem. Right?

A. Yeah. It was a head scratcher. It didn't make sense, because if you read the other parts of the asset purchase agreement, everything indicated that the copyrights transferred. And so when you read one part, like if you go -- I don't know if you have schedule 1.1(a) --

THE COURT: Mr. McBride, Mr. Acker has the opportunity to ask you questions, and I want you to respond to them directly.

THE WITNESS: Okay.

THE COURT: If there is something else you think will need to be brought out in regards to a question he asks, then Mr. Singer will have another opportunity.

THE WITNESS: Okay. Fair enough.

THE COURT: But I don't want you going beyond the question asked by Mr. Acker.

THE WITNESS: Okay.

Q. BY MR. ACKER: When you read this section that says the copyrights are excluded, it was a problem. You thought it was a problem, didn't you?

A. I thought it was problematic, yes.

Q. And so it would be fair to say -- you consider

1073

yourself to be a reasonable person, don't you, sir?

A. Yes.

Q. And fair to say that a reasonable person, reading this agreement, without Amendment Number 2, could come to the conclusion that the copyrights, the UNIX copyrights were not transferred under the APA?

A. If you -- you could come to that conclusion.

Q. So, a reasonable person, sitting down, picking up the APA, without Amendment Number 2, reading it, could reasonably come to the conclusion that the UNIX copyrights did not transfer?

A. If they only read Amendment Number 2 and didn't read the rest of the agreement, I think they could come to that conclusion. I disagree with you. If they read the entire agreement, they would come to a different conclusion about the copyrights.

Q. You just said if they only read Amendment Number 2. You weren't reading Amendment Number 2 --

A. I'm sorry. If you just read the asset purchase agreement -- if you just read the asset purchase agreement without excluded assets is what I meant to say. I'm sorry. If you only read the excluded assets portion of it, I agree that you could come to that conclusion, that the assets were excluded. I think if you read the entire agreement, it's hard to come to a conclusion that

1074

SCO didn't own the copyrights.

Q. But you'd agree with me that somebody -- differing minds could differ on this. One person could read the asset purchase agreement and say, "Well, this doesn't seem to make sense with the rest of the agreement" and come to the conclusion there's something wrong. But a reasonable person of a differing mind could also read this and see the express language excluding the copyrights and come to a reasonable collusion that, in fact, the UNIX copyrights were excluded, right?

A. You could come to that conclusion, yes.

Q. And that would not be unreasonable to do that?

A. Correct.

MR. ACKER: We could go to section 4.16(a), please.

Q. BY MR. ACKER: Now, you realized that this section -- you also read this section, 4.16(a), correct?

A. Yes.

Q. And you realized that this section created an agency relationship in which Santa Cruz, and subsequently SCO, collected royalties for customers who deploy SVRX royalties, correct?

A. Yes.

Q. And so this really was setting up an agency relationship where, originally, Santa Cruz and then SCO

1075

were acting as an agent to collect SVRX royalties that would flow -- 95 percent of which would flow back to Novell, correct?

A. Yes. That's right.

Q. Let me show you a document, if I could, D-11. And it's a large document, sir, and I know you're not necessarily fond of these, but I'm going to point to a specific provision of the Caldera form 10K SEC filing for the year ended October 21, 2002.

And this has already been admitted, Your Honor.

You were the CEO of Caldera, and subsequently SCO, at this time when this form 10K was filed, right, Mr. McBride?

A. That's correct.

Q. And if you go to the second -- the Bates numbered 415 near the end of the document, you see your signature down there, sir, your electronic signature?

A. Yes.

Q. So the jury understands, as the CEO, you needed to certify that statements in this document are true and accurate when it goes to the Securities and Exchange Commission, correct?

A. Yes. That's right.

Q. And you do that?

A. I'm sorry. I thought you were asking them.

1076

Q. No. No. They won't let me ask them.

A. That's the way it came across. I'm sorry. I was waiting for them to answer.

Q. But you take that responsibility seriously, don't you, Mr. McBride?

A. Absolutely. Of course.

Q. Yes. You read these documents, SEC filings, carefully before you allow your electronic signature to be affixed and to be sent to the federal government, correct?

A. That's correct.

MR. ACKER: Now, if you take a look at -- if we go to page 42, if we can highlight that section, Mr. Lee.

Q. BY MR. ACKER: And so, in this section, Mr. McBride, what you're doing, as what the company SCO is doing, is describing the agency relationship that was created by the APA, correct?

A. Yes. It doesn't say that in here. Where does it say it's describing the agency agreement?

Q. Well, let's read it, and then maybe we can work through it.

A. Does it say "agency agreement" in there?

Q. It says:

The company has an arrangement with Novell in which it acts as an administrative agent in the

1077

collection of royalties for customers who deploy SVRX technology.

A. Okay.

Q. That's a true statement, right?

A. Okay.

Q. Is that right? That is a true statement?

A. That is correct.

Q. And that was describing the relationship in which SCO was collecting royalties for SVRX licensees, right?

A. That's correct.

Q. And then it continues: Under the agency agreement, the company, SCO, collects all customer payments and remits 95 percent of the collected funds to Novell and retains 5 percent as an administrative fee.

Do you see that?

A. Yes, I do.

Q. And that's describing the relationship that was created by the APA in Section 4.16(a) in which originally Santa Cruz and then Caldera and then SCO were acting as an agent to collect the SVRX royalties for Novell?

A. Yes. I believe that's correct.

Q. Now, you said that after you noticed this problem with the APA, because the copyrights were in the excluded assets section --

1078

A. Right.

Q. -- you had some communication with Novell employees. Did I get that right?

A. That's correct.

Q. And you called Gregg Jones, who you used to work with at Novell, correct?

A. Yes. He worked for me in the division over there.

Q. But, to your knowledge, Mr. Jones was not involved in the actual negotiation or execution or drafting of the APA, correct?

A. I didn't think so.

Q. And so you simply called an old colleague out of the blue and asked him about a document that had been executed seven years ago that he had no involvement with at the time?

A. I actually. That is true, but I actually called other Novell attorneys before calling him that were, I thought, going to be more involved.

Q. So Mr. Jones picks up the phone, gets a call from you, hasn't talked to you in years, I assume. Fair?

A. That's correct.

Q. And you ask him about the APA, which he never worked on, back in '95, correct?

1079

A. That's incorrect. That's not what I called -- I didn't call to ask him about it initially. I called to talk about my transition to SCO and then started talking about it. I never asked him about it. I told him what the situation was.

Q. And Mr. Jones' response was:

I need to check with the business people.

Right?

A. No. That's incorrect.

Q. Well, Mr. Jones, who had no knowledge of the APA, didn't make any promises to you, did he?

A. Yes, he did.

Q. He said he would talk with the business people, didn't he?

A. That's not what Mr. Jones told me.

Q. All right. Did you take notes of these conversations?

A. I just remember what he told me. I don't remember taking notes.

Q. Did you take any notes of these conversations?

A. No, I didn't.

Q. Did you draft any e-mails to document the conversations?

A. I don't recall any.

1080

Q. Was anyone with you on the phone that took notes or drafted e-mails to document the conversations?

A. No.

Q. But you know Mr. Jones did, don't you?

A. I don't know if he did or didn't.

Q. Okay. Let's take a look at Exhibit K-11?

THE COURT: You said K-11?

MR. ACKER: K-11, Your Honor.

Q. BY MR. ACKER: Now, Exhibit K-11 is a November 20 e-mail from Gregg Jones to a Mr. Jim Lumber and Joe LaSala inside of Novell, correct, Mr. McBride?

A. Yes. That's right.

Q. And you have seen this document before, correct?

A. Yes, I have.

Q. And you read it during your deposition, correct?

A. That's right.

Q. And when you read it during your deposition, you agreed --

MR. SINGER: Object if Mr. Acker is going to get into the substance of a document not admitted.

MR. ACKER: I'm going to lay a foundation, then I'm going to move it in, and then I'm going to ask him about it. Would that be okay?

1081

THE COURT: You can ask him about it but not disclose the contents of it --

MR. ACKER: Sure.

THE COURT: -- until it has been admitted, please.

MR. ACKER: Yes, sir.

Q. BY MR. ACKER: You saw this during your deposition, didn't you, Mr. McBride?

A. I saw something like this. I thought it was a longer one, but maybe this is the one. I saw some Gregg Jones e-mails. If you want to show me my deposition exhibit, I can tell you if I saw it or not, but, yeah.

Q. In your deposition, you read this and you agreed --

MR. SINGER: Objection. If he's going to confront him with testimony, that needs to be done in the proper manner, Your Honor.

THE COURT: That does, Mr. Acker.

MR. ACKER: All right.

Q. BY MR. ACKER: Well, do you agree -- having read this now, do you agree that this is an accurate -- Mr. Jones' e-mail is an accurate depiction of what he said to you during your call on November 20?

A. If you're asking me to read it, I will read it, and I will give you an answer, Mr. Acker.

1082

Q. Great.

A. Yeah. This is not.

THE COURT: All right. Go ahead. Go ahead.

THE WITNESS: All right. So, what's the question, then?

Q. BY MR. ACKER: Mr. Jones accurately described what he said to you during the November 20 telephone call, correct?

A. No. That's not my recollection.

Q. Okay. During your deposition, you -- in March 27, 2007, you were under oath, correct? Yes? You were under oath?

A. Yes.

Q. And you were asked the following questions, and you gave the following answers.

And, Mr. Singer, it's his depo at page 64, lines 4 to 9.

And if we can play clip 11, please.

MR. SINGER: May we see it first before it's played?

MR. ACKER: Hang on.

THE COURT: You have copies of the written deposition, don't you?

MR. ACKER: Yes, Your Honor.

THE COURT: Then why don't you show Mr. Singer

1083

the written deposition part?

MR. ACKER: He has a copy, and I have given him the page and line.

MR. SINGER: You said page 64?

MR. ACKER: Yes.

MR. SINGER: Line?

MR. ACKER: Four.

MR. SINGER: Four.

MR. ACKER: To 9.

MR. SINGER: Could you show me where there's a reference to this document?

MR. ACKER: It's above that passage, Mr. Singer.

MR. SINGER: On which page?

MR. ACKER: The reference is the marked exhibit.

MR. SINGER: I'm looking for that, but I don't see it in page 64, 63, 62. Will you show me where this document is, the document he's being questioned on?

MR. ACKER: Well, do you have any objection to me playing the video clip and asking Mr. McBride if he gave that testimony?

MR. SINGER: Yes because I don't understand what the testimony pertains to.

THE COURT: Counsel, let's have a side bar.

1084

(Discussion between the Court and counsel outside of the hearing of the jury.)

THE COURT: This is the problem. The document that he's been asked to address here, as well as in the deposition, has not been admitted. If you're going to offer it, my assumption is you'll object because you will have -- he's not laid a foundation for it because it was not prepared by him, and for you to try to get deposition testimony in regarding that document without the jury knowing what the document says is either error or worse.

MR. ACKER: Well, in the transcript, he's looking at this exhibit.

THE COURT: Yes.

MR. ACKER: He's asked: "Did Mr. Jones accurately recite the conversation, what he said to you?"

And he says: "Yes, he did."

THE COURT: He says that, that's fine, except the jury will not know what this document says because it has not been admitted.

MR. ACKER: I know. I need to do that portion first, if he's going to agree that this says what Mr. Jones said to him.

THE COURT: You have done that.

MR. ACKER: Then I'm going to move the exhibit

1085

in.

MR. SINGER: It's not admissible.

THE COURT: It's not admissible. It's hearsay.

MR. ACKER: He's affirming that what Mr. Jones said in the document is what he said to Mr. McBride during the phone call.

MR. SINGER: That's hearsay.

THE COURT: That's absolutely hearsay, so, no.

MR. ACKER: No, it isn't. It absolutely limits what it is that Mr. Jones said to him during the course of the conversation.

THE COURT: I'm sorry, but this document is hearsay.

MR. ACKER: This document is a recitation of a phone call. He's given some testimony about what he believes was in that phone call. This document says exactly what it is Mr. Jones said.

THE COURT: And you will be bringing Mr. Jones on?

MR. ACKER: And he'll come and testify.

THE COURT: We can deal with it when Mr. Jones comes to testify. At this point in time, Mr. Acker, it's not admitted. I will to have sustain an objection that it is hearsay.

1086

MR. ACKER: Let me just ask this question of Mr. McBride, just say -- ask him: Is this, Mr. Jones' statements in this document, an accurate description of what he said to you?

That's all I want to ask him.

THE COURT: I think you have already asked him, and he said it is not.

MR. ACKER: Then I should be allowed to impeach him with his testimony in which he said the exact opposite.

MR. SINGER: You have to have an admissible document for admissible impeachment. The document isn't admissible. He can get Mr. Jones in to say something different and contradict him, but the document is still hearsay.

THE COURT: But the dilemma is, again, the jury will never have read what this document represents or what represents the conversation contained, and so you will be doing this completely in the abstract. You will be saying: In the deposition testimony, you said it did.

But the jury will never know the difference because this will not be admissible because it is a hearsay document.

MR. ACKER: I would respectfully disagree, and if he's to be impeached with his deposition testimony,

1087

maybe he changes his mind when he sees his sworn testimony, and when he says this is what he says, then I would be allowed to admit this evidence.

MR. SINGER: It's still -- the document is hearsay. You're asking him in the abstract about an inadmissible document.

MR. ACKER: "So you don't disagree with the accounting of the November 20 materials?" when he is looking at the exhibit.

And he says: "I don't disagree."

THE COURT: Let me restate. This is the dilemma. So far the document has not been admitted. The jury does not know the contents of the document. You have asked him:

Does this document, a representation by Mr. Jones of what transpired in the telephone conversation, is it accurate?

And he said no.

You now want to go to deposition testimony, without the jury knowing what the document and Mr. Jones' representations were and say: Didn't you once before say that it did?

MR. ACKER: Uh-huh.

THE COURT: Are you going to try to do that without ever seeking the admission of the document?

1088

MR. ACKER: Well, no. He has a choice. He can say no, that I was wrong in my deposition when I said that, or he can stick by this testimony.

THE COURT: You didn't answer my question. Are you going to ultimately seek the admission of the document?

MR. ACKER: Yes.

THE COURT: Based upon what?

MR. ACKER: Well, based upon -- if he says this is what was said, then I'm going to seek admission.

MR. SINGER: But it's still going to be hearsay. And it's probably not going to come in with Mr. Jones because it's still going to be hearsay with Mr. Jones.

MR. ACKER: Absolutely not. It's a contemporaneous recording of what his recollection was at the time.

THE COURT: I think it's going to be admissible with Mr. Jones. I cannot see how it can be admissible against Mr. McBride based upon what you've told me so far.

MR. ACKER: Okay. I'll move on.

MR. SINGER: And can I just put on the record, while we are on this point, on page 61, line 1, when he's asked about this document specifically and asked is this

1089

consistent with his recollection of the phone call, the answer is no.

MR. ACKER: When he's asked about if this is what Mr. Jones said, he said yes.

THE COURT: Again, counsel, this is my concern. We are talking about deposition testimony where he apparently says yes, it did, no, it didn't. But the jury never knows what the document says because, again, I do not believe it is admissible.

MR. ACKER: Okay.

THE COURT: Okay.

(Proceedings continued in open court.)

Q. BY MR. ACKER: So, Mr. McBride, let me summarize. You called Mr. Jones, who you hadn't spoken to in years, correct?

A. That's right.

Q. And you had a conversation with him, several conversations with him, correct?

A. That's correct.

Q. And you asked him, at some point, to obtain some sort of document that, in your words, would clarify what rights were transferred under the asset purchase agreement, correct?

A. That's close enough.

Q. And, Mr. McBride -- or Mr. Jones refused to do

1090

that, right?

A. That's incorrect. That wasn't my testimony either.

Q. You sent the document to Mr. Jones, or Mr. Sontag did, correct?

A. Let's go back to your question. I think your question was, I asked Mr. Jones if he would agree to go try and find a document. The answer to that question is, and it's in my testimony -- I just read this while we were sitting here. He agreed to go try and find a document to clarify the fact that the copyrights were included in the original asset purchase agreement. He agreed.

Q. And couldn't find such a document, correct?

A. In the first wave, that was correct. Okay. That was the answer to that question.

Q. So he couldn't find such a document and then he also said to you: Those documents from years ago are in archives and we're not going to continue to do due dilligence to try and find that document, right?

A. That is accurate.

Q. And then, in February, Mr. Sontag sent a document to Mr. Jones that attempted to actually, in your words, clarify the terms of the asset purchase agreement, right?

1091

A. That was -- that's correct, per Mr. Jones' request.

Q. And Novell refused to execute that agreement, correct?

A. That is correct.

Q. So, you had the asset purchase agreement with the excluded language, 1.1(b), that you believed caused a problem, right?

A. Yes.

Q. And you weren't successful in obtaining from Novell, between November of 2002 and May of 2003, this written document that you wanted that, in your words, would clarify what copyrights transferred, right?

A. The -- that's partially correct.

Q. And so you went to Novell, and they said: No, we won't execute that clarification document.

Right?

A. That's correct.

Q. And, for all of these calls, both the calls between February and into November, February of '02, into February of '03, you never took any notes, right?

A. I don't recall taking notes on the topic.

Q. And Mr. Sontag never took any notes?

A. I don't know if he did or didn't.

Q. You never saw him take any notes?

1092

A. No.

Q. And Mr. Sontag, to your knowledge, never wrote any e-mails documenting what was said in those conversations, correct?

A. I don't know what he did with his e-mails.

Q. And you also didn't write any e-mails to document what was said, fair?

A. I had e-mails that were going back and forth between Gregg Jones and me and others inside the company, but I don't recall to what extent it was documenting. I don't remember anything documenting what was said.

Q. So, in order to -- for this jury to understand exactly what was said in those conversations, they are going to have to take your testimony and the testimony of Mr. Jones and any other documents that might exist and make up their minds what actually was said, right?

A. Yes. And I think it's important that they do listen to Mr. Jones' testimony.

Q. And they will. Who is Mike Anderer?

A. He is a consultant in the IT industry.

Q. And he was employed in your employ at SCO in the fall and winter of 2002 and 2003; is that right?

A. He was working as an independent contractor with us during that time frame. That's correct.

Q. And Mr. Anderer reviewed the asset purchase

1093

agreement, didn't he?

A. That's my understanding.

Q. And he sent you an e-mail in which he documented his understanding of the asset purchase agreement, correct?

A. Yes, he did.

Q. And that was information that you had in your head when you were deciding whether or not to go forth with the SCOsource program, correct?

A. That was one input that I had, of many.

Q. Let me show you what we have marked as Exhibit C-12. Do you recognize that document?

A. Yes, I do.

Q. And this is the e-mail to you from Mike Anderer on Saturday, January 4, 2003, correct?

A. Yes. That's correct.

Q. And in it he puts his thoughts regarding what the APA did or did not transfer, correct?

A. Let me take a look here and see which one we're talking about. Yes. Roughly, that's correct

MR. ACKER: Your Honor, I move for admission of Exhibit C-12.

MR. SINGER: Object. It's hearsay.

MR. ACKER: It goes to his state of mind of what was in or out of the APA at the time he moved

1094

forward with SCOsource, Your Honor.

MR. SINGER: Mr. McBride's state of mind isn't on trial here.

MR. ACKER: Well, there is a slander of title claim against SCO, so it certainly is.

THE COURT: The Court will allow the admission of C-12, this was an e-mail to you; is that right, Mr. McBride?

THE WITNESS: Yes. That's correct.

(Novell Exhibit C-12 received in evidence.)

Q. BY MR. ACKER: So, again on Saturday, January 4, 2003, your consultant, Mr. Anderer, after reading the APA writes the following to you:

Darl, if you do not have an e-mail that will take an AMB attachment, then I will burn the Novell/SCO agreement to a CD and a floppy.

Do you see that?

A. Yes.

Q. Is he talking about the APA there?

A. I don't know what he's talking about.

Q. And then he writes:

This agreement indicates Novell transferred substantially less than what was transferred to USL in the previous agreement.

Do you see that?

1095

A. Yes, I do.

Q. And then he writes:

It is an asset purchase and excludes all patents, copyrights and just about everything else.

Do you see that?

A. Yes.

Q. And that was your paid consultant's opinion of the APA in January of 2003, right?

A. It was. Yes. That's what he said in this e-mail. That's correct.

Q. And then, in the next paragraph, he wrote: It does not look like USL was purchased, just UnixWare and some other listed assets, but Streams was not listed, and there is a lot of other items that do not appear in this agreement.

Do you see that?

A. Yes.

Q. And then he wrote:

It is definitely worth reading.

Do you see that?

A. Yes.

Q. And is that because you hadn't read the asset agreement and he was actually just sending it to you for the first time in January of 2003?

A. No. I had read it multiple times at that

1096

point. In fact, I had read it many months before this.

Q. So you had also seen the excluded assets section of the APA that excludes copyrights by this time as well, right?

A. Yes that's why I called Mr. Jones.

Q. In the next paragraph, continuing in that same paragraph, it reads:

I think it also leaves Novell with practical control of the license agreements with IBM and others with respect to SVRX.

Do you see that?

A. Yes.

Q. And then he also wrote:

I think they might get the call on whether to audit or pull these licenses.

Do you see that?

A. Yes.

Q. And the reason that you had hired Mr. Anderer was to help you negotiate with Microsoft for the Microsoft deal that you eventually did in 2003, right?

A. That's correct.

Q. And so Mr. Anderer was interested to know exactly what rights SCO had before he went into those negotiations, right?

A. Right. Because if we didn't have the

1097

copyrights, we wouldn't have the ability to do the deal with Microsoft.

Q. And so, in doing his due diligence, he went and read the agreements, and these were the conclusions that he came to, correct?

A. At that point in time. Not later on.

Q. If we could go to Exhibit H-14, your May 12 letter to Jack Messman. This is a letter that you wrote to Mr. Messman, as well as about a thousand other companies in the United States in the middle of May, 2003, right?

A. Yes. We referenced this earlier.

Q. And what you're telling them in here is: We, SCO, believe that we own the UNIX copyrights.

Right?

A. Let's see, where are you pointing to in here?

THE COURT: Mr. Acker, excuse me. Is this the same as one of the plaintiff's exhibits?

MR. ACKER: Yes, it is, Your Honor. And if it hasn't been admitted, I would move for its admission. H-12, Your Honor.

THE COURT: I'm fairly confident it was admitted. I just want to know which plaintiff's exhibit it was. Do you know that offhand, Mr. Singer?

MR. SINGER: I don't have the plaintiff's

1098

number offhand on this. It is admitted, I believe.

THE COURT: It's always preferable to always --

MR. ACKER: I understand, Your Honor.

THE COURT: But go ahead.

Q. BY MR. ACKER: Well, you know this letter, don't you, Mr. McBride?

A. Yeah. I can't recite it chapter and verse. If you're going to quiz me on things, then I just need to see what it is you're pointing to.

Q. Well, as Mr. Jacobs yesterday said: I'm not going to go ask you any trick questions.

So, I'll raise my hand if I'm going to, okay?

A. You are going to?

Q. If I will, I'll raise my hand and let you know.

A. So the ones up to this point, you haven't?

Q. No trick questions so far.

A. Okay. These haven't been the trick ones? Okay. I'm trying to figure out where we are in the game here. Okay. Fire away.

Q. You know this letter, don't you? I mean, you don't have to read it?

A. Yeah, but I don't memorize it. I don't have it posted in my bedroom.

Q. This was a big deal, wasn't it?

A. This was an important letter to put Linux users

1099

on notice as to -- with respect to our concerns we had with Linux infringement and how it was infringing our intellectual property.

Q. You are sending letters to a thousand companies across the United States, many of which are running Linux operating systems and have it imbeded as part of their operations and saying:

Hey, guys, sorry. You're going to have to pay us a license fee.

Isn't that right?

A. That's incorrect. Can you point in here where I says I was going to --

Q. Isn't that the --

THE COURT REPORTER: Excuse me, counsel. One at a time, please.

THE WITNESS: I was asking Mr. Acker --

THE COURT: You don't get to ask him questions. I'm sorry.

THE WITNESS: The answer to that is no.

Q. BY MR. ACKER: So the jist of the letter is you're putting them on notice that SCO believes it owns UNIX and there's UNIX in Linux, right?

A. That part I agree with.

Q. And you are also putting them on notice that you have hired a law firm to enforce these rights,

1100

correct?

A. I don't remember that that's in here.

THE COURT: Can you focus him to the paragraph where that might be said, Mr. Acker?

MR. ACKER: Sure.

If you will scroll down. Go to the next page. Why don't we highlight the second paragraph.

Q. BY MR. ACKER: You told these thousand companies:

We believe that Linux infringes our UNIX intellectual property and other rights.

You used those words, right?

A. That's correct.

Q. It's a pretty strong statement, isn't it?

A. Well, it's a statement that we believed in.

Q. And you also told them:

We intend to aggressively protect and enforce these rights.

Correct?

A. That's correct.

Q. And there was a firestorm of reaction to this letter, wasn't there?

A. There were definitely those that didn't like the letter.

Q. And there was an enormous amount of press about

1101

this letter and this campaign, wasn't there?

A. Yes. That's accurate.

Q. And many, many people in the software community, and particularly the Open Source community said: There simply is no UNIX in Linux.

Isn't that right?

A. There were those that said that.

Q. And this caused quite a stir, didn't it?

A. Depending on your definition of "stir," there were definitely those that didn't like the letter. I agree with that.

Q. Let's look at some of the reaction to the May 12 letter.

If we could bring up O-14, please.

So, Mr. McBride, O-14 is an article that was written on May 14, 2003, just about a couple days after the letters went out in e-WEEK. Do you see that?

A. Yes, I do.

MR. ACKER: And if we could highlight the first paragraph.

We move for admission of O-14, Your Honor.

MR. SINGER: It's hearsay, Your Honor.

MR. ACKER: So was the Wall Street Journal article. So was --

THE COURT: I will overrule the objection. It

1102

will be received.

(Novell Exhibit O-14 received in evidence.)

Q. And in the first paragraph it reads:

The SCO Group on Wednesday significantly raised the stakes in its battle to prevent what it sees as the illegal and unauthorized use of its UNIX technology in the Linux operating system, warning that legal liability for the use of Linux could extend to commercial users.

This is a turnabout for SCO, which said in March, after announcing a $1 billion lawsuit against IBM, that the case, quote, has nothing to do with Linux or the Open Source community.

You were hearing comments like that, weren't you, after you sent out your letter, Mr. McBride?

A. Yes.

MR. ACKER: If we could go to the next page, please, and highlight the second and third paragraphs, please?

Q. BY MR. ACKER: An IBM spokesman, on Wednesday, declined to comment on the latest SCO allegations, citing pending -- SCO's pending litigation against IBM, but Lee Day, a spokeswoman for Leading Edge distributor Red Hat, Inc., told eWEEK on Wednesday that it had yet to see any formal complaints against it from SCO. The company also had been contacted by SCO in this -- also had not been

1103

contacted by SCO in this regard.

In the next paragraph there's a quote:

We've heard all these allegations and rumors and threats, but we haven't seen any specific code referenced that we were in violation of. We have done extensive work to make sure that we are not in violation, and we take intellectual property very seriously. We remain certain that we are not in violation of anyone's intellectual property, she said.

And wasn't it true, Mr. McBride, that you also heard comments like that after your letters went out, that, in fact, you were not going to be able to prove copyright infringement, and there was no infringement.

You also heard that, didn't you, sir?

A. Yes, I did.

Q. Let's take a look at another legal letter or another article, Exhibit A-16. You see this? Now, this uproar in the community also took on an international flavor, didn't it, Mr. McBride?

A. Yes.

Q. And what we have here is an article in CNET regarding a restraining order that was obtained by a Linux group in Germany, correct?

A. Yes. That's right.

THE COURT: Mr. Acker, if you would, before you

1104

start testifying --

MR. ACKER: Yes.

THE COURT: -- just by way of your question, what the document says, would you please lay a foundation so we can see if it's admissible?

MR. ACKER: Sure.

Q. BY MR. ACKER: And you were aware of that action in Germany, correct?

A. Yes, I was.

Q. And you were aware of the press reports on that, correct?

A. Yes.

MR. ACKER: We move for A-16 to be admitted, Your Honor.

MR. SINGER: We object, Your Honor, on 802 and 403. And may I approach?

MR. ACKER: I don't know how this is that different than the Wall Street Journal article or all the other articles that have been shown.

THE COURT: I don't either, Mr. Singer.

MR. SINGER: The only reason I suggested that was because it talks about other litigation.

THE COURT: Is there something in this that's going to cause a problem, Mr. Acker?

MR. ACKER: It has nothing related to anything

1105

other than events in Germany.

THE COURT: You are confident of that.

MR. ACKER: I am.

THE COURT: Let me look at it just a second before you put it up.

MR. BRENNAN: Your Honor, I just offer, too, this will be relevant, likely, to the next witness, their damages expert.

MR. SINGER: Our argument is simply what's happening in Germany is not irrelevant to -- is not relevant to this case or Mr. McBride's testimony.

THE COURT: If that's your objection, the Court will overrule it and will allow the admission.

(Novell Exhibit A-16 received in evidence.)

MR. ACKER: If we could bring up the first few paragraphs, please, Mr. Lee.

Q. BY MR. ACKER: And here CNET is reporting on June 3:

Legal Action Hits SCO Website. As SCO Group, the company that has warned major companies that using Linux could get them in legal trouble has shut down its German website after a Linux advocacy group in the country obtained a restraining order.

Do you see that?

A. Yes, I do.

1106

Q. And so not only was your actions on May 12 in sending these letters out to a thousand companies across the United States having ramifications in the United States, but it was also having ramifications in other countries, correct?

A. Yes.

MR. ACKER: If we could take a look at Exhibit P-17, please.

Q. BY MR. ACKER: Exhibit P-17 is another article regarding the SCOsource program on July 22, 2003. Do you see that?

A. Yes.

MR. ACKER: I'd move for admission of P-17, Your Honor.

THE COURT: Mr. Singer?

MR. SINGER: No objection, Your Honor.

THE COURT: It will be admitted.

(Novell Exhibit P-17 received in evidence.)

MR. ACKER: If we could highlight the beginning, with the middle -- beginning with the first paragraph:

July 22, 2003. Open Source advocates on Monday blasted a Linux licensing scheme that the SCO Group is proposing to address copyright violations in the Linux operating system.

1107

If we could scroll down, Mr. Lee.

And it continued:

Linux advocates blasted the plan. Quote. They are selling a pig in a poke, end quote, said Open Source advocate Bruce Perens. I think they have made an error through over confidence, and that error has made them liable to be sued by every person who has code in the kernel and every company. Parens and other Open Source advocates claim that SCO's licensing program appears to violate the Free Software Foundation's GNU, general public license software license that governs UNIX.

Do you see that?

A. Yes.

Q. That governs Linux.

Do you see that?

A. Yes, I do.

Q. And that was also what you heard. In addition to "there's no UNIX in Linux," you also heard an outcry that this SCOsource plan would violate the general public license; isn't that right, around Linux?

A. Some were saying that.

Q. If we could take a look at the next exhibit, X-17. And here we have another article, this time in USA Today, Mr. McBride, dated July 30, 2003, again commenting on your SCOsource program, correct?

1108

A. Yes.

MR. ACKER: Move for admission of X-17, Your Honor.

THE COURT: Mr. Singer?

MR. SINGER: I'm taking a moment to read it.

THE COURT: Okay.

MR. SINGER: We object on the grounds it's cumulative with the other articles. It's, I think, in the same vein as the other articles we've been looking at.

MR. ACKER: This is the last one I'm going to use, Your Honor.

THE COURT: The Court will overrule the objection, and X-17 will be admitted.

(Novell Exhibit X-17 received in evidence.)

MR. ACKER: This is USA Today. If we could go down to the last paragraph on the first page, please.

Q. BY MR. ACKER: This is what USA had to say on July 30, 2003:

The whole thing is not unlike finding your grandmother's recipe for Bundt cake, realizing it's similar to the recipe in a number of cookbooks, suing the biggest cookbook publisher and then sending letters to everyone who makes a Bundt cake, saying they should send you some money or risk legal action. Not a good way to

1109

make friends.

Do you see that, sir?

A. Yes, I do.

Q. And you heard comments like that after you sent out your letters on May 12, 2003; isn't that right?

A. I saw this comment. It's the first one I heard about a bundt cake.

Q. Bundt cake. In fact, you were also hearing similar comments from your own people inside of SCO; isn't that right?

A. No, not about Bundt cakes.

Q. Let me give you A-15. This is an e-mail from Mr. Gasparro.

THE COURT: I'm sorry. What is --

MR. ACKER: Exhibit A-15, Your Honor.

THE COURT: A-15?

Q. BY MR. ACKER: It's an e-mail from Larry Gasparro to you on Wednesday, May 21, 2003. Do you see that?

A. Yes, I do.

Q. And it's referencing the SCOsource initiative, right?

A. Yes. That's right.

MR. ACKER: I'd move for admission of A-15, Your Honor.

1110

MR. SINGER: No objection.

THE COURT: It will be admitted.

(Novell Exhibit A-15 received in evidence.)

Q. And what was Mr. Gasparro's job at SCO in May of 2003?

A. Let's see. At that time, I believe he was vice-president of sales.

Q. And he was also working with Mr. Sontag in the SCOsource division, right?

A. Yes. He was eventually. I'm not sure when he switched over. Yes, he was definitely in the SCOsource group.

Q. And he wrote to you on May 21, 2003:

After one week of talking to our customers and reading independent articles, we need some immediate position leverage to generate IP revenues, Q3 from end users.

Do you see that?

A. Yes, I do.

Q. He's talking about getting anybody to sign one of these SCOsource licenses, right?

A. The SCOsource license had not been -- the SCOsource program didn't get launched until August, so I don't think that's what he was talking about.

Q. Well, you launched the SCO tech license program

1111

on January 22?

A. Maybe they are talking about the libraries program.

Q. And you also sent your letters to a thousand companies on May 12, correct?

A. Yes, but -- yes. That's correct.

Q. And he writes in the next paragraph:

It appears that the Linux end user community has suspected issues over IP for quite sometime. One CEO suggested to me that there could be a long line of unemployed CEO's from this fallout.

But then he writes:

However, the corporate position seems to be the wait-and-see game. The audit committee person may be the key, but until the CFO and CIO are convinced, it's, quote, prove in court.

Do you see that?

A. Yes, I do.

Q. Now, these comments and these articles that Mr. Gasparro is talking about, all of this occurred before Novell's announcement on May 28, 2003, that it owned the UNIX copyrights, right?

A. The articles we've referenced so far. Let me just see which ones we've looked at. That's not correct. The Kevin Maney article came out two months after

1112

Novell's statement. This one is dated July 30, 2003. The Shanklin article is dated June 3, which would have been five days after. So, those articles were clearly after.

Q. All right. So both articles commented on the SCOsource program both before and after Novell's May 28 statement. They are saying that you're not going to be able to prove infringement, they don't think much of your program, but none of those articles, and none of the references that Mr. Gasparro has here say anything about Novell, right?

A. Well, you asked two questions. Can I break those down?

Q. Did you see any reference to Novell in any of the articles that we have looked at?

A. In the articles we looked at, no. This is a small subset of the articles that were out there.

Q. And Mr. Gasparro, on May 21, is telling you the corporate position in response to your May 12 letter is we are going to wait and see until it is proved in court.

Do you see that?

A. Yes. I do see that.

Q. And that's on May 21, 2003. Right?

A. That's correct.

Q. That's the feedback he's getting a week before

1113

Novell says anything, right?

A. This was regarding infringement. That's right.

Q. It's a week before Novell says anything, isn't that true, Mr. McBride?

A. Before Novell says anything regarding what?

Q. Ownership of UNIX publicly?

A. Right. This article is not about UNIX ownership.

Q. I guess that's my point.

A. This is about the infringement.

Q. Mr. Gasparro is talking in communities, reading articles a week before Novell says anything?

A. Right.

Q. And they are saying we have to wait and see and you're going to have to prove it in court before you're going to get a nickel, right?

A. That was what was said in here.

Q. And that's a week before Novell said we own the copyrights, right?

A. This was the week before their announcement. That's right.

Q. Now, it's your position that -- and I believe I heard this correctly when you were answering questions from Mr. Singer -- that the May 28 press release by

1114

Novell claiming that they still owned the UNIX copyrights, and also asking SCO to demonstrate there actually was any UNIX in Linux, somehow impacted your release of your quarterly results on the same day, May 28, 2003; is that right?

A. Yes. That's right.

Q. And your earnings announcement on May 28, 2003, was for the quarter that ended a month earlier, on April 30, 2003, right?

A. Yes. That's right.

Q. And so the quarter had actually been closed for a month before May 28, right?

A. Roughly, yes.

Q. And the revenue and earnings you reported on May 28 was about 21 million in the top line revenue and income of a little over 4 million, right?

A. Yes.

Q. But that wasn't the first time you told the public those numbers, was it?

A. I don't recall.

Q. Let me show you Exhibit M-14.

THE COURT: M?

MR. ACKER: M. Yes, Your Honor.

Q. BY MR. ACKER: M-14 is a SCO press release dated May 14, 2003; isn't that right?

1115

A. Yes. That's correct.

Q. And you're announcing a couple things in this press --

I move for admission of M-14, Your Honor.

MR. SINGER: No objection.

THE COURT: It will be admitted.

(Novell Exhibit M-14 received in evidence.)

Q. And you're announcing a couple of things in this press release. You're announcing, one, what you expect your earnings to be at the end of the quarter, correct?

A. Yes.

Q. And you're also saying that we did this great deal in the SCO -- in the licensing campaign we executed this deal with Microsoft, right?

A. Yes. That's right.

Q. You don't say "Microsoft," but that's what we're talking about, right?

A. I'm not sure if it was Microsoft or SUN. We had a couple of different deals going on at that point in time. I'd have to break this down a little it. It was either Microsoft or SUN.

Q. And the reason you put out these press releases was to tell people: "Hey, we had a great quarter and we did this great deal," is so that the news gets out to the

1116

market and they buy your stock, right?

A. That's not correct. That's not why we put them out.

Q. But that's the reason for telling the market what's going on, so that they know what's going on with the company?

A. The reason we put this out was, as a publicly traded company, when you have material information that's hit your company, whether it's good or bad, you have an obligation to publish it, so this was a material change, so part of that was published.

Q. So you had an obligation on May 14 to tell the investing public the following:

Lindon, Utah, May 14, 2003. The SCO Group -- and then you have a NASDAQ ticker -- announced today the signing of another major SCOsource licensing agreement. This agreement marks the second substantial licensing agreement since the formation of SCOsource in January of this year. The SCOsource division was created to manage the substantial UNIX intellectual property owned by SCO.

And then you also told them:

SCO updated its guidance on expected results for its second fiscal quarter ended April 30, 2003. The company expects to report net income of approximately 4 million or 29 cents per diluted share or an estimated

1117

revenue of 21 million.

Correct?

A. Yes. That's correct.

Q. And those were the numbers that hit the street on May 28, $4 million in net income and 21 million in revenue, right?

A. I don't see that in front of me. It was close to that if not that.

Q. So you told the investing public that two weeks before Novell said anything in the press release about the ownership of the UNIX copyrights, correct?

A. Yes.

Q. And do you know how much your stock went up that day?

A. I don't have it in front of me.

Q. Would it surprise you to know that, based on these numbers, your stock went up 39 cents?

A. I don't have a reason to believe one way or another.

Q. Let me show you a document so we can take a look at that. And this is Exhibit Q-33. And you see, Mr. McBride, what I've handed to you? Exhibit Q-33 is a daily report of the movement of the SCO stock price over a period of time. And if you could take a look on the fourth page in, there's a date, May 14, 2003 date.

1118

First I would move for admission of Q-33, Your Honor.

MR. SINGER: Objection. There is no foundation. I have no idea what this is.

THE COURT: I think we're going to need more foundation, Mr. Acker.

MR. ACKER: Well, let me just ask Mr. McBride some questions and see if he'll disagree with the information in this document.

Q. BY MR. ACKER: You see, sir, that on May 14 this chart indicates your stock opened at $3.34, and it finished the day at $3.55. Do you see that?

A. Yes, I do.

Q. Do you have any reason to disputes that that's what your stock did that day?

A. I don't know without looking at it.

Q. I'm sorry, sir?

A. I don't know offhand. I just don't know.

Q. Okay. You don't know one way or another. And that's the day that you told the market:

We did the second SCOsource license, and this is what our numbers are going to be at the end of the month.

Right?

A. Yes.

1119

Q. Okay. Now -- now, before the market opened on May 28 --

If we could pull up the SCO's opening slide for that May 28 stock drop, Mr. Lee.

THE COURT: Which is?

MR. ACKER: This is a slide used by SCO in its opening statements, Your Honor.

THE COURT: All right.

Q. BY MR. ACKER: Now, so, on May 14 your stock is trading a little over $3.00 and the news is out on the street that you're going to have $21 million in revenue and $4 million in income and you've signed the second Microsoft deal. And your stock, at the beginning of the day on May 28, is a little over $10 before the market opens. Do you see that? It's on the screen, Mr. McBride.

A. Oh. Okay. Okay. I've got it.

Q. So your stock opens at ten bucks on the 28th. And then you make your second announcement regarding your earnings. You recall that your conference call was about 9:00 o'clock in the morning on central mountain time?

A. We usually had them in the morning. I don't have any reason to disagree with that.

Q. And you see what happens to your stock after starting at $10 a share, after -- even with your

1120

announcement, your reannouncement of these earnings, it drops down to below $9.00, just a little over $8.00. Do you see that?

A. Okay. Yes.

Q. And that all happens before Novell says anything about ownership of the UNIX copyrights, correct?

A. I don't know what time they --

Q. Well, your lawyers -- your lawyers claim that the time the statement was made is a dotted line going up and down the chart. Do you see that?

A. Okay. So let's take that one, then. Okay.

Q. And so, before that statement is made, your stock has dropped from $10.00 to just a little over $8.00, despite the fact that you have announced to the street for the second time your revenue for the second quarter, right?

A. Yes.

Q. So, before Novell said anything about ownership of the UNIX copyrights on May 28, 2003, your stock was dropping, despite the fact that you made your second announcement about your revenue the second quarter, right?

A. It had gone down a little bit.

Q. But even after the end of the day when -- after SCO makes its announcements, the stock is still trading

1121

at $6.00, a little over $6.00 a share, right?

A. Yes.

Q. And so it's $3.00 higher than it actually closed when you made your first announcement of your revenue two weeks earlier on May 14, right?

A. Give or take some pennies. It's in that range.

THE COURT: Mr. Acker, how much more do you have?

MR. ACKER: A bit, Your Honor.

THE COURT: Okay. Would you find an appropriate time for us to break.

MR. ACKER: This would be an appropriate time, Your Honor.

THE COURT: Are you sure?

MR. ACKER: Yes.

THE COURT: All right. We'll take a recess.

Ms. Malley.

MS. MALLEY: All rise for the jury, please.

(Jury leaves the courtroom.)

THE COURT: Mr. Acker, I have to tell you that the Court is not pleased with the fact that once the document was offered and it was objected to and the Court did not admit it, you went ahead and asked questions about it and basically got the information from it you

1122

wanted. And I would ask you to please show more respect for the Court's rulings.

MR. ACKER: Yeah. I apologize, Your Honor. I certainly will not do that in the future.

MR. SINGER: May we ask how long Mr. Acker plans to continue because we have other witnesses. We are trying to plan the rest of the day.

MR. ACKER: An hour, Your Honor.

THE COURT: All right.

MR. SINGER: Okay.

THE COURT: We'll take 20 minutes, counsel.

(Short break.)

1123

***** Part 3 *****

1124

THE COURT: Are we ready, counsel?

MR. ACKER: Yes, Your Honor.

MR. SINGER: Yes. Well --

THE COURT: Does that mean no?

MR. SINGER: I was thinking whether it made sense to raise one evidentiary issue that's going to come up in redirect, in light of the cross, now before the jury is here --

THE COURT: Go ahead.

MR. SINGER: -- so we can openly discuss that.

I had moved Exhibit 748, which was the July presentation, into evidence and the Court at that time had not accepted it. Now we have had all these other articles which were presented as statements to Mr. McBride, were you aware of this, were you aware of that. And I would like to put in, through Exhibit 748, the response which they provided, which Mr. McBride was aware of, as well as what they used to respond to those criticisms by the Linux community. So I intend to try to get back into this on redirect. And I think now I certainly have a basis to do so given the issues that have been raised in cross-examination.

MR. ACKER: I wouldn't object as to that one page. It's just the whole PowerPoint, Your Honor.

THE COURT: I would tell you that I will not permit the whole Power Point to come in, Mr. Singer, because

1125

there is no foundation.

MR. SINGER: There are two pages that I would like to have come in that relate to --

THE COURT: Show Mr. Acker, and if he's willing to agree.

MR. SINGER: One is this page from articles, and the other is this page which talks about the Linux development.

MR. ACKER: I wouldn't have a problem with the articles. The other is their theory on infringement, and I would object to that.

MR. SINGER: I will just go with the articles, then.

THE COURT: Your 748 will consist of one page, which is the articles, all right?

MR. SINGER: That's correct, Your Honor.

THE COURT: All right. Good.

Ms. Malley, would you please bring the jury in.

If, in fact, we have another hour on cross, I am presuming that we probably will only finish with this witness today. Is that likely?

MR. SINGER: If we have an hour and only an hour, I think my redirect might be completed within the half hour that we would have, roughly speaking.

THE COURT: So the answer to my question is this

1126

is probably the only witness we'll finish today?

MR. SINGER: I think that's quite certain, Your Honor.

THE COURT: What does that, then, do to our schedule?

MR. SINGER: I think we're looking at putting Mr. Pisano on now instead of Ms. Botosan because Mr. Pisano, he is the professor from the Harvard business school, he has to leave at the end of the day tomorrow. So we can't risk not completing his testimony. So instead of going --

(Jury present)

THE COURT: Go ahead, Mr. Acker.

MR. ACKER: Thank you, Your Honor.

BY MR. ACKER:

Q Mr. McBride, I've handed you what have been marked and admitted I believe as N-13 and T-13, the Microsoft and Sun agreements. Do see those, sir?

A Yes, I do.

Q You are familiar with these license agreements, correct?

A Yes, I am.

MR. ACKER: Your Honor, I would move for admission of N-13 and T-13, if they have not already been admitted.

MR. SINGER: I don't think they have been, but I have no objection.

1127

THE COURT: N-13 and T-13 will be admitted.

(Defendant's Exhibit N-13 and T-13 were received into evidence.)

BY MR. ACKER:

Q In talking to the jury this morning about license agreements that SCO was able to obtain in the first part of 2003, these are the two agreements you are talking about, this Sun agreement and the Microsoft agreement?

A That's right, Mr. Acker.

Q And those are the only agreements under the SCOsource division that were obtained between the announcement of the SCOsource program in January of 2003 and May 28th of 2003, right?

A Yes, that's correct.

Q And those two licenses, the Sun license and the Microsoft licenses, those are UnixWare licenses, correct?

A Those are UnixWare IP licenses in the SCOsource division.

Q But you agree with me they are UnixWare licenses?

A They are based on UnixWare.

Q Now let me turn to this conversation that you testified you had with Mr. Messman on June 5th. You said that at some point, either on the 4th or the 5th, your assistant found Amendment No. 2, correct?

A Yes.

1128

Q And she let you know that, and you were in New York, right?

A Yes.

Q And did you come back to Utah to call Mr. Messman or did you stay in New York?

A No, I was actually flying home from New York. I believe when I landed there was a voice mail from my assistant -- I had just landed in New York. And then I went down to the office in Lindon after receiving -- well, I called her, but I received her voice mail. I called her and then I went to Lindon.

Q Then you called Mr. Messman; is that right?

A Not initially. When I found out about it, it was in the afternoon time frame. From three o'clock until around four or five o'clock, I don't remember exactly, we spent a couple of hours going through and figuring out what we wanted to do. One of the first things, once we found it, was to call him. So, yes, I placed a call in to him, I recall, in the late afternoon on June 5th of 2003.

Q Then after the first call, you faxed him a copy of Amendment No. 2, correct?

A That's correct.

Q It was during the second call that you claim -- and I wrote it down yesterday, you claim he said, okay, Darl, you got the copyrights. Do I have that right?

1129

A Yes.

Q That was a big deal, wasn't it?

A Yeah.

Q I mean, that was a huge admission, the CEO of Novell, according to you, told you on the phone, okay, Darl, you have the copyrights, right?

A Yes.

Q So you've won this dispute, right?

A I felt like we had.

Q Did you take any notes of that call?

A No.

Q Did you send an e-mail to anybody to document that call?

A No -- well, I had somebody there in the room with me that overheard the call, so I didn't feel like I needed to.

Q Did Mr. Sontag take any notes?

A I don't know.

Q Did Mr. Sontag send any e-mails?

A I don't know.

Q So this happens in the evening -- late afternoon, evening on June 5th, right?

A Yes.

Q And then the very next morning you send a letter to Mr. Messman, right?

A Yes.

1130

MR. ACKER: Can we bring up SCO 95, please.

BY MR. ACKER:

Q This is your letter to Mr. Messman on June 6th, 2003, maybe within 12 hours of this phone call in which you claimed that Mr. Messman essentially confessed to you, right?

A Yes, that's right.

Q And in this letter that you wrote within 12 hours of this conversation, you referenced the conversation, correct?

A Yes, that's correct.

Q Why don't we take a look at that portion of the letter. In the second sentence of this paragraph, you wrote, I am also concerned that IBM may have possibly been involved in your decision to issue this groundless press release based upon statements you made in our telephone conversation on June 5th, right?

A Yes.

Q And what you said yesterday about what Mr. Messman said about IBM is he wouldn't answer your questions, right?

A He was evasive, that's what I said.

Q So within 12 hours of the CEO of Novell confessing to you that you own the copyrights, you write him a letter, you reference the phone call, you don't say anything about that alleged statement. Do I have that right?

A About which alleged statement?

1131

Q Do I have it right that within 12 hours you wrote a letter to Mr. Messman that you referenced a telephone conversation and said nothing about this alleged confession? Do I have that correct?

A Well, I think we've got to read the rest of this letter.

Q Take your time.

A How do I pull it up?

Q I'll give you a hard copy.

A Great. Right. So if you go to the latter part of the letter, there's a good three points in there that talk about the concerns that I have about the intercommunications between IBM and Novell.

Q Nowhere in that letter do you say, Mr. Messman, you confessed to me last night on the phone, or words to that effect?

A Well I said, regarding our call last night, based on the conversations we had. I didn't say a lot of other things that he said either.

Q But wasn't the most important part of that call that Mr. Messman allegedly told you you owned the copyrights? Wasn't that the real essence of it?

A There were a lot of things that were important. The fact that he had admitted, okay, you've got the copyrights,

1132

that was very important. His hesitance and unwillingness and evasiveness around whether they were, in fact, coordinating with IBM was an important part. And then the fact that, you know, he didn't want to talk about damages either. There were a lot of things that were important about the call.

Q But nowhere in the letter that you wrote to him within 12 hours did you say, by the way, you admitted last night that we own the copyrights, right?

A The letter is what it is.

Q So the answer to my question is yes, correct?

A What was the question again?

Q You never said in the letter that you confessed to me last night --

A I didn't say confessed because he knew -- he confessed -- here's the issue, Mr. Acker. He confessed --

THE WITNESS: Can I talk about this or am I going too far? I don't want to get in trouble with.

THE COURT: He's your witness. What do you want to do?

MR. ACKER: I would like an answer to the question.

THE WITNESS: Try again. I can talk to Mr. Singer. Try again. //

1133

BY MR. ACKER:

Q Within 12 hours of having this conversation with Mr. Messman where he allegedly told you you own the copyrights, you wrote him a letter, you referenced the phone call, you didn't say anything about this statement, right?

A About which statement?

Q To him saying, allegedly, to you that you, SCO, owns the copyrights?

A Right, because he had already made that statement. He hadn't admitted to the IBM statements.

Q You wrote another letter to him five days later on June 16th, correct? Let me show J-16. I'm sorry, June 11th.

A Okay.

Q J-16 is a letter that you wrote to Mr. Messman on June 11th, 2005, correct?

A Yes, that's right.

MR. ACKER: I move for admission of J-16, Your Honor.

MR. SINGER: No objection.

THE COURT: It will be admitted.

(Defendant's Exhibit J-16 was received into evidence.)

BY MR. ACKER:

Q If you would take a look at the fourth page, 4 of 5 of

1134

the letter, paragraph 4, you again wrote to Mr. Messman and you again referenced your June 5th call with him, right?

A Yes.

Q You wrote, the fact that Mr. Lauderdale was directly involved in your decision to issue the June 9, 2003 letter further confirms your reluctant admission to me on June 5th, 2003 that IBM may have been involved in your press release of May 28th, 2003, with the resulting adverse impact on SCO and its shareholders, correct?

A Yes, that's right.

Q So six days -- in your second letter to him six days later about the same telephone conversation, you characterized his statements about IBM as being a reluctant admission, right?

A Yes.

Q Nowhere in this letter do you say anything about Mr. Messman allegedly saying to you, Darl, you own the copyrights, correct?

A He had already admitted that.

Q Nowhere in this letter do you say that, correct?

A No, I haven't.

Q Nowhere do you reference this, correct?

A No, he'd already given us --

Q You have no notes --

THE COURT: Just a second. Let the witness finish

1135

the answer before you ask the next question.

THE WITNESS: No. He had already given us a retraction letter stating that the copyrights were with SCO. There was no reason to pursue it.

BY MR. ACKER:

Q You have no notes of that conversation, correct?

A I didn't need notes of the retraction letter. It was a public press release.

Q Let's go back to the first page of this letter, J-16. If we could highlight the first paragraph. You wrote, this letter is in response to yours of June 9th, 2003. In your June 9 letter, you attempt to assert claims on behalf of IBM with respect to its SVRX license with SCO. Do you see that?

A Yes.

Q That statement is true, right?

A Yes.

Q So you believed as of June 11th, 2003, that IBM's license with SCO was an SVRX license, correct?

A Yes.

Q No doubt about that, right?

A No doubt about which part?

Q That IBM's license was an SVRX license.

A Let me read this again. This sounds like a trick one. Let me just see here. So IBM had an -- IBM has an SVRX license with SCO and

1136

Novell was asserting claims on behalf of IBM. I agree with that statement.

Q You agree that the license was an SVRX license?

A It was a license with respect to their AIX license.

Q Which is an SVRX license, according to you?

A Yes.

Q So it was your testimony yesterday, and you've just referred to it a minute ago, that Mr. Messman's letter -- or Mr. LaSala's letter to you and the Novell press release on June 6th was some sort of admission that SCO owned the copyrights; is that your testimony?

A The June 6th -- say that again. The June 6th letter was an admission?

Q The June 6th press release, you believe -- you testified a number of times that you believed it was essentially --

A Yes, it was a retraction letter --

THE COURT: Mr. McBride, please, while Mr. Acker is speaking, do not speak over him.

THE WITNESS: Sorry, Your Honor.

BY MR. ACKER:

Q That, in your mind, Novell is telling the world on June 6th that, in fact, SCO owns the copyrights, that is your interpretation of that press release, correct?

A Yes.

1137

Q And so for this period of time between June 6th and until Novell makes another public statement, December 22nd, 2003, in your mind, SCO has told the world we don't own the copyrights -- excuse me, Novell has told the world we don't own the copyrights, SCO does, correct?

A Incorrect.

Q Well, there was no other press release between that period of time, between June 6th, 2003 and December 22nd, 2003, correct?

A That's correct.

Q Novell didn't say in any public press release during that period of time anything about the copyrights, right?

A Not that I'm aware of in a press release.

Q Now did you have conversations with the investing public during that period of time?

A Yes, I did.

Q And it's true, isn't it, that during that period of time you told the investing public, that is between June 6th of 2003 and December 22nd of 2003, you told the investing public Novell has given up, they say we own the copyrights, correct?

A That's not correct. Not exactly the way you said it.

Q But that was the gist of what you told the investing public?

A Initially. It changed in the fall time frame.

1138

Q Why don't we take a look at Exhibit L-17. I hand you what you we've marked as Exhibit L-17. Mr. McBride, this is a transcript of an interview that you gave on July 21st, 2005, correct?

A Yes, that's right, Mr. Acker.

Q If you turn to page 3 of the document --

MR. ACKER: I move for admission of L-17, Your Honor.

MR. SINGER: First of all, this is July 2003, not 2005.

MR. ACKER: 2003. I move for admission of L-17.

MR. SINGER: I have no objection.

THE COURT: Admitted.

(Defendant's Exhibit L-17 was received into evidence.)

BY MR. ACKER:

Q So on the third page do you see the interviewer asks you a question and you give an answer that begins at the top, it begins with the word well? Do you see that?

A Yes, I see that.

Q The questioner asks you, well, Novell would say you actually don't own those copyrights fully. You responded yeah, well, the Novell thing, they came out and made a claim that held up for about four days and then we put that one to bed. If you go talk to Novell today, I will guarantee you

1139

that they will say -- what they will say, which is they don't have a claim on those copyrights, correct?

A Yes, that's right.

Q That's what you said in a press interview on or about July 21st, 2003, right?

A Yes, that's correct.

Q Let me show you J-19. Mr. McBride, J-19 is an e-mail to you and a number of others at SCO dated August 18th, 2003, correct?

A Yes.

Q It's attaching a number of articles quoting yourself and others, correct?

A Yes.

MR. ACKER: We would move for admission of Exhibit J-19, Your Honor.

MR. SINGER: This is a composite of about eight different articles. If there is a particular one that relates to Mr. McBride's testimony, perhaps Mr. Acker could point to that.

MR. ACKER: Certainly. Page 6 of 18, article date is August 19th, 2003. Also on page 16 of 18, an article dated August 18th, 2003.

MR. SINGER: What part on page 6?

We have no objection to the two passages which have been mentioned by Mr. Acker being admitted as part of a

1140

redacted document.

MR. ACKER: That's fine, Your Honor. I'll just show him those passages.

THE COURT: More importantly, I don't see the need for a long document like this going to the jury as an exhibit. If you can somehow clean it up, Mr. Acker, before it goes to the jury, I would appreciate it.

MR. ACKER: Absolutely, Your Honor.

THE COURT: It will be admitted, presuming there will be an appropriate redaction of unnecessary material between now and the time it goes to the jury.

MR. ACKER: Absolutely.

(Defendant's Exhibit J-19 was received into evidence.)

BY MR. ACKER:

Q So, Mr. McBride, take a look at the -- can you see the page numbers at the top -- 15 of 18 of that document?

A Yes.

Q Go down to the bottom, you see there is an article there dated August 18th, 2003? Do you see that?

A Yes.

THE COURT: Which item is it, again?

MR. ACKER: I'm sorry, Your Honor?

THE COURT: Which item is it?

MR. ACKER: It's number 12.

1141

BY MR. ACKER:

Q If you go to the next page, you see there is a quote in the middle the page attributed to you from an address you gave, correct?

A Yes, that's right.

Q The paragraph that begins with in regard?

A I see it.

Q As of August 18th of 2003, you were still telling people in the public, in regard to Novell's recent claim that it still owns the copyright to UNIX, McBride said it took SCO just four days to press the eject button on that claim, right?

A Yes, that's right.

Q That's a statement you made on or around August 18th, 2003, right?

A That's correct.

BY MR. ACKER:

Q Let me show you one more, Exhibit P-45.

THE COURT: This is one of your new exhibits today?

MR. ACKER: It is, Your Honor. And subject to the discussion we had, I only offer a limited portion of this document subject to the discussion we had earlier today.

MR. SINGER: Perhaps Mr. Acker could point me to the portion that he is using.

1142

I have no objection to that portion.

THE COURT: It will be admitted.

(Defendant's Exhibit P-45 was received into evidence.)

BY MR. ACKER:

Q Mr. McBride, just so the jury has some context, P-45 is a transcript of a conference call that you and other executives at SCO provided in November of 2003 to the investing public, right?

A Yes, that's correct.

Q And what this document is is a transcript of what was actually said by yourself and other Novell executives during the course of that conference call?

A Yes, that's right.

THE COURT: Mr. Singer.

MR. SINGER: I thought Mr. Acker was focusing on a particular passage in the document.

MR. ACKER: I'm going to get to that right now.

THE COURT: What page will it be found on?

BY MR. ACKER:

Q And I misspoke a minute ago. It wasn't Novell executives, it was SCO executives in this conference call, correct?

A I misspoke on, I guess, my answer. It was SCO executives on a conference call.

1143

Q You were all speaking so that one another could hear one another, correct?

A Yes.

Q And so you heard what Mr. Bench -- was he your CFO at the time?

A Yes, that's right.

Q You heard what Mr. Bench said to the investing public in November of 2003, correct?

A Yes, that's right.

Q He said the following, along the way over the last several months, once we had the copyright issue resolved where fully we had clarity around the copyright ownership on UNIX and System V source code, we've gone in and done a deep dive into Linux. Do you see that?

A Yes.

Q That's what Mr. Bench said to the investing public, while you could hear, in November of 2003, right?

A That's correct.

Q When he's referring to the copyright issue resolved, he's talking about who owns the copyrights, right?

A That's right.

Q Wasn't it the case, though, actually, despite the fact that in July and August in 2003 SCO was telling the investing public that Novell has given up and has denied ownership of the copyright, you were actually receiving

1144

correspondence -- non-public correspondence from Novell saying just the opposite?

A I wouldn't characterize it the way you said it.

Q Well, didn't you receive a letter from Mr. LaSala on August 4th, 2003 saying in no uncertain terms that Novell owns the copyrights?

A That was the portion we talked about yesterday where they had come back and flip-flopped, so yes.

Q So as of August 4th, 2003, it's your testimony that Novell has told you in a private letter from Mr. LaSala that your interpretation of the contract is wrong and Novell still owns the copyrights, correct?

A That's not the way I would say it.

MR. ACKER: Why don't we bring up SCO Exhibit 105.

BY MR. ACKER:

Q This is a letter to you from Mr. LaSala dated August 4th, 2003, correct?

A Yes.

MR. ACKER: And highlight the third paragraph, please.

BY MR. ACKER:

Q Mr. LaSala said -- this in a private letter to you on August 4th, 2003, in other words, under the asset purchase agreement and Amendment No. 2, copyrights were not transferred to Santa Cruz, correct?

1145

A That's what it says.

Q And you also characterized an earlier letter of Mr. LaSala?

MR. ACKER: If we could go to SCO Exhibit 678, and if we could take a look at the middle paragraph, please.

BY MR. ACKER:

Q Mr. LaSala, on June 26th, said this to you, SCO's statements are simply wrong. We acknowledge, as noted in our June 6th public statement, that Amendment No. 2 to the asset purchase agreement appears to support a claim that the Santa Cruz Operation had the right to acquire some copyrights from Novell. Then he continued, upon closer scrutiny, however, Amendment No. 2 raises as many questions about copyrights transferred as it answers. Indeed, what is most certainly not the case is that any question of the UNIX copyrights -- of whether UNIX copyrights were transferred to SCO as part of the asset purchase agreement was clarified in Amendment No. 2. This is what you characterized in your testimony yesterday as a flip-flop, right?

A Part of the flip-flopping. This is a few of the letters that were flip-flopping.

Q So what you've told this jury is that on June 6th you believed Novell agreed with your position, but then on June 26th they had flip-flopped, right?

1146

A I viewed that this was a flip-flop. I viewed that other parts of Novell, Jack Messman specifically had told me you got the copyrights.

Q Then on August 4th Mr. LaSala wrote you another letter and told you in no uncertain terms Novell's position was it still owned the copyrights, right?

A Which was a different position than this letter.

Q But you and your executives at SCO are still out in the marketplace until November of 2003 saying that Novell has agreed with your position and that Novell has agreed that SCO owns the copyrights, correct?

A That's not how we characterized it.

Q So Novell, in private, was telling you you are wrong about your interpretation of the APA, correct?

A The Novell attorney was, not Jack Messman.

Q But you, in public, are telling the world Novell has given up, right?

A I was relying on Messman's comments.

Q Then what happens on November 22nd is that Novell on its Web site puts all the correspondence up, correct?

A That's correct.

Q So they tell the world, that has a keen interest in this, here's Novell's position and here is SCO's position, and here is the asset purchase agreement, and here's Amendment 1 and here's Amendment 2. All that went up on the

1147

Web site, right?

A There were a number of things. That sounds roughly as I remember it.

Q And Novell left it to the public to decide who was right, correct?

A I don't know what Novell left it to.

Q Did you have a conversation with Chris Sontag in the last three months?

A I've talked to Chris a few times since I left SCO. I don't know exactly what point in time. I probably talked to him in that period of time, yes.

Q It's true, isn't it, within this year actually, in 2010, that you called Mr. Stone, who is a venture capitalist, and asked him to invest in one of your new ventures related to a protective covering for a cell phone? Isn't that right?

A That was the call that was made, yes.

Q And you asked him to invest money in your company because you trust Mr. Stone, correct?

A I don't recall saying that.

Q You called him and asked him for money, right?

A We were rounding up capital. We called and talked to him regarding his firm to see if they would be interested in investing. It was at the request of one of the other people of the cell phone company that asked that I place a call

1148

into Stone.

Q Isn't it also true that during that conversation that you said to Mr. Stone, Chris, don't worry about these Maureen O'Gara allegations, those won't be part of the trial? Didn't you say that to him?

A No, I didn't say that.

Q Just a few more questions, Mr. McBride. Now you told the jury yesterday and today that the reason that you believe that the SCOsource initiative failed after December 22nd, 2003 and going into 2004 was because of Novell's actions, right?

A Say that again. What failed, the SCOsource?

Q Yes.

A Yes. They were the major problem for the SCOsource program failing.

Q Let me show you what we've marked as Exhibit Q-22. Mr. McBride, Exhibit Q-22 is a form 10-K filing that SCO made with the SEC for the fiscal year ending October 31st, 2003, correct?

A Yes.

Q So this document would have been filed sometime in early 2004, correct?

A Yes, that's right.

Q Again, as with your other SEC filings, if you go to the second to the last page of the document, you'll see your

1149

electronic signature there.

A Okay.

MR. ACKER: I move for admission of Exhibit Q-22, Your Honor.

THE COURT: It's already been admitted.

MR. ACKER: Thank you, Your Honor.

BY MR. ACKER:

Q Do you see that, sir?

A Yes, I do.

Q You signed it on or about or your electronic signature was affixed with your permission on January 28th, 2004?

A Yes.

Q You would have reviewed the statements in Q-22 before agreeing to have that happen?

A Yes, that's right.

MR. ACKER: If we go to page 36 of 87, please. If we could highlight the paragraph that begins with our future SCOsource licensing revenue.

BY MR. ACKER:

Q What SCO, with your permission, told the SEC and the investing public was this in January of 2004: We initiated the SCOsource licensing effort in January of 2003 to review the status of UNIX licensing and sublicensing agreements. This effort resulted in the execution of two significant vendor license agreements during fiscal year 2003 and

1150

generated $25,846,000 in revenue. Do you see that?

A Yes.

Q That's a reference to the Sun and Microsoft deals plus several other smaller licenses, correct?

A Yes, that's right.

Q Due to a lack of historical experience and the uncertainties related to SCOsource licensing revenue, we are unable to estimate the amount and timing of future SCOsource licensing revenue, if any. That statement was also true, right?

A Yes.

Q If we do receive revenue from this source, it may be sporadic and fluctuate from quarter to quarter, correct?

A Yes.

Q True statement?

A Yes.

Q Our SCOsource initiatives are unlikely to produce a stable or predictable revenue stream for the foreseeable future. Also true, correct?

A That's right.

Q Then you told the government, additionally, the success of this initiative may depend on the strength of our intellectual property rights and contractual claims regarding UNIX. Then you finished, including, the strength of our claim that unauthorized UNIX source code and

1151

derivative works are prevalent in Linux, correct?

A Yes, that's correct.

Q So the success of SCOsource, in your mind, in January of 2004 would depend, in part, on the strength of your claim that there actually was unauthorized UNIX source code and derivative works prevalent in Linux, right?

A That was one of the risk factors we mentioned, that's correct.

Q Mr. McBride, you were hired as CEO of SCO on June 27th, 2002, correct?

A Yes, that's correct.

Q This was a significant development in your professional career as your first job as a CEO of a publicly traded company, right?

A Yes.

Q Over time you acquired a significant number of stock options to purchase SCO stock, correct?

A Yes, that's correct.

Q Today you have over a million such options, correct?

A That's correct.

Q In fact, of that million, 600,000 of those options are fully vested, right?

A I don't know exactly how many are vested. I think it would be more than that, but yes.

Q Of those 600,000 that you initially received upon

1152

becoming CEO in 2002, your strike price is 76 cents, isn't it?

A That's correct.

Q So what that means is that if SCO is successful in this lawsuit and the SCO stock goes to $1.76, you stand to make $600,000, right?

A I think the way you did the math, that's correct.

Q If the SCO stock price goes to $2.76, you stand to make $1.2 million, correct?

A Correct.

Q If the SCO stock price goes to $5.76, you stand to make $3 million, correct?

A Correct.

Q It's a lot of money, isn't it, Mr. McBride?

A Yes, it is.

Q That is not considering additional stock options you have and stock ownership, correct?

A That's correct.

Q So you have a significant financial stake in the outcome of this case, don't you, sir?

A I have a material -- what should I say -- interest in the outcome of this case here, there is no doubt about that.

Q Not only do you have a financial interest, you have a reputation interest in the outcome of this case, don't you, sir?

1153

A I would say that's accurate as well.

Q You were fired as CEO last year, correct?

A That's correct.

Q You believe that Novell has harmed your reputation, correct?

A I believe that is accurate, yes.

Q You want to be vindicated, don't you, sir?

A I believe that's correct as well.

MR. ACKER: I don't have anything else, Your Honor.

THE COURT: Mr. Singer.

MR. SINGER: I have some questions, Your Honor.

REDIRECT EXAMINATION

BY MR. SINGER:

Q Mr. McBride, are you out of a job right now?

A Yes, I am.

Q And were you terminated in October 2009 as part of a series of cost cutting lay-offs --

A Yes, I was.

Q -- that were pursued?

A Yes, I was.

Q And let me go back to your employment with Novell. How many years were you employed with Novell?

A I was there eight years.

Q Were you able to obtain positions of responsibility

1154

while you were at Novell?

A Yes, I was.

Q What was the highest position that you reached in Novell?

A I was vice president, general manager of the extended networks division.

Q Was that an important division to the company?

A It was a startup group, had new emerging exciting technology. So, yes, I guess you would say it was important.

Q When you left Novell, did you leave voluntarily?

A Yes, I did.

Q That was after, you said, eight years?

A Yes.

Q Now let's turn back to some of the points that were raised in cross-examination. There was some questioning earlier today about the fact there was initially made -- I think the first press release is a statement about patents and copyrights. Do you remember that line of cross-examination?

A Yes, I do.

Q Did the company, that is SCO, determine after that that there were no patents which were owned?

A Yes, we did.

Q Did the company ever bring a patent infringement claim

1155

against anyone?

A No, we did not.

Q Did the company ever seek to sell a SCOsource license at that point based on patents as opposed to copyrights?

A No, we did not.

Q In subsequent press releases, did you refer to copyrights?

A No -- yes, we referred to copyrights. We didn't refer to patents after those January press releases were issued.

Q Now you were asked about whether you could reach certain reasonable conclusions in looking at the asset purchase agreement. Do you recall that line of questioning?

A Yes.

MR. SINGER: Mr. Calvin, can you put up on the screen Exhibit SCO 1 again. Can you go to the excluded asset schedule in the original agreement. Turn to the second page, please.

BY MR. SINGER:

Q When you were talking about being able to reach reasonable conclusions, you were being asked about the language which appears in the original APA that had this reference to all copyrights; is that correct?

A Yes, that's correct.

Q Was that language removed by an amendment?

A Yes, it was.

1156

MR. SINGER: Can you turn, Mr. Calvin, to the Amendment No. 2. Can you highlight paragraph A.

BY MR. SINGER:

Q Is this the language that replaced the language that we just were looking at?

A Yes, it is.

Q Did you believe anyone could have a reasonable conclusion in light of this language as to whether or not SCO owned the copyrights? Let me rephrase the question. Could you believe anyone in light of this language could have any reasonable conclusion that Novell had retained the copyrights?

A No.

Q Now with respect to reasonable conclusions, do you have a belief as to whether the seller, Novell, if it had possession of Amendment No. 2, would be in a position to know what it had sold to Santa Cruz?

MR. ACKER: Calls for speculation, Your Honor.

MR. SINGER: It think it just follows his line of examination about reasonable conclusions.

THE COURT: I'll overrule the objection.

THE WITNESS: I believe that if Amendment 2 had been there from day one, we wouldn't be sitting here today. I think reasonable minds on both sides of the table would

1157

look at it and conclude that Amendment 2 fully squared the problem of the excluded assets. I would have never made the first call in to Greg Jones and there wouldn't have been the issues that went from there.

BY MR. SINGER:

Q After June 6th, did Novell, even at the level of the CEO, have Amendment 2 right in front of him?

A Yes, he did.

Q Now let's talk about SVRX royalties. There were some questions about the agency relationship. I wanted to ask you, during the time that you are CEO, how significant was the revenue stream that was being generated by these old legacy SVRX royalties that had been in place in 1995?

A It was something that had been going down. It was some -- are you talking about revenue stream to SCO or to Novell?

Q Well, total revenue stream.

A Total revenue stream was roughly eight million, as I recall it, for the year, and we were collecting only about five percent of that.

Q Now you were asked some questions about the memorandum that Mike Anderer had sent to you?

A Yes, right.

MR. SINGER: That is Exhibit C-12. Mr. Calvin, can you put that on the screen.

1158

BY MR. SINGER:

Q This was in January 4th of 2003, correct?

A Yes, that's right.

Q Had SCO at this time identified Amendment No. 2?

A No, we had not.

Q Was Mr. Anderer given Amendment No. 2?

A Eventually. Not at this time, but eventually he was.

Q So is his statement here, with respect to his view of the agreement, based on the APA without the benefit of Amendment No. 2?

A That's correct.

Q And can you read what he said in the last statement -- next to last statement? Go ahead.

A I need to read this 20 more times to get it straight. So understand this is just a first read.

Q Did there come to be a later time when Mr. Anderer was presented with Amendment No. 2?

A Yes.

Q Did that affect his opinion as to whether or not there was clarity on the issue?

A Yes.

Q And in what way did it clarify the situation?

A Well, I remember him sending me e-mails saying, this is awesome news.

1159

Q What was your understanding of what was meant by that?

A It was awesome news that Amendment 2 had been found which cleared up the copyright concerned he raised earlier.

Q Now you have been shown a lot of press articles that were presented and reflected criticism of SCO engaging in its SCOsource licensing program; is that correct?

A That's correct.

Q Now did SCO seek to respond to those critics by -- or at least to its corporate clients or potential clients by showing code that was allegedly infringing?

A Yes, we did.

Q Was that what was in the code room that you testified about earlier today?

A Yes, that's right.

Q In addition, were there articles which were presented, after looking at that code, that supported SCO's position?

A Yes.

MR. SINGER: I would like to go to Exhibit 748.

BY MR. SINGER:

Q This is one page of Exhibit 748. Do you recognize that this is part of what you used in dealing with customers who had raised concerns?

A Yes, it is.

MR. SINGER: I move the admission of 748.

MR. ACKER: Subject to just this page, that's no

1160

problem.

THE COURT: 748 is just this one page and it will be admitted.

(Plaintiff's Exhibit 748 was received into evidence.)

BY MR. SINGER:

Q Can you tell us about each of these statements and, first of all, whether they were used with potential customers for SCOsource licenses?

A Yes, they were.

Q And how did you present these to SCOsource customers?

A Well, we had a PowerPoint presentation that we put together that outlined where we were with our SCOsource program, where we were with our different programs and products that we had inside of there, and then we laid out our claims that we had, our licensing programs. And then on top of that, we had some comments that third parties had made regarding our program. So this was an example of that.

Q One of those was Information Week which said that, my impression is that SCO's claim is credible, says Laura DiDio, a Yankee Group analyst who was shown the evidence by SCO Group earlier this week. It appears to be the same code?

A Yes, that's right.

Q There is another one. What is EE Times?

1161

A Electronic Engineering Times, I believe.

Q And Mr. Claybrook is a research director for Linux and open-source software at Aberdeen Group in Boston. Is it your understanding that he stated that, if everything SCO showed me today is true, then the Linux community should be very concerned?

A Yes, he did.

Q Computer Weekly quoted a George Weiss, vice president of the Gartner Group. What is Gartner?

A Gartner is a research analyst group.

Q And did he state, from what I have seen, I think people should be taking the SCO accusations seriously?

A Yes, he did.

Q Did you believe that there was a division, then, in the technology community with respect to how strong a case of infringement there was with respect to the amount of UNIX that was in Linux?

A Yes, there were varying opinions.

Q And was this the state of affairs when Novell came forward in May of 2003 with its initial claim that you didn't own UNIX, UNIX copyrights?

A Yes.

Q Now let's look at another one of Novell's exhibits, A-15, Mr. Gasparro's e-mail.

A Okay.

1162

Q I think you were shown part of this e-mail, but I would like to look at another part.

A Okay.

Q Let's focus on -- and Mr. Gasparro was a person who worked at SCO; is that right?

A Yes, that's correct.

MR. SINGER: Mr. Calvin, can you blow up the second paragraph and the third paragraph.

BY MR. SINGER:

Q Did Mr. Gasparro tell you that, it appears that the Linux end-user community had suspected issues over IP for quite some time? Do you see that?

A Yes, I see that.

Q Did you view that as consistent or inconsistent with their being issues of copyright infringement based on Linux?

A Say that again.

Q Did you view that the fact that the Linux end-user community had suspected issues over IP -- does IP to you mean intellectual property?

A Yes.

Q -- for quite some time, did that reflect that there was -- in your view, was that consistent with the articles we just looked at or was it inconsistent?

A That was consistent with those articles.

Q In the second paragraph there is a statement -- or a

1163

question that asked, should we consider publishing the results of three independent auditors without divulging actual code. Do you know what that refers to?

A That refers to the fact that we had independent technology teams that had come in and had given us, as a management team, advice and opinions that, in fact, Linux was infringing on our copyrights.

Q Now there was a reference -- or a question by Mr. Acker about the fact that the company decided not to contest a certain action brought in Germany; is that correct?

A Yes.

Q Why did your company not contest that action?

A Because it didn't want to try its claims in Germany.

Q Did you prefer to try those in a United States courtroom?

A Yes, that's correct.

Q There was an article which you were asked about -- before we turn to those articles, in your view, was there a difference between people who questioned whether Linux infringed UNIX and Novell's challenge to copyright ownership? Were those two different things or the same type of thing to you?

A They were two different things.

Q Can you explain that?

A Right. There were really two issues here. Where the

1164

discussion typically started was is there infringement in Linux. Then before you could move to getting it licensed, it came down to, well, if you don't even own the copyrights, even if there is infringement, how can we go there. So there were two different issues, sometimes dealt with by the same customer. Sometimes they would bring up one or not the other. Those were the two big issues that we faced.

Q And did you view them to be the same or did one, in your view, create a more serious difficulty to overcome than the other?

A The copyright ownership problem was by far the biggest because -- that's the answer to that.

Q And the reason is?

A The reason is because if you don't have the ownership, then it doesn't matter if there is ten lines of infringement or hundreds of thousands of lines or millions of lines, it doesn't matter if you don't own the copyrights and you can't enforce it.

Q Now I would like to turn to the forecast of earnings that you were asked about by Mr. Acker in M-14. Perhaps we can look at that document.

A Okay.

Q Now, first of all, in this press release, did SCO publicly announce that there would be a formal earnings release on May 28th, 2003?

1165

A Yes, we did.

Q Is that in the fourth paragraph?

A Yes, it is.

MR. SINGER: Mr. Calvin, can you highlight that.

BY MR. SINGER:

Q So would this mean that everyone, including Novell, would know that's when you are releasing your actual results?

MR. ACKER: Objection, leading, Your Honor, and speculation too.

THE COURT: Overruled.

THE WITNESS: Yes.

BY MR. SINGER:

Q Now on May 14th, 2003, do you recall Mr. Acker pointing out to you that the stock price had closed at $3.55?

A Yes, I recall.

MR. SINGER: And can we put up this slide. I think we have some other slide that deals with the price movement on May 28th, 2003, Mr. Calvin.

BY MR. SINGER:

Q While he's looking for that, is there a difference between projected results and having actual results announced?

A Yes.

Q After your projected results were announced on May

1166

14th, when the stock was $3 and something, had the stock increased to about $10?

A Yes. Over the next week or two, it continually trended up until it got up to that nine, $10 mark.

Q And Mr. Acker made a point that early in the morning before Novell's press release there appeared to be some downward trending in the stock. Do you see that?

A Yes.

Q Do you know whether, in fact, Novell had put out word earlier that day in advance of their press release that would have indicated that they were going to make a statement that asserted ownership to the copyrights?

MR. ACKER: Calls for speculation, Your Honor.

THE COURT: Sustained.

MR. SINGER: Can we look at Plaintiff's 172.

BY MR. SINGER:

Q And this is a news flash article on May 28th, 2003, and I am going to ask the witness if you have a basis, in looking at this, to say whether or not there was early morning announcements regarding this stock? Let me reframe that. Do you know, as you sit here today without looking at this document, exactly when the first public word came out about Novell's May 28th press statement?

A No, I don't know exactly.

1167

Q I would like you to look at this document for a moment and see if that refreshes your recollection, this article, that there was a news flash on May 28th, 2003.

MR. ACKER: Well, Your Honor, I'm just going to object. If he has any refreshing recollection, it's based on hearsay. As to what his knowledge was at the time, that would be based on hearsay.

MR. SINGER: I think these are matters of public record as to the timing. It doesn't go to the truth of anything. It's the timing of certain announcements.

MR. ACKER: Exactly, and what --

THE WITNESS: I thought he meant what time of the day.

MR. ACKER: I think he did too.

THE COURT: Why don't we start over again.

Mr. Singer, why don't you ask the question.

BY MR. SINGER:

Q Looking at the May 28th, 2003 news flash, is your memory refreshed as to what time of the day there was any news about Novell's announcement?

A My recollection of their announcement -- we're talking about May 28th?

Q Yes.

A -- is that it came later in the day.

Q Does this refresh your recollection as to whether there

1168

was some advance word put out into the market about what Novell was going to do?

A Yes.

MR. ACKER: Your Honor, he's going to testify based on hearsay. He's testified twice he didn't have a memory other than it was later in the day. Now he's shown hearsay to try to change the answer.

MR. SINGER: This is the purpose of a document, to refresh recollection as to something which one would ordinarily not remember so precisely.

MR. ACKER: There is a difference between refreshing recollection and parroting hearsay. We're in the later category.

THE COURT: I think this has some kinship to the document that you wanted the witness to testify to and then asked questions about the stock price. I think I have got to let it proceed to this point, but no further, okay.

MR. SINGER: Yes.

Let's take down the document. So whatever refreshing it has or has not provided you have.

BY MR. SINGER:

Q Do you know, based on your recollection, having been refreshed, whether there was some advance knowledge into the market that Novell was going to come out later in the day and say on May 28th SCO doesn't own the copyrights?

1169

A Yes.

Q What is your understanding?

A Well, my understanding was that Maureen O'Gara had understood the night before --

MR. ACKER: Your Honor, this is just hearsay.

BY MR. SINGER:

Q I'm not asking you to talk about what someone else said. It's simply -- and I will move on from this point if you don't have a recollection, Mr. McBride, but do you --

THE COURT: Do you have an independent recollection of this?

THE WITNESS: Of this being what is the exact recollection?

BY MR. SINGER:

Q This being what time in the day, whether there was any advance knowledge that Novell was going to put out a press release on May 28th, 2003?

A Yes, I did.

Q Was that early in the day, late in the day that word began to circulate about the press release that was going to be forthcoming?

A Early in the day.

Q If you then go back to the stock chart that we were looking at, the movement -- the initial movement down, then, that Mr. Acker was talking about occurred early in the day

1170

on May 28th, 2003?

A That's correct.

Q Then when the actual press release came out is when you see the decline that indicated it is going down from $8 and some cents down to $6 and some cents?

MR. ACKER: Objection, leading, Your Honor, the last three questions.

THE COURT: Sustained.

BY MR. SINGER:

Q Can you tell the jury what the nature of the decline was from the point in the day when Novell published its ownership claim down to the end of the day?

A Yes. It drops from eight something -- it looks like about 8.30 or so per share, down to six something. So eight something down to six something. I don't see the exact pennies.

Q I would like to turn to another subject, which was the June 11th letter. This is J-16. Actually, before we go to that, let's go to your June 6th letter, which shall SCO 95. Do you recall some questions, Mr. McBride, about the fact that you didn't put in the letter the fact that Mr. Messman had said to you, okay, Darl, you have got the copyrights. Do you recall that line of questions?

A Yes, I do.

1171

Q Would you read the first sentence of the second paragraph in the June 6th letter?

A Importantly, and contrary to SCO's assertions, SCO is not the owner of the UNIX copyrights.

Q I was referring to the second paragraph, the one after you talk about the press release.

A As you know, your accusation that SCO does not own the UNIX copyrights was false and was without a good faith basis or belief.

Q And did you make -- seem to make any case in the June 6th, 2003 letter to persuade them of the ownership of the copyrights or were you talking about consequences?

MR. ACKER: Objection, leading, Your Honor.

MR. SINGER: I'll reframe that question.

THE COURT: Please.

BY MR. SINGER:

Q Let's go down later in the letter to the part where you ask him what you want him to do. Do you see the three items?

A Yes.

Q Do you see, number one, is you wanted Novell to affirm publicly that Novell has not retained any rights in and to the UNIX copyrights?

A Correct.

Q And Mr. Messman as of this time affirmed privately in

1172

his conversation to you that he didn't believe that Novell had an ownership interest in the copyrights?

A That's when he said, okay, Darl, you've got the copyrights, yes.

Q And then later this day did you receive Exhibit 96? Can we look at the -- this is Mr. LaSala's letter?

A Okay.

Q Can we turn to the second page. This is one day after your call on June 5th with Mr. Messman?

A Yes, that's right.

Q Do you see the language which says, Amendment No. 2 to the 1995 SCO-Novell asset purchase agreement was sent to Novell last night by SCO. To Novell's knowledge, this amendment is not present in Novell's files. The amendment appears to support SCO's claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996. After Novell publicly stated this, did you feel there was any need to put into your letters with Mr. Messman the fact that the amendment supports SCO's claim that ownership of the UNIX copyrights transferred?

A No, not at all.

Q So when we turn to the letter that you were asked about by Mr. Acker, the June 11th letter, J-16, did you feel any need to put into the June 11th letter, five days after this press release by Novell, by the way, Jack, this confirms

1173

what you told me on the phone, that Novell isn't claiming the copyrights any longer?

A No.

Q Now you were asked some questions about this letter with respect to SVRX licenses. Do you recall that?

A Yes.

Q And what I would like to do is ask you to take a look at the asset purchase agreement?

A Okay.

Q By the way, before we go there, if you look at the June 11th letter, had Mr. Messman put into his letter the term SVRX licenses? Do you see that, which quotes part of his letter --

A Yes.

Q -- in the first paragraph there?

A Yes.

Q Now can we turn to Exhibit 1 again, the asset purchase agreement?

A Okay.

Q Let's look at section 4.16(a). Now, Mr. McBride, were you involved in drafting this agreement?

A No.

Q Or negotiating this agreement?

A No, I was not.

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Q But if we look at SVRX licenses as used for purposes of this section, does it have a particular defined meaning?

A Yes, it does.

Q And does that require you to look at item VI of schedule 1.1(a)?

A Yes, it does.

Q Let's look at that.

A Okay.

Q Is this the schedule?

A Yes, it is.

Q Let's turn to item VI. Do you see where it says, all contracts relating to the SVRX licenses listed below?

A Yes.

Q And in the SVRX licenses listed below, do you see IBM's software development agreement? And we can put the second page on right after this.

A I don't see it on this page.

Q Can we turn to item three of the APA -- item III of this schedule. Now item III, can you read what falls within item III out loud, please, just the heading part.

A All of seller's rights pertaining to UNIX and UnixWare under any software development contracts, licenses and any other contract to which seller is a party or by which it is bound and which pertain to the business, to the extent that

1175

such contracts are assignable, including without limitation.

Q Now can we go down to -- I think it's on the next page. It's item L under this provision. Can you read what it says there under III L?

A 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.

Q Is the IBM software development agreement one of the agreements that SCO had under section III of the APA?

A Yes.

Q Now did Mr. Acker show you this particular schedule which defines what an SVRX license is when he was asking you those questions?

A No.

Q Should he have held up his hand when he was asking you that question? Let's go on to another topic.

A Okay.

Q In your cross-examination you were asked about vendor licenses such as Microsoft and Sun. Do you recall that?

A That's right.

Q And at that time -- I think the question was were these SCOsource licenses. At that time had you announced a right to use -- license to the public in the first quarter or

1176

second quarter of 2003?

A No, we had not.

Q So in April 2003, was that yet on the market?

A No, it was not.

Q And with respect to Microsoft and Sun, would you have considered those vendor agreements or would you have considered those right to use agreements?

A Clearly vendor agreements.

Q You were shown a number of articles about the fact that in the summer of 2003 you thought the issue over copyright ownership was over. Do you recall that questioning?

A Yes, I do.

Q Did you think that Novell, after publicly making its statement on June 6th, was going to do an about-face later in August and in subsequent months?

A No.

Q In fact, if we turn to one of those articles that you were asked about in August 19th, J-19 -- can we go to page -- I think it's page 16 of 18 that you were being asked about.

MR. SINGER: Page 16, I believe. One more page, please. It's the next page.

BY MR. SINGER:

Q In regard -- I'm just going to read you the language. Why don't we -- here we go. In regard to Novell's recent

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claim that it owns the copyright to UNIX, McBride said it took SCO just four days to press the eject button on that claim. What were you referring to?

A I was referring to the -- first of all, Messman's letter to me and the press release. Then the finding of Amendment 2. And then the calling of Jack and informing him that we found Amendment 2. And then finally him saying, okay, Darl, you have the copyrights.

Q If we go to the next paragraph, can you read that to yourself?

A Sure.

Q The after attacking us.

A After attacking us, Novell's CEO, Jack Messman, was then irate that we had not told them there was an amendment to the contract between us that clarified our copyright ownership of UNIX. He seemed to believe -- he seemed to believe that we knew about it but weren't telling them so they could attack us and look foolish. Go figure.

Q Mr. McBride, is this consistent with your recollection of that conversation with Mr. Messman on June 5th?

A Yes, it is.

THE COURT: Mr. Singer, how much more do you have?

MR. SINGER: Just a couple more minutes.

THE COURT: Mr. Acker, how much recross will you have?

1178

MR. ACKER: Not a great deal, Your Honor.

THE COURT: Can you be more specific?

MR. ACKER: Five, ten minutes.

THE COURT: Okay. Counsel, I'm inclined to go ahead and break now and let you finish with your redirect tomorrow, then recross. I don't think we ought to try to finish this witness today. So we are going to recess now, all right.

MR. SINGER: Thank you, Your Honor.

THE COURT: Ladies and gentlemen, let me, first of all, thank you for the way you have been conducting yourselves. This has been a long week, plus, and you have heard a lot of testimony, but you have been paying attention. You have remained alert and have tried to be attentive throughout. That is very important. And I hope you will continue to do so.

Again, I will remind you that though you have heard a lot of testimony, you still have a lot to hear, and it would not be appropriate for any of you to be making up your mind in regards to any of the issues in this case because you really don't know what those issues are until you've been instructed on the law and until you've heard closing arguments, which you've heard before.

I would just gently remind you again about the importance of you not discussing this with anyone or

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allowing anyone to discuss it with you, that you not do any research on your own, you not listen to anything or watch anything or do anything on the Internet, on any of those social network sites that have been read to you several times already. It's very, very important that you be confining yourselves to this case, only what you hear in this courtroom and absolutely nothing else.

We'll be in recess until 8:30 tomorrow morning.

(Jury excused)

THE COURT: Mr. Singer, I asked you a question before the jury came in which was really just a short -- and hoping for a short answer, and that was are we on schedule or have we fallen behind?

MR. SINGER: We are behind schedule. We are seeking to address that by trimming some of what we plan to put in. Obviously we don't have control over the cross-examination length of witnesses. Our plan is, after Mr. McBride finishes his testimony, to have Mr. Pisano testify. There is a possibility that, before the two of them, we would present a deposition of Ms. O'Gara. We're either going to use that then or later in the day, or possibly the beginning of Thursday. The lineup is generally finishing Mr. McBride, then we would go to Professor Pisano and Professor Botosan. We think that's going to take the balance of the day.

1180

We're hopeful, if we finish all of that, then we have Mr. Stone, we've asked to be called adverse, on Thursday to appear. And I'm hopeful we can finish our case on Thursday with the balance of some very short witnesses, Mr. Maciaszek, Mr. Nagle, and Mr. Tibbitts, on Thursday. That's our game plan.

THE COURT: If they finish by, roughly, noon on Thursday, Mr. Brennan, how does that play out as far as you and meeting the three-week schedule?

MR. BRENNAN: May I confer with my colleagues?

THE COURT: Yes, please.

MR. SINGER: Again, we're assuming the cross-examination?

THE COURT: Yes. I'm not holding you to that commitment.

MR. JACOBS: Your Honor, I will field this. I think we are -- I think we can get the case done on the original schedule. We're keeping time. We're trading time with SCO. So far we seem to be very closely in sync in terms of the clock.

What would make that more assured is if we could work out some mechanism so we don't have to spend a lengthy amount of time on the covenant of good faith and fair dealing issue, but would rather have the opportunity to augment the record for the Court's determination of that

1181

issue. I have not ventilated this with SCO's counsel yet, so we haven't worked out what that might look like.

But it would be something like, if there is something we didn't get in now, we would get it in through deposition testimony that's been taken on that topic and through exhibits and argument to the Court. That would constrain what we really have to do in this courtroom to the ownership and slander related topic, and I think we would feel a little more comfortable with trimming our case, if that were true.

THE COURT: Would that also include the unclean hands issue?

MR. JACOBS: I would have to consider that, Your Honor. Let me think about that and get back to you.

THE COURT: Okay. If you would think about it, discuss it with Mr. Singer, then try to make a united presentation to the Court as to what you would like to do. The Court certainly has no objection to dealing with that issue and perhaps even unclean hands by way of non-live testimony.

MR. SINGER: We're happy to discuss it with Mr. Jacobs and see where we go with that.

I just wanted to be complete in setting forth the schedule, and Novell already is aware of this. There are two witnesses, essentially, in our case that would be

1182

presented next week. One is Mr. Keller, he's a short witness. The other, of course, is Mr. Messman, who's supposed to appear on the 24th.

THE COURT: All right, counsel.

We do have hearings this afternoon. If you would please clear the desks.

We'll be in recess until 8:30 in the morning.

(Whereupon, the trial was continued to Wednesday, March 17, 2010 at 8:30 a.m.)


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