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HP Reserves Its Rights in SCO Bankruptcy - Mentions Litigation Resolved in 2003
Thursday, November 25 2010 @ 08:42 AM EST

HP has now joined the growing group of companies reserving its rights in the SCO bankrupty regarding SCO's Notice of Cure Amounts in connection with SCO's hoped-for sale of its assets. But its reason is different: it can't find all the contracts SCO says it has with HP, and neither can SCO. Significantly, HP tells the court:
8. For example, Hewlett-Packard has been unable to locate a copy of the Source License Agreement purportedly between Hewlett-Packard and Debtor SCO Group, Inc. that the trustee seeks to assume and assign. Hewlett-Packard has requested a copy of that agreement from the Trustee, but has not yet received it.
And here's the kicker -- HP says it was involved in litigation with SCO, resolved in 2003:
3. Prior to the petition date in the above-captioned bankruptcy cases, Hewlett- Packard and one or more of the above-captioned Debtors were parties to litigation concerning their respective rights to certain intellectual property. That litigation was resolved by the parties entry into a Release of Unix Claims and Agreement dated as of August 15, 2003 (“Release”).
That's the first I've heard anyone call it litigation. Maybe I dropped a stitch, but I don't recall hearing about any resolved litigation at the time. I recall there were discussions, and Dr. Gary Pisano, SCO's expert witness in the second SCO v. Novell trial listed the agreement in his list of resources as part of his report, but this is the first time I've seen the word litigation used. Here's HP's 2003 press release archive. I also checked HP's FAQ [PDF] on its indemnification offer [PDF]. Not a peep. Linux Online has a SCO Controversy Timeline, and no word about any HP-SCO litigation or agreement in August of 2003. I also checked PACER. Nothing. So, how could that be? It's possible that SCO served HP with a summons with or without a complaint, and negotiations began and ended so fast they never got anything filed. Or maybe there is some aborted filing in some state court somewhere. Whatever the case, it's nice to have a fuller picture, and it ties off some loose ends in the history of SCO's god-forsaken quest.

Here's the filing:

11/23/2010 - 1206 - Reservation of Rights of Hewlett-Packard Company Regarding Debtors' Notice of Cure Amounts in Connection with the Assumption and Assignment of Executory Contracts and Unexpired Leases Filed by HEWLETT-PACKARD COMPANY. (Attachments: # 1 Certificate of Service) (Firth, William) (Entered: 11/23/2010)

What I do remember is the following month, in September, when HP offered indemnification, MozillaQuest did a long piece on the news, and it talked with an HP employee, who didn't say a word about any Unix license, despite being asked about something very similar:
The first-level Unix licenses seem to allow the first-level licensees such as HP, IBM, Sequent, SGI, Sun and so forth to develop derivate Unix works and then license Unix code and the derivative-works code to customers. What if HP's angle with its Linux-product indemnification products is that it is piggybacking its HP Linux products on top of its Unix license via the derived works concept or some other theory related to the application of its first-level Unix license?

If so, then should SCO attempt to sue a HP Linux-product customer for copyright infringement all HP has to do is merely interpose its Unix license in defense and SCO is out of court. If HP has figured out how to piggyback its Linux-product sales on top of its Unix license, then there is very little financial risk to HP when it comes to indemnifying its Linux-product customers against SCO copyright claims.

We discussed this Unix license piggybacking notion and other HP indemnification issues with HP's Elizabeth Phillips, SCO's Blake Stowell, and legal analyst Tom Carey. Elizabeth Phillips sidestepped the Unix license piggybacking issues. Blake Stowell denied the availability of any such Unix license piggybacking. On the other hand Tom Carey considers Unix license piggybacking a possibility. So do we.

The author was thinking about HP's original UNIX license, not a deal with SCO kept private, but it is interesting that HP's Elizabeth Phillips "sidestepped" the question. That puts that HP indemnification offer in a new light, don't you think, if it was based on a secret license with SCO? Not much risk to HP, I would imagine, if all this means what it seems to mean. So when do we get to read this license, I wonder?

By the way, you can find the list of contracts HP says SCO filed as wanting to transfer that it can't match with actual documents on our SCO Bankruptcy Timeline page. Exhibit A-1, A-2, and A-3 attached to SCO's October 15th Notice of Cure Amounts. You'll find most of the contracts on pages 53 and 55 of Exhibit A-3.

Although I don't recall the word litigation ever being used before, this isn't, as I said the first time we've heard about a dispute. So let's try to parse it all out, from what is now publicly available.

Darl McBride testified on day 7 of the second Utah trial in SCO v. Novell, and he talked about the deal that SCO tried to do with HP. It was described as negotiations about a license, not litigation, but then again, this is SCO, so maybe that's the only way they roll:

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 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 Compaq, 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?

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.

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 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 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.

So that's probably when SCO's lawyers first began to get a whiff of defeat, I would guess, and when in the frustration they began to figure out how to go after Novell for blocking the door.

Darl McBride was questioned about HP further on day 8:

MR. ACKER: Move for admission of Exhibit Q45, Your Honor.

MR. SINGER: No objection.

THE COURT: It will be admitted.

(Whereupon, Defendant's Exhibit Q45 was received into evidence.)

Q. (By Mr. Acker) Why don't we take a look at what Mr. Beyers said on August 15th, 2003. Mr. Lee, if we could bring up the first paragraph beginning with the word today.

Mr. Beyers wrote to his colleagues at HP, "Today I threatened SCO that HP would not attend the SCO forum next week if they did not sign the HP UNIX release today." Do you see that?

A. Yes.

Q. "They responded by signing the release and they also provided a letter that we can show our UNIX customers." Do you see that?

A. Yes, I see that.

Q. So wasn't it the case that after the SCO source program was announced, um, you were in negotiations with HP and HP was going to participate in your SCO source forum in Las Vegas; correct?

A. Yes, that is correct.

Q. And a week before the forum, SCO is demanding, I believe, a certain number of millions of dollars from HP; correct?

A. We were in negotiations over something that they were -- had initiated. We were talking about millions of dollars, yes.

Q. And what HP said to you, we're not going to pay you millions of dollars, and if you don't give us a release for free, we're not going to come to your SCO forum; right?

A. That is part of what they said.

Q. Why don't we highlight the number of points below, if we could. And this is the release that HP wanted. "SCO releases/forgives any past actions by HP (and its future direct consequences) which may have been in violation of its UNIX licenses."

A. Right.

Q. Two, "The HP UNIX license now becomes "unconditionally irrevocable", even for future "bad" acts." Three, "HP has no restrictions on what it does or says about the IBM case or the Linux case." Do you see that?

A. Yes.

Q. And four, "Publicity: SCO has provided us a letter to Carly," who is the CEO, Ms. Fiorina, CEO of HP at the time, "that we can show to our customers that states that SCO believes that HP is in compliance with its UNIX license." That is what they wanted, correct?

A. Yes.

Q. And then the financial terms are also there at number four, right?

A. Yes.

Q. And the financial terms are zero, right?

A. For that release.

Q. And you originally wanted $100,000,000, right?

A. In the original instance of this, we had $100,000,000 tied to the release and to the other SCO source agreement. What they ended up doing was separating the two. So as you recall yesterday, we had two deals going with HP. One was the release that their CEO Carly had asked for, and then the other one was this SCO source licensing deal. We had put those two together for a $100,000,000 deal. They wanted to bifurcate them and so we did. So the release ended up being for zero. The other one was the $30,000,000 that HP proposed back.

Q. All right. And we'll talk about that in a second. So as I understand it, you want -- you originally go to HP and you ask Ms. Fiorina pay me 100 million bucks, right, for both for the release and the other part of the license, right?

A. No.

Q. And then they come back to you and say, we're not going to go to your forum in Las Vegas unless you give us this release for free, right?

A. That part, yes.

Q. And you guys gave them the release for free, right?

A. We gave them the release for free, correct.

Q. This happened in August of 2003, right?

A. Yes, that is correct.

Q. And so that was a couple of months after you believe that Novell had retracted its claim to ownership on June 6, 2003, right?

A. That is correct.

Q. And so in your mind, there is no taint out there by Novell's position in this period of time; correct?

A. I didn't believe that -- well, yeah, I believe that we had resolved that at that point, at this point.

Q. So you buckled to HP and give them a license, a release, for no money?

A. For the UNIX business.

Q. Despite the fact that according to you, there is no suggestion by Novell in the marketplace in this period of time that they own the UNIX copyrights, right?

A. Let me -- no, that is not correct. Let me explain to you the difference. What you just said -- you said two things there. I think you crossed metaphors. I think that might have been a trick question. If you look at the copyright issue, that was one that was tied to the $30,000,000 that we were discussing still with HP.

If you look at the UNIX business issue, now if you remember we read through it yesterday, we stated in there, and I think I read it out loud before the court, we hereby certify that Hewlett Packard has done nothing wrong with their UNIX business, like IBM had done, and that is what we were giving them a release on. So that release, excuse me, that release for their UNIX business was fundamentally and totally independent from the copyright issue that related to the $30,000,000 deal that HP was proposing back to us.

Q. You gave them the release for free, correct?

A. For the UNIX business.

Q. And you did that in August of 2003; correct?

A. That is correct.

Q. And that was a period of time, according to you, when Novell was taking the position that you owned the copyrights, right?

A. Yes.

Q. Now, the negotiations between HP and you, you testified yesterday, they broke down in August and they were over by September of 2003, correct?

A. I don't recall testifying to that.

Q. Well, the jury knows what you said or what you didn't say?

A. I recall testifying that they broke down in September.

Q. All right. September of 2003?

A. Right.

Q. Done with HP, right?

A. Yes.

Of course, now we know, thanks to HP telling us the rest of the story that it was indeed in August, because they had signed the release by then. And speaking of the rest of the story, this fills in another blank. Do you old-timers here remember the mystery document that IBM's lawyer David Marriott kept showing the Magistrate Judge in the SCO v. IBM hearing way back in February of 2004? He mentioned HP repeatedly, if you remember, and now we know he was almost certainly referring to the letter HP demanded and got from SCO for free.

So when we put it all together, what do we get? That SCO evidently threatened HP with litigation, perhaps over what Compaq, Tandem or Dec had done, in SCO's mind anyway. At first, I gather, HP thought it would be cheaper to pay SCO off, but then again, it's only Darl making the claim that they were deep into negotiations. But if that's true, it may be that for a time they at least considered it. But at some point, HP got good and mad, so SCO backed down and got out of the "litigation" with a nice release for HP, which HP didn't bother telling us about, until now. Still, it's nice to finally know what really happened. I do wish HP had told us this whole story back when it was happening.

One does have to factor in, though, that when one is dealing with a scum-sucking bottom-feeding snake, you can't get into the same cage not even for a minute without getting slime all over you even if you're otherwise a perfectly nice fellow in a freshly dry-cleaned white summer suit.

If I were HP, I'd probably wish I never had to mention it or SCO again as long as I lived, too. All kidding aside, no doubt if I were SCO in that situation, I'd ask for silence as part of the deal. You see HP saying that they are free to talk about X, Y and Z, which tells me there might be a condition of silence in that agreement about A, B or C. I hope we get to read it someday. Maybe Carly will write a book.

Here is the meat of HP's filing as text, leaving off the header for the sake of time:

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

RESERVATION OF RIGHTS OF HEWLETT-PACKARD COMPANY
REGARDING DEBTORS' NOTICE OF CURE AMOUNTS IN CONNECTION
WITH THE ASSUMPTION AND ASSIGNMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES

Hewlett-Packard Company ("Hewlett-Packard"), by and through its undersigned counsel, hereby submits this reservation of rights ("Reservation of Rights"), in connection with the Notice of Cure Amounts in Connection with the Assumption and Assignment of Executory Contracts ("Notice") [docket No. 1184] filed by the Edward N. Cahn, Esq. ("Trustee"), the Chapter 11 Trustee in the above captioned jointly administered Chapter 11 bankruptcy cases. In support of its Reservation of Rights, Hewlett-Packard respectfully represents as follows:

BACKGROUND

1. Since the early 1980's Hewlett Packard and one or more of the above-captioned Debtors have been parties to a number of contracts and agreements. Additionally, as a result of mergers with and acquisitions of various entities, Hewlett Packard has become a counter-party to contracts and agreements with the Debtors.

2. Some of those contracts have expired; some remain executory. Because some of those contracts are more than 20 years old, Hewlett-Packard has not been able, despite diligent searches to locate all of them them.

3. Prior to the petition date in the above-captioned bankruptcy cases, Hewlett-Packard and one or more of the above-captioned Debtors were parties to litigation concerning their respective rights to certain intellectual property. That litigation was resolved by the parties entry into a Release of Unix Claims and Agreement dated as of August 15, 2003 ("Release").

4. In connection with the Trustee's motion to sell substantially all of the Debtors' assets in this case, Hewlett-Packard's counsel advised the Trustee's counsel of Hewlett-Packard's concern that the purchaser of the Debtors' assets recognize the effects of the Release.

5. The Trustee understood Hewlett-Packard's concerns. Consistent with Hewlett-Packard's concerns, the Trustee agreed that the proposed form of Order approving the sale "will make it clear that the Buyer is bound by the terms of [the Release]. See the Omnibus Response of the Chapter 11 Trustee to Reservations of Rights and Informal Comments Regarding the Motion of the Chapter 11 Trustee for Order (1) Authorizing the Marketing, Auction and Sale of Substantially All of the Debtors' Software Business Assets Consistent with Form Asset Purchase Agreement and Free of Clear of Liens, Claims and Encumbrances, (2) Authorizing Assumption, Assignment, and Sale of Certain Executory Contracts and Unexpired Leases, (3) Approving Bidding Procedures in connection with Auction, (4) Establishing Sale Hearing Date, and (5) Granting Related Relief filed in these jointly administered Chapter 11 bankruptcy on August 19, 2010. [Docket No. 1156, para. 7, p. 7]

6. On October 15, 2010, the Trustee filed the Notice. A copy was subsequently served on Hewlett-Packard. Several Exhibits attached to the Notice list contracts between the Debtor and Hewlett-Packard the Trustee seeks to assume and assign to the buyer of the Debtors' Assets. Copies of those pages listing Hewlett-Packard contracts to be assumed have been attached as Exhibit A to this Reservation of Rights for the Court's convenience.

2

7. Despite a diligent search by Hewlett-Packard personnel, Hewlett-Packard has not been able to determine completely which of its contracts with the Debtors will be assumed and assigned to the Debtors. Hewlett-Packard has located several contracts that it cannot match to the lists of Hewlett-Packard contracts the trustee proposes to assume and assign which were included in the Exhibits to the Notice.

8. For example, Hewlett-Packard has been unable to locate a copy of the Source License Agreement purportedly between Hewlett-Packard and Debtor SCO Group, Inc. that the trustee seeks to assume and assign. Hewlett-Packard has requested a copy of that agreement from the Trustee, but has not yet received it.

9. The Trustee's counsel has forwarded copies of 7 agreements the Trustee proposes to assume and assign to the buyer of the Debtors assets. Those contracts are as follows:

i. AT&T Technologies, Inc. Software Agreement (SOFT-00044), dated May 29, 1984;

ii. AT&T Information Systems Inc. Sublicensing Agreement (SUB-00044-3) (dated June 29, 1987);

iii. UNIX Europe Software Agreement (SOFT-UK-0023) (dated May 8, 1986);

iv. AT&T Informatino Systems Inc. Software Agreement (F-SOFT-0223) (dated July 15, 1987);

v. AT&T UNIX Europe Limited Sublicensing Agreement (SUBL-UK-0024) (dated January 8, 1988);

vi. The Santa Cruz Operation Inc. OEM Distribution Agreement (dated June 26, 1987); and

vii. Project Statement #5, Product Development, Gemini Hot Plug PCI (dated November 19, 1997).

3

10. However, there remain numerous Hewlett-Packard agreements the Trustee seeks to assume and assign listed on the Exhibits to the Notice, which Hewlett-Packard cannot match to contracts it has located.

11. Counsel for the Trustee and Hewlett-Packard have been attempting to identify the contracts actually being assumed, but have not been able to reach a resolution.

12. Hewlett-Packard can state, however, that there is nothing due and owing to Hewlett-Packard on any of its contracts with the Debtors.

RESERVATION OF RIGHTS

13. Under the circumstances, except for the contracts identified in paragraph 9 above and excepts as necessary to give full effect to the Release, the Trustee cannot assume and assign any of the Debtors' contracts with Hewlett-Packard that have not been identified.

14. Moreover, the assumption and assignment of any Hewlett-Packard agreements must be subject to the Release.

WHEREFORE, Hewlett-Packard consents to the assumption and the assignment of the contracts identified in paragraph 9 above, provided that the purchaser of the Debtor's assets is bound by the terms of the release, but respectfully prays that: (i) the Trustee the Trustee be prohibited from assuming and assigning any contracts between the Debtors and Hewlett-Packard unless they are identified or are necessary to give full effect to the Release; and (iii) that the

4

Trustee's assumption and assignment of any such contracts between the Debtors and Hewlett-Packard be subject to the terms of the Release.

Respectfully submitted,

Dated: November 23, 2010

By: /s/ William R. Firth, III
William R. Firth, III, Esq. (Bar No. 4356)
GIBBONS P.C.
[address, phone, fax, email]

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