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SCO v. Novell: Oral Argument at the Appeals Court -- Audio ~ by pj - Update: Transcript
Saturday, June 25 2011 @ 11:03 PM EDT

We can finally post the audio [mp3; ogg] of oral argument from the second SCO v. Novell appeal to the Tenth Circuit Court of Appeals in Denver, Colorado. The hearing was January 20, 2011. The court has not yet rendered a ruling, which is not all that unusual in terms of timing. The case was argued by Boies, Schiller's Stuart Singer for SCO and Morrison & Foerster's Michael A. Jacobs for Novell. Here's Groklaw's report from the hearing, if you'd like to see how well our eyewitnesses did. As usual, they provided excellent and thorough coverage.

You can never predict what any court will do by the questions judges ask at a hearing, but I certainly do know who I think ought to prevail, based on the record and the arguments at the hearing. When I first listened to the audio, I felt intense relief. But you can now form your own opinion, based on the hearing audio itself.

I'd like to do a Groklaw transcript. Would you please help me? This particular court doesn't do transcripts, no matter how long we wait, so if we want those with hearing difficulties to be able to know all that happened, the burden rests on us to do the transcript ourselves. If you are willing to give me a hand, please pick a time frame from the audio and post your intention to do that segment, and then send it to me, letting me know if you wish credit, and I'll stitch it all together. If everyone does just 5 minutes, it'll be done in no time.

So you can 'visualize' the players as you listen to them speak, here's Judge Terrence L. O'Brien's bio. Here's Senior Judge Stephanie K. Seymour's and Judge Jerome A. Holmes' bio. And here's some background on Judge Holmes, from AbovetheLaw's coverage in 2006, in which the article described him as ultra conservative in the Justice Clarence Thomas vein, appointed by President George Bush, as was Judge O'Brien. He is the first African American judge to serve on the US Court of Appeals for the Tenth Circuit. And here's an ABA article on Judge Seymour, an article on women trailblazers in the law. She was appointed by President Jimmy Carter.

It's clear when Judge Seymour speaks, because she is the lone female, but it's not as clear when the others speak, except that two of our reporters indicated that Judge O'Brien seemed to be the one more or less in charge of leading the event in an administrative sense, so if you are good at voices, you can try to match the voices from the hearing with that suggestion. Also, they reported it was Judge O'Brien who rather gruffly told Singer early on not to repeat what was in the SCO appeal brief [Novell's and SCO's reply brief]. If correct, then it would be Judge Holmes who at first said he found SCO's new argument plausible, with the other two judges seeming not to be buying SCO's arguments much at all.

Here's the bio for Stuart Singer and for Michael A. Jacobs, so you have a picture of them. They are both incredibly skilled and talented lawyers. So it's a real thrill, to me, to listen to them at work, although personally I get uncomfortable listening to the SCO arguments, particularly in that SCO raised a new issue in its appeal and some of the statements were discordant with the facts as I know them. I've never figured out why it didn't seem to bother Mr. Singer to present some the arguments SCO offered over the years, but to my ears, he did indeed sound uncomfortable on this day, and our reporters indicated the same, that he seemed discouraged at the end. I notice that his bio doesn't list SCO v. Novell. It used to, I believe. Jacobs' page does mention this litigation.

The judge who seemed to find SCO's new argument plausible on its face is told by Jacobs that it was a new argument, not argued by SCO below, and that seemed to bring that to an end. But who knows? If the court is politicized, there's no way really to predict what can happen, if the facts and the law are not the standard. Hopefully they are, but there have been some very strange rulings recently from various courts, and politics has been showing up here and there in a way that some of us find disturbing, so I no longer feel one can always predict who ought to win. It's so dangerous when politics gets into the judicial process. If the standard is who you *want* to win, not who *should win* on the law and the facts, everything becomes a popularity/loyalty-to-party-agenda thing, and that simply isn't the same thing as justice, which is supposed to be impartial. As the Hon. Dale A. Kimball, the original judge in the SCO v. Novell litigation, wrote in 2001, "A cause-oriented judge is a dangerous judge..."

That reminds me to remind you that in an appeal, the only issues that are legitimately before the court are issues of law, not fact. Facts are for the jury, and judges rule on the law. SCO earlier appealed to get a jury trial, got it, and then didn't like the jury's verdict, so they appealed again, essentially arguing that the jury got it all wrong. Here's how Novell phrased it in their brief:

SCO now seeks to undo the factual findings of the jury and judge. Throughout its brief, SCO makes arguments based on its version of events—a version that would require that factual findings below be ignored or reversed. But SCO is not entitled to re-try its case in this Court. Instead, SCO must demonstrate the jury’s verdict and the district court’s factual findings were unreasonable and unsupported by the evidence.
The standard to overturn a jury verdict and get a new trial, which is one form of relief SCO is asking for, Novell points out, quoting from Judge Ted Stewart's district court ruling, is if the verdict was "clearly, decidedly, or overwhelmingly against the weight of the evidence." The judges, particularly Judge Seymour, seem to agree with Judge Stewart that that isn't the case with this jury, and they remind Singer repeatedly that issues of fact are for the jury to decide. And so they did. I didn't at all get the impression that any of them thought the jury verdict should be overturned and a new trial ordered.

Here's the prior appeals court ruling from SCO's first appeal. You'll find it interesting to hear how Singer represents what that ruling said, and note how both Judge Seymour and Jacobs call him on it by reading what it actually said, the parts Singer left out. And here's [PDF] the 1995 Asset Purchase Agreement between Novell and Santa Cruz, with Amendment 2, the focus of SCO's appeal argument.

Speaking of Singer's representations, Groklaw member cpeterson left a comment of real value on the prior report from the hearing, and bugstomper added links for us, so here it is, once again:

We see Mr. Singer telling the appeals court,
The trial was remanded by this court to determine which copyrights had transferred to SCO, not whether they had transferred.
But - is that what SCO told the District Court? No. From SCO's first Proposed Jury Verdict (docket #741 [PDF]):
Did SCO acquire ownership of some or all of the Unix and UnixWare copyrights through the amended APA? Yes___ No___
Then, during the course of the trial, SCO produced their revised Proposed Jury Verdict (docket #811 [PDF]):
Does SCO own the UNIX and UnixWare copyrights? Yes___ No___
The final version of the Jury Verdict contained the question in this form:(docket #846 [PDF]):
Did the amended Asset Purchase Agreement transfer the Unix and UnixWare copyrights from Novell to SCO? Yes___ No___
Did SCO object to the question being in that form? During the charging / jury instruction conference (docket #886 [text]), Mr. Normand was asked about that. He responded:
Your Honor, we're fine with the verdict form as it is.
It doesn't matter whether it's a matter of fact or law - if the wrong question was asked, that's just too bad - because it was SCO that put the question that way.
After we finish the transcript, then we can talk more about what transpired, and analyze the arguments in detail, but we do have members of Groklaw who are deaf, and I'd like them to be able to participate.

Update: Thank you to all for helping us prepare the following transcript of the audio. Again, I stress that I'm not 100% of which male judge's voice belongs to which judge, but I'm more or less satisfied that we have it right now. If you see errors, let us know. Meanwhile, I think I'll begin annotating next, to provide links to testimony referenced and to evidence that some of what was said that day was a teeny bit of baloney here and there, so feel free to help with that in your comments. Last year, we annotated SCO's proposed Findings of Fact and Conclusions of Law, and you may find that helpful in understanding SCO's arguments and what we believe rebuts each argument made. None of the links you may find in this transcript are in the audio, obviously:

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

Stuart Singer: May it please the Court, I am Stuart Singer. I'm counsel for The SCO Group.  I will try to reserve four minutes for my rebuttal. And I'd like to start on the issue that as a matter of law the Rule 50(b) motion which we brought should have been granted, that without the Unix and UnixWare copyrights, SCO cannot take action to defend a core intellectual property in the software business it acquired.

[PJ: Here's Judge Stewart's ruling, denying SCO's Rule 50(b) motion, and the Decision and Memorandum of Law. And here's Rule 50.]
[1:06]

Judge Stephanie Seymour: Isn't that a fact question under our prior panel opinion?

Singer: We think there is one part that is legal, and one part which is factual.  The factual part is what copyrights were required.  We think that was what the remand was to determine.  And at the trial on that issue, there was only evidence from SCO that was unequivocal from numerous witnesses, which we cite at page 33 and …

Judge Terrence O'Brien: Was there any contrary evidence? You did that in your brief …

Singer: Yes.

O'Brien: … and I'd appreciate it if you don't repeat it here.  We're interested in whether there is evidence which would support the decision …

Singer: We …

O'Brien: … not evidence that's contrary to it.

[PJ: Here, the judge is reminding Singer that the fact issue is the jury's department. If there is evidence to support the jury's decision, it won't be overturned by this panel, in other words. So he's telling Singer not to try to reargue the facts at this stage of the game.]
Singer: Understood, Your Honor.  And the evidence which Novell relies on does not support that proposition, because there's no evidence which says either that you don't need to enforce intellectual property rights in the software business …

Seymour: Question is, that begs the question of what intellectual property rights they got.

Singer: Well, to defend the source code, which unquestionably, under Included Assets, all right, title and interest in the source code for all the Unix products and the UnixWare products transferred.

Seymour: Except for copyrights, in the first …

Singer: In the… before it was amended. Exactly.

[PJ: Excuse me, but all right, title and interest in the source code *never* transferred, even if copyrights had done so, in that no patents were to transfer at all, ever. SCO keeps making this assertion, but it's clearly false, not that my pointing it out over and over through the years ever stopped them from saying it again. For one example, here's SCO's witness, Kim Madsen, at her deposition in 2007, admitting that no patents transferred and only some trademarks did.]
O'Brien: We've got that argument about enforcing those rights, but it's true, isn't it, that whatever added value you provided by your flavor of Unix source code could be enforced by you totally independently of the, of what may or may not have passed from Novell?

Singer: It is true that new work that SCO did after the transaction, they could copyright and protect that.

O'Brien: Right.

Singer: But they paid tens of millions of dollars for a software business which had Unix …

O'Brien: Well, that brings us right back to the point that I think Judge Seymour was making [laughing]: the question is, as it always has been, what passed?

Singer: Well, we don't think there's any question that, because it's clear in the agreement, that all right title and interest in …

O'Brien: Well, it certainly isn't all that clear in the agreement, because summary judgment was reversed.

Singer: It was reversed because we think there needed to be a determination on two issues: one, what copyrights were required?  There is no evidence that these copyrights were not required, because the evidence they rely on, Mr. Tibbitts and Mr. McBride testified they were required, except you could sell products with some type of implied license, but you couldn't defend the technology underlying those products.  And with respect to the ability to make improvements, that's true, but all the core technology -- Mr. Nagle, for example testified that that core tech …

O'Brien: How is that different from the transaction with IBM?  Isn't that essentially the same thing?

Singer: Well, the transaction with IBM …

O'Brien: And with everybody else that UNIX, who uses UNIX source code as a basis for their added value?

Singer: Absolutely different.  Those were licensing agreements.  They said IBM entered into a licensing agreement …

Seymour: That's the question in this case.  What is the legal issue you say we have?

Singer: Well, the legal issue is Novell's argument that you should interpret Amendment, the APA with Amendment 2, as doing nothing more than creating a license to use.

Seymour: That's the whole fact question that the panel reversed on, isn't it?

Singer: Well, we think that ...

Seymour: Which is it?  What does the contract mean, was it a license or was it a copyright?

Singer: Well, this court said, whatever Amendment Number 2 means, it refers to the ownership of copyrights, not to licenses.

Seymour: Well, it says copyrights, but it left vague -- it says copyrights that are required.  We don't know if anything's required.

Singer: That was the fact testimony, that all of them were required, because without ownership of copyright, you can't bring an enforcement action to protect the technology that underlies the products that you're trying to sell.

Seymour: You could bring an enforcement action to protect any added value as …

Singer:  But the added value doesn't go to the core intellectual property of the business.

Seymour: That question goes to what you got.  Did you get the copyright? Or did you get a license?  And we said on the first appeal, that is, that issue is a fact question under this contract …

Singer: Well …

Seymour: … to be determined by the factfinder.

Singer: Even treated on the facts of that question, there's nothing in Amendment 2 that speaks about a license.  If you're going to confirm a license, you would say, "This is an express license." You wouldn't change the schedule of assets that are being sold.

Seymour: OK, before Amendment 2, the agreement and the First Amendment, with the exclusion, specifically said copyrights are not being transferred.

Singer: That's correct.

Seymour: And then you have Amendment 2, and you had your side arguing to get Amendment 2, well, we got copyrights, and Novell said no you didn't.  And they came up with this language which was vague, which we found vague, that created a fact issue. Did copyrights transfer or did copyrights not transfer?  That is a fact question.

Singer: We think that there were two issues that were remanded on that.  One was, what copyrights were required? I don't think there's any question left open in the opinion that this is an, that art… that the APA with Amendment 2 serves to transfer copyrights, rather than simply to confirm a license.

Judge Jerome Holmes: So that's how you read our opinion? That really the question to be decided below is whether these were required copyrights? It's not a question that we're dealing with licenses to use in Amendment 2?

Singer: Precisely.  Although there was a second point, which, a second theory of the case, which the Court, this Court, said also is triable, which is that the parties intended all the copyrights to transfer, and Amendment 2 was the way they went about confirming that, so that …

Seymour: Isn't that the very fact question …

Singer: That is.

Seymour: … on which you got summary judgment reversed?

Singer: We did, Your Honor, and on that issue, we don't argue the 50(b) issue, but we do argue that that is a case where the court should have granted at a minimum a new trial.

[7:39]

Seymour: Where do we say in our opinion that, as a matter of law, as a matter of unambiguous interpretation of this contract, copyrights, some copyrights transferred?

Singer: I think in three places.  At 578 F3d 1214, the court said, "Amendment number 2 was a writing …"

[PJ: The citation he's referring to is the Tenth Circuit Court of Appeals' first decision, which was published in the Federal Reporter as 578 F.3d 1201. The portion he's referring to is on page 1214, as it was a long ruling. In the PDF of the decision from PACER, the portion he's referring to is found on page 24. The court wrote: "Amendment No. 2 was a writing signed by both parties evincing a clear intent to revise or clarify the formal schedule of copyrights transferred by Novell to Santa Cruz." This was in the context of whether it was a writing in the sense of what Copyright Law requires for a copyright transfer. And the court said it could qualify as such, but the court did not write that it had in fact accomplished a transfer.]
Seymour: Hold on, hold on.

Seymour: OK.

Singer: "… signed by both parties, evincing a clear intent to revise or clarify the formal schedule of copyrights transferred by Novell to Santa Cruz."  Then at 1216, "Whatever the amendment," referring to Amendment 2, "means..."

[8:17]

Seymour: Isn't, isn't Judge McConnell simply framing your argument when he, when the language that you use… when I compared the language in your brief, making this argument, and compared it to the opinion, you were taking language where the ju … author of this opinion said, this is their argument, and this argument makes sense, and a factfinder could agree with that argument. But a factfinder could also disagree with that argument.  And the question for the factfinder is, did the original agreement intend to transfer any copyrights or did they intend only to exclude copyrights and transfer licenses?

Singer: Well, I think that Judge McConnell's opinion goes beyond simply saying these are arguable when he says, for example, at twelve sixteen, "Whatever the amendment means, it refers to the ownership of copyrights, not to licenses."  And Novell's entire argument at trial is that all we got was a license to use.  And even the proponent of that argument, Miss Amadia, who was the lawyer who drafted Amendment 2, admitted on cross-examination that if the copyrights were required …

[PJ: You can find the precise language used in the ruling, and that will help you follow along. On page 29, you find this section:
Whatever the Amendment means, it refers to the ownership of copyrights, not to licenses. A rational trier of fact could surely find that Amendment No. 2 clarified the APA so as to indicate that at least some copyrights transferred to SCO. It is true that the final language of Amendment No. 2, by referring to "required copyrights" rather than "copyrights that pertain to" UNIX, is narrower than that initially proposed by Santa Cruz. But is it plausible to think that Santa Cruz would have found the final language equally sufficient for its purposes, given its insistence that all the UNIX copyrights were required for it to exercise its rights under the deal. See, e.g., Testimony of Steve Sabbath, Santa Cruz Attorney, App'x 10722 ("all of the [UNIX and UnixWare] copyrights" were "required" for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies.) Alternatively, the final language of Amendment No. 2 may have represented a compromise whereby Novell agreed to confirm that Santa Cruz obtained ownership only of those copyrights "necessary" for Santa Cruz to run its business....

Novell finally argues that SCO has failed to show what UNIX copyrights are "required" for Santa Cruz to exercise its rights under the APA. The parties each argue for plausible, but diametrically opposed, interpretations of the word "required." SCO argues that the bulk of the UNIX and UnixWare copyrights are "required" in order for it to exercise its rights. For instance, the APA transferred to Santa Cruz "all of [Novell's] claims arising after the Closing Date against any parties relating to any right, property or asset included in the Business." App'x 313. SCO argues that it could not defend any of its intellectual property against software piracy or other business harm without ownership of the copyrights. Indeed, a key reason why this litigation is so important to SCO is that it has claimed that other companies, including IBM, are infringing on the proprietary technology that it supposedly received through its transaction with Novell.

Novell, in contrast, asserts that the class of "required" copyrights constitutes a null set. See Aple. Br. 40, 41 n.8 (arguing that Amendment No. 2 was not intended to transfer any copyright ownership, but merely to affirm its license to use certain copyrights). The district court agreed, noting amongst other things that "Santa Cruz had been able to pursue its UNIX business from December 6, 1995 until October 16, 1996 [the date of Amendment No. 2] without any problems due to its [alleged] lack of ownership of the copyrights." Dist. Ct. Op. 61....

We need not determine at the summary judgment stage which copyrights were "required." If the evidence presented on a dispositive issue is subject to conflicting, reasonable interpretations, summary judgment is improper.

I think you can see that Singer's claim that the ruling meant that some copyrights indeed had to have transferred is appallingly not so.]
Seymour: Right after he says …

Singer:  … then they were transferred.

Seymour: …the sentence that you claim is a finding as a matter of law that some copyrights transferred, he says, "A rational trier of fact could surely find that Amendment number 2 clarified the original agreement so as to indicate that at least some copyrights transferred." But then he goes right on in the rest of this to say, but they could also find that they didn't.  And that's a fact question.

[9:56]

Singer: Respectfully, I don't see anything in the opinion which says you can read this as not doing anything, as not transferring any copyrights at all, essentially being a null set.  If it doesn't confirm a license, and the court said expressly that it doesn't deal with confirming a license, then the only thing that changing these schedules of assets that are transferred in a sale transaction can mean is it changes the what was sold and not sold.

[PJ: Here he contradicts the first panel, which, as above quoted, even used the expression, a null set, and ruled that a rational trier of fact could indeed rule that this is what the language could mean.]
Holmes: But it would still open the question of whether these copyrights, copyrights to the UNIX technology and the UnixWare technology, whether that was required?

Singer: Yes.

Holmes: OK, and let me ask you, in order to license your flavors, the SCO Group, when it develops flavors based upon the UnixWare technology, in order to license that, those flavors, does it have to have ownership of the copyrights?

Singer: It needs the ownership to give source code licenses.

Holmes: And, OK, and I'm not talking about ownership of the copyrights of the flavor itself, I'm talking about of the UnixWare code.

[11:00]

Singer: Yes, because the underlying copyrights are needed for that source code licensing because that is the core of the product which is being licensed to a third party.  So it's needed for giving source code licenses to people.  No one's going to go to SCO and say, "I will take a source code license from you like I used to do from Unix or AT&T," if you don't own the copyrights.  And if there's infringement, which is what gives rise to this whole dispute, you can't sue someone from undermining that software unless you own the copyrights.

Holmes: But if ...

Singer: It's a matter of law there.

Holmes: But if you develop a flavor, you're saying that you are not situated to license that flavor to another party to use, without owning the copyright to the source code?

Singer: That's right.

Holmes: Why is that?

Singer: Because no one is -- you might buy, sell the products, the binary products, but to license the source code to people who want to work with it and do more ...

Holmes: Yeah, but …

Singer: That's how you …

Holmes: Yeah, but that's a separate issue, isn't it, from their ability to use your flavor?  They could use your flavor without having, with … and there would not be a problem with that, right?

[12:00]

Singer: Well, the flavor is simply built on top of the other intellectual property.  It's the underlying intellectual property.

Holmes: It is, but you could engage in a business in which you were selling, licensing the right to use your flavor, without reference to this underlying source code, right?

Singer: That's the sale of the actual end products …

Holmes: Correct.

Singer: … which you could do that, which is, we've never contested that you could do that, but then you couldn't protect the value of that because someone else could come along and infringe that intellectual property and you can't do anything about it.

Holmes: You couldn't protect it, but somebody could.  The owner could.

Singer: The owner could, but is… Novell here was not motivated to do it. The issue is the buyer couldn't protect the property that the buyer bought.  If I might touch on one more issue before reserving the rest of my time, why …

O'Brien: Before you, before you touch on that issue, let me ask you another one. The rights that Novell has to the licensing fees, and the rights that you're obligated to account for and pay, is that perpetual or is that temporally limited?

Singer: Those are perpetual as long as people are using those System V rights, and they're not terminated within a given time frame.  The issue I wanted to briefly refer to is what we think was the extraordinarily prejudicial admissibility and reading to the jury of the decision by Judge Kimball that this court had reversed.  It's telling the jury exactly what this court said was wrong on precisely the issue that they are to decide, and the jury heard that.

O'Brien: What was the context of that?

Singer: I'm sorry, I missed the question.

Holmes: The jury heard that it was wrong, though.  Judge Stewart specifically indicated that they needed to hear that, right?

Singer: Well, Judge Stewart said that this court reversed the decision, but I don't think you can unring that bell.  You have a district court judge, who the jury is understandably respects, telling them, "I viewed it this way," and then you have a line  that says, "Well, the court of appeals reversed, and it's now your decision to make."  And in fact, Judge Stewart issued a order in limine earlier in the case saying this was highly prejudicial and confusing and shouldn't come in, and then without good reason, reversed it.

[PJ: You'll find all the motions in limine and how the judge ruled on them here.]
O'Brien:What was the context of the reversal of that decision?

Singer: Well, he reversed it on the grounds that it was relevant to our damages expert, which we respectfully submit, it was not.  Our damages expert did a model of what the but-for world would be without a slander of title.  In that but-for world you don't have a slander, so you don't have a litigation, and you don't have any judicial opinions at all.  It was simply a basis to get this before the jury, which was greatly to our prejudice.  I'd like to reserve.

[PJ: Here's the day, day 9 of the trial when the jury heard about the earlier rulings, in connection with the testimony of Dr. Christine Botosan, one of SCO's experts. You'll find the arguments about it beginning on page 1392, line 12. Here's the day when the issue of the jury learning about the earlier court rulings came up, as you can see beginning on page 1192, line 2, and going through page 1198, line 22.]
Seymour: How many copyrights are there?

Singer: Your Honor?

Seymour: How many copyrights are you contesting you own and they don't?

Singer: There's roughly 20 copyrights. They're all listed, relate to the products which are in an exhibit to the purchase agreement.

Seymour: And you're claiming you own them all?

Singer: Yes.  There was no distinction in the evidence with respect to that.

Seymour: OK.

Singer: And they include UnixWare copyrights, as well as …

Seymour: Panel opinion: "We take no position on which party ultimately owns the Unix copyrights."

[15:00]

Singer: And we think that's because the issue had to be tried of which copyrights were required, and there is no evidence that the copyrights were not required in order to enforce intellectual, to enforce our rights in the technology.

Seymour:Which is a fact question.

Singer: That is a fact question. Thank you.

Michael Jacobs: Michael Jacobs, Morrison and Forrester, for Novell.

[15:25]

O'Brien:You have a different view about what's required for them to enforce their rights.

Jacobs: We do, Your Honor.  And the prior questioning elicited the distinction between the parties.  It was a fact question.  It was teed up to the jury amply by both sides, and the jury, after three weeks and a day of deliberation, found in favor of Novell. 

[15:45]

And ultimately, that's our argument to you, that this is, that these were fact questions, that SCO is vastly overreading the prior decision, the prior panel decision, in this case, that the portion, Judge Seymour, that you just noted, actually has an "or" in it: "We take no position on which party ultimately owns the Unix copyrights or which copyrights were required for Santa Cruz to exercise its rights under the agreement." 

Another favorite snippet of SCO's is the passage where the panel opinion, the prior panel opinion, says, "Whatever it means, it refers to ownership."  Well, that prior clause is very important: "Whatever it means." And the meaning of the contract, the meaning of the asset purchase agreement as amended, itself was a fact question.  There is no -- and SCO's record below confirms that. There was no request for an instruction to the jury on the meaning of the asset purchase agreement as amended.  There was no request for a rule, there was no Rule 50 motion on that issue of the meaning of the asset purchase agreement as amended.  The whole issue of interpretation of the contract was served up to the jury and amply so.

[16:59]

Holmes: Well, we're, you know, we're talking about the meaning of Amendment 2, and I don't view SCO's reading as being implausible of our decision, which, to the effect that the only fact question that was sent back was the question of what copyrights were required.  Not the fact that some copyrights were being transferred by virtue of Amendment 2, and so I -- that doesn't seem to me to be implausible at all, and so I, I'm interested in your analysis of the opinion, because it seems to me that if, in fact, that were the case, the only thing that would have been really teed up below would be the question of what's required, right?

[17:38]

Jacobs: SCO never interpreted the prior decision in that way leading into the trial.  They made no record of seeking jury instructions. They made no record of filing such a motion.  But it's important to read this decision, the prior panel opinion, in context.  Some of the passages that SCO is relying on, including the "whatever it means, it refers to" passage, are in the section of the opinion that's dealing with the 204(a) issue.  And what Judge McConnell there was analyzing was, does this agreement in some way speak enough to copyrights that we're comfortable that it's about copyrights rather than some other rights, some other intellectual property right?  And so he says, at the end of, the very end of this long analysis, yes, this speaks to copyrights.  He says the fact that there's an exclusion that refers to copyrights, that's enough to meet the legal threshold of Section 204(a).  That was the core issue in the prior appeal.  We were arguing that 204(a) set a higher standard, a not-very-much-ambiguity standard, and what the court was saying was, no, no, 204(a) was satisfied. But, as the court said, "there are powerful arguments in favor of Novell on the overall question of what the transaction was about." 

And your question about the 95% reservation is key.  The basic dichotomy at trial, the basic dichonomy … dichotomy in the briefing, the basic dichotomy in this oral argument is, what was that transaction all about? And what the jury heard was painstaking testimony. The jury heard from the actual negotiators of the agreement itself who represented Novell and showed the jury the interlineation of the agreement as it evolved in the very final days before closing.

[19:23]

Holmes: True enough, and I just want to get clear your position on this.  You're saying that below, as you understand it, there was no attempt by SCO to essentially say, the only thing that's on the table here is the question of what's required?

Jacobs: Exactly.

Holmes: OK.

Jacobs: That's exactly right.

Jacobs: On the question of the meaning of Amendment number 2, let's be clear here as well.  We're talking about the meaning of the amended asset purchase agreement, not the meaning of Amendment number 2 on a standalone basis.  This is actually ordinarily an argument SCO makes, but I think they're running away from it now as they try and isolate this language.  And what the jury heard about the meaning of the amended agreement from, for example, Ms. Amadia, the attorney who negotiated the amendment to the agreement, was, "If I had meant to transfer ownership, I would not have merely adjusted the excluded asset schedule, I would have adjusted the included asset schedule.  If I had intended to transfer ownership, I would have gotten business approval for transferring ownership."  And her business contact, Mr. Tolonen, testified he never intended for there to be a transfer.  Mr. Bradford, the general counsel, testified "Had there been an intent to transfer, I think we would have had to go back to the board," because as the jury saw, the board minutes approving the asset purchase agreement say that Novell is reserving all of its copyrights.

[20:48]

Holmes: But even if, is it, would it be your position that even if one were to accept the view that Amendment 2 contemplated the transfer of some copyrights, that it did not contemplate the transfer of the UNIX copyrights because they were not required?

Jacobs: Absolutely.

Holmes: Okay.

Jacobs: And the -- what underpins that?  Well, you exposed some of this in questioning of Mr. Singer.  As Mr. McBride admitted, both on the stand and in an SEC filing, SCO was able to carry out its business of an ordinary software company without ownership of the underlying UNIX copyrights, again, just like every other flavor vendor is able to do.

[PJ: Here's the day of trial when Novell entered into evidence SCO's SEC filing which stated that SCO didn't need the UNIX and UnixWare copyrights to run its technology business.]
Holmes: And to that point, would it be your view that SCO could actually license its flavor without owning the underlying source code?  Not to the flavor, not to its add-on addition to it, but license its flavor?

Jacobs: Absolutely, just like every other flavor vendor. And there are literally hundreds, thousands of them.

Seymour:Did they copyright their versions?

Jacobs: Did SCO file copyright registrations on their versions of UnixWare?  I don't actually know the answer to that offhand.

Seymour: Just curious.

Jacobs: Copyright inheres in, as copyright lawyers say, copyright inheres in their work as they create it and as they publish it and distribute it.

O'Brien: Their added value.

Jacobs: Their added value, exactly.  That's basic derivative work law.  If you add a new chapter to a book, you -- and somebody else wrote the underlying book -- you own the copyright in the new chapter.  All of this was amply explained to the jury.  The jury actually got quite an education in the way copyright law works, as a result of the facts that were teed up for it below. So…

O'Brien: How do you respond to the argument that they couldn't effectively enforce their, their product, without owning the copyrights?

Jacobs:Well, here again, we, they could enforce the rights in their added value.  And one of the issues in the bench trial that Judge Kimball conducted, that the, that this court affirmed in its prior panel opinion, was that SCO had the right to license UnixWare and sort of appurtenant thereto, as an incidental act, license the underlying remaining left over and the old versions of SVRX code.  So Judge Kimball, in the prior bench decision, went through, OK, SCO has the right to license UnixWare, and now it's going to go out with this campaign to the world, and is it only about SVRX or is it also about its UnixWare, too?  And he found, in the bench trial, in a judgment that was affirmed, that SCO was actually more seeking to enforce its rights about UnixWare, as well as the underlying SVRX copyrights which he had earlier held they did not own.  So …

O'Brien: What would be -- what would be Novell's right to continue to receive the payments on the licensing of the basic UNIX operating system, if SCO owns the copyright?

Jacobs:Well, it's fascinating.  This is the … this is exactly the point.  Novell is entitled to 95% of the SVRX revenues; SCO 5%.  If somebody doesn't pay their license fee, what is the remedy?  SCO might have a contract remedy, if it's administering the contracts.  But if it has -- but if Novell is really the one who's going to benefit from this, Novell wants to be able to sue those breaching licensees for copyright infringement.  That's the powerful remedy.  And the basic architecture of the agreement, as Mr. Braham explained, as Mr. DeFazio said, "I wanted to bulletproof this."  This is a huge revenue stream that Novell was retaining to bridge the value gap.  And so Novell wanted to retain the right, if SCO goes bankrupt, they don't want the copyrights in the bankrupt estate.  And if somebody is not making their payments, since Novell has the primary interest in those payments, Novell wants to be able to retain the copyrights and go after that breaching party.

[PJ: Here's Tor Braham's Declaration and here is the day he testified at trial, as reported by Groklaw from the courtroom, and here's the court transcript. Here's his second day on the stand, and here's that day's transcript. He drafted the APA for Novell. If you are ever looking for someone's testimony at the second trial, just go to Archives and search for the name you want. We placed each witness' name in the title, bot make them easy to find. Mike DeFazio testified on the same day Braham's first took the stand, day 13 of the trial.]
[24:56]

Holmes: Does Section 4.16, does it give Novell any rights of waiver as to UnixWare products, as opposed to the SVRX?

Jacobs: No.  And this too was, is addressed in Judge Kimball's bench trial decision.  SCO can go out and create its UnixWare license.  That's the business, both sides agree, it acquired the right to evolve UnixWare, go out and license it.  There's never been any challenge from Novell, there's never been any claim that SCO has to waive any right under its UnixWare licenses.  All of this has been about the legacy licenses that were reserved to Novell in the basic structure of the asset purchase agreement.

[25:30]

Holmes: Including SVRX, right?

Jacobs: SVRX is the heart of it, exactly.

[PJ: Here's where you can find the Kimball bench trial decision. And here's part of what Judge Kimball ruled regarding Section 4.16:
Novell retained "all rights to the SVRX Royalties notwithstanding the transfer of the SVRX Licenses to [Santa Cruz]." The APA further specifies that Santa Cruz "only has legal title and not equitable interest in such royalties within the meaning of Section 541(d) of the Bankruptcy Code." As this court has previously determined, the APA created an agency relationship between the parties with respect to SVRX Royalties.

Section 4.16(b) of the APA provides that Santa Cruz "shall not, and shall not have the authority to, amend, modify, or waive any right under or assign any SVRX License without the prior written consent" of Novell. Under this section, Novell retained the sole discretion to direct Santa Cruz to amend, supplement, modify, waive, or add rights under or to any SVRX Licenses. Novell's rights and SCO's obligations under section 4.16(b), as amended, apply to "any SVRX License."

Amendment No. 1 to the APA modifies section 4.16(b) to create two exceptions whereby Santa Cruz has "the right to enter into amendments of the SVRX Licenses." Santa Cruz can enter into amendments of SVRX Licenses (1) as may be incidentally involved through its rights to sell and license SCO UnixWare software or the Merged Product or (2) to allow a licensee under a particular SVRX License to use the source code of the relevant SVRX products on additional CPUs or to receive additional distribution from Santa Cruz of such source code. Amendment No. 1 further provides that Santa Cruz can enter into new SVRX Licenses only as may be incidentally involved through its rights to sell and license SCO UnixWare.

A bench trial just means that there is no jury, only a judge. That can happen if the only issues are matters of law. After that trial, when SCO appealed, the Tenth Circuit ruled that there was a fact issue, namely what transferred, so it was sent back to Utah for a jury to decide that issue. Here's part of what Judge Kimball wrote about any royalties from UnixWare:
With respect to the payment of royalties to Novell, the APA distinguishes between SVRX Licenses and UnixWare licenses....

Novell acknowledges that it is not entitled to royalties from any UnixWare licenses. For example, at trial, Novell did not seek any payments with respect to the stand-alone UnixWare license in Section 3 of the Microsoft Agreement.

Novell did not ask or suggest to Santa Cruz that it should remit any portion of the fees or royalties that Santa Cruz received under any UnixWare license even where System V prior products were listed as part of those licenses. Novell never asked or suggested to Santa Cruz that it should undertake to allocate to the System V prior products any value of the fees or royalties that Santa Cruz received under any UnixWare license granting rights to such older versions of System V.

As you can see, what Jacobs told the court is confirmed by the record.]
A few additional points: I think as, Judge Seymour, your comments indicated, there is a way to decide contract issues.  California parol evidence rule was applied by the Tenth Circuit and by this court in its prior panel decision.  If evidence is inconsistent with the unambiguous meaning of the agreement, it is excluded by the parol evidence rule, rules.  SCO never sought below to exclude this ample testimony about the meaning of the asset purchase agreement, the meaning of the asset purchase agreement as amended.  It never said, this is inconsistent with the prior panel decision, and it never said this is inconsistent with the plain meaning of the contract.  And nor is it making this argument to this panel, that somehow the parol evidence rule was misapplied below.  This court remanded for trial the question of what the contract means, and how it would be applied on these facts.  And that's the trial that Judge Stewart, who assumed the case after Judge Kimball recused himself, faithfully held, giving both sides ample opportunity to protect its case.

[26:50]

Holmes: What about the language of the asset purchase agreement that gives SCO the right to pursue legal claims?  What do we do with that, because, I mean, in the decision of the district court all it said was, it wasn't aware of any claims that were pending.  That really didn't seem particularly satisfactory to me, to answer the question of why that language does not give them the right to now pursue claims to protect their technology.

Jacobs: Well, and that …

Holmes: And the rights acquired in connection with getting UnixWare technology?

Jacobs: So, but that lies at the heart of the issue. To say "to protect their technology" is a generalization.  The asset purchase agreement dissects that generalization into its components.  And the language -- we had several arguments about this -- I mean the factual picture the jury got is that there was an asset purchase agreement that had been drafted, and then the deal team starts designing this agreement for the new structure in which Novell is going to retain 95% ownership, and this provision isn't adjusted.  So hence, our first argument is, this is a kind of a boilerplate, and it can't trump the very specific allocations of rights in the asset purchase agreement. 

If we assume it's not boilerplate, we have to credit it.  "All of seller's claims arising after the closing date."  And that's what Judge Stewart was pointing to. It's all of seller's claims.  Well, Novell has never said, we have some claims here that we're not transferring to SCO.  SCO has, from our vantage point, our view of the record, our view of the facts is that SCO has concocted some claims and is now trying to bootstrap on this provision. 

But it would have been a very different case had SCO come to Novell and said, "You have some claims.  We get ownership of those claims under the asset purchase agreement."  That is not what SCO proved up.  That was not the case they brought.  They did not bring a declaratory judgment based on the existence of these claims.  They brought a case based on we acquired the whole business.  And that's what the jury heard the most evidence about. [29:01]

It also has to be read, all of seller's claims in the unamended version of the asset purchase agreement, has to be read in the light of the reservation of copyright ownership.  They're in conflict in this sense.  And so the agreement, as a whole, taking these conflicting provisions, is ambiguous.  It also has to be read in light of the provision of section 4.16(b) that Santa Cruz, now SCO, had no right to enter into new SVRX licenses.  This is key.  How can you be in, claim you're in the business of enforcing these rights, if you don't have the right to license? A right of ownership is a right -- A right of ownership is a right to license.

Holmes: And the district court's language, then, about the unavailability of any claims, or the lack of any claims being present, went towards this notion that you just indicated about the fact that it was talking about seller's claims?

Jacobs: Exactly.

Holmes: And there were no claims that were identified.

Jacobs:And, in fact, here's the irony: when SCO amends its complaint in the district court, it sues Novell for copyright infringement.  Hence, the ownership issue here affects a very claim that SCO is asserting against Novell.  Well, does "all of seller's claims" mean all of Novell's claims against itself?  That can't be right.  And so, I'm not saying the agreement is crystal clear on this by any means.  I'm simply saying, this was part of the gemish that the jury heard, provisions that both sides argued went this way and that way, the underlying intent of the negotiators.  SCO bore the burden of proof on ownership, below.  If the jury came out, you know what? It's 50-50. It's a close case. We can't call it, tie goes to Novell.  And that's the burden they bear in showing the kind of legal error below that would cause reversal. Last point …

O'Brien: You're done.

Jacobs: OK.

O'Brien: Thank you.

Jacobs: Thank you very much.

[30:52] Singer: May I have a minute and a half for rebuttal, Your Honor?

O'Brien: Nope.  You've got nineteen seconds.

[31:00]

Singer: I would ask the court to look at page 1213 in the opinion, where we think it's clear that the issue on remand is which copyrights were within the scope of an intended transfer, and with respect to the transfer of claims, it is "all of seller's claims against any parties relating to any right, property or asset included in the business."  That is broad.  It included the Microsoft claim that was brought right after the transfer occurred, and it includes claims against Linux, which give rise to this very dispute over copyright ownership.  That is why SCO required the copyrights in order to defend the intellectual property in UNIX and in UnixWare …

O'Brien: Thank you.

Singer: … which the record shows continued on to the most recent versions.

O'Brien: Thank you.

Singer: Thank you, Your Honors.


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