SCO Grp v. Novell Inc

Filing 301

Plaintiff's MEMORANDUM in Opposition re 273 MOTION for Partial Summary Judgment on SCO's Non-Compete Claim in its Second Claim for Breach of Contract and Fifth Claim for Unfair Competition filed by Counter Defendant SCO Group, Plaintiff SCO Group. (Attachments: # 1 Exhibit Unpublished Cases)(Normand, Edward)

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SCO Grp v. Novell Inc

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Brent O. Hatch (5715) Mark F. James (5295) HATCH, JAMES & DODGE, PC 10 West Broadway, Suite 400 Salt Lake City, Utah 84101 Telephone: [phone] Facsimile: [phone] David Boies (admitted pro hac vice) Robert Silver (admitted pro hac vice) Edward Normand (admitted pro hac vice) BOIES, SCHILLER & FLEXNER LLP 333 Main Street Armonk, New York 10504 Telephone: [phone] Facsimile: [phone] Devan V. Padmanabhan (admitted pro hac vice) DORSEY & WHITNEY LLP 50 South Sixth Street, Suite 1500 Minneapolis, Minnesota 55402 Telephone: [phone] Facsimile: [phone]

Stephen N. Zack (admitted pro hac vice) BOIES, SCHILLER & FLEXNER LLP Bank of America Tower ­ Suite 2800 100 Southeast Second Street Miami, Florida 33131 Telephone: [phone] Facsimile: (305) 539 -1307 Stuart Singer (admitted pro hac vice) BOIES, SCHILLER & FLEXNER LLP 401 East Las Olas Blvd. Suite 1200 Fort Lauderdale, FL 33301 Telephone: [phone] Facsimile: (954) 356 -0022

Attorneys for Plaintiff, The SCO Group, Inc. _______________________________________________________________________________ IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC., a Delaware corporation, Plaintiff/Counterclaim-Defendant, vs. NOVELL, IN C., a Delaware corporation, Defendant/Counterclaim-Plaintiff.

MEMORANDUM IN OPPOSITION TO NOVELL'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON SCO'S NON COMPETE CLAIM IN ITS SECOND CLAIM FOR BREACH OF CONTRACT AND FIFTH CLAIM FOR UNFAIR COMPETITION Civil N o.: 2:04CV00139 Judge Dale A. Kimball Magistrate Brooke C. Wells

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TABLE OF CONTENTS Page PRELIMINARY STATEMENT ................................ ................................................................ .....1 STATEMENT OF FACTS ................................................................ ..............................................2 ARGUMENT ................................................................ .................................................................13 I. SCO IS ENTITLED TO BRING A CLAIM FOR BRE ACH OF CONTRACT FOR NOVELL'S USE OF THE LICENSED TECHNOLOGY BEYOND THE SCOPE OF THE LICENSE ........................................13 A. B. Novell Presents a False Choice Between "License Limitations" and Covenants ................................................................ ........................................13 The APA and TLA Non-Compete Clauses Are Affirmative Covenants ...............16 1. 2. 3. 4. 5. II. The APA and TLA Non-Compete Clauses Are Coven ants, Not Conditions ................................................................ ...........................16 Contractual Provisions Are Presumed to Be Covenants ............................17 The Non-Compete Clauses Cannot Constitute Conditions Under California Law ................................................................ ...........................18 The APA and TLA in Their Entirety Show That the Non-Compete Clauses Are Covenants.......................................................19 Novell's Reliance on the Sun Cases Exalts Form Over Substance and Ignores the Structure of the APA and TLA in Their Entirety....................20

SANTA CRUZ'S 2001 SALE OF ASSETS DID NOT TERMINATE THE COVENANTS AT ISSUE ................................ .................................................................22 A. B. The APA and TLA Must Be Read Together................................ ..........................23 With Respect to the Consequences of Certain Changes of Control, the Language of the APA and TLA Confirm SCO's Interpretation ......................25 If a Conflict is Perceived, There is a Factual Issue that Precludes Summary Judgment ................................ ...............................................................27 i

C.

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D. III.

The Extrinsic Evidence Supports SCO's Interpretation of the APA and TLA ................................................................ ..............................29

SUMMARY JUDGMENT IS IMPROPER BECAUSE THE COVENANTS AT ISSUE ARE NEITHER VOID NOR UNENFORCEABLE UNDER CALIFORNIA LAW .......................................................30 A. B. C. D. E. Section 16600 Does Not Require Technology Licensors to Give Up All of Their Rights to Licensees ................................ ................................................................30 Under California Law, Contractual Restrictions Within an Existing Business Relationship Such As Set Forth in the APA Are Enforceable................35 California Law Does Not Ban Partial Restraints on the Pursuit of a Business Such As the License Restrictions at Issue Here................................ ......37 Novell's Sale of Goodwill Under the APA and the Nature of the License Restrictions at Issue Make Those Restrictions Enforceable.....................42 Novell Would Be Unjustly Enriched if the Covenants Are Not Enforced .............43

CONCLUSION ................................................................................................ ..............................44 RESPONSE TO NOVELL'S STATEMENT OF UNDISPUTED FACTS ................................ ..45

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TABLE OF AUTHORITIES FEDERAL CASES Campbell v. Board of Trustees, 817 F.2d 499 (9th Cir. 1987) ................................ .......................................................35 Effects Associates, Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990) ................................ .......................................................17 In re Fantastic Fakes, Inc. v. Pickwick International, Inc., 661 F.2d 479 (5th Cir. 1981) ................................ .......................................................16 General Commercial Packaging, Inc. v. TPS Package Engineering, Inc., 126 F.3d 1131 (9th Cir. 1997) ................................ ...............................................35, 36 Graham v. James, 144 F.3d 229 (2d Cir. 1998) .........................................................................................17 Great Frame Up System, Inc. v. Jazayeri Enterprises, Inc., 789 F. Supp. 253 (N.D. Ill. 1992) ................................................................ ................32 Grosso v. Miramax Film Corp., 383 F.3d 965 (9th Cir. 2004) ................................ .......................................................16 Harris Market Research v. Marshall Marketing & Comm'ns, Inc., 948 F.2d 1518 (10th Cir. 1991 ) ................................ ...................................................14 La Resolana Architects, PA v. Clay Realtors Angel Fire, 416 F.3d 1195 (10th Cir. 2005) ................................ ...................................................14 Lockwood v. Wolf Corp., 629 F.2d 603 (9th Cir. 1980) ................................ .......................................................18 Marshall v. New Kids on the Block Partnership, 708 F. Supp. 1005 (S.D.N.Y. 1991) .............................................................................15 Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208 (E.D.N.Y. 1994) ................................................................ ..............15 Mularz v. Greater Park City Co., 623 F.2d 139 (10th Cir. 1980) ................................ .....................................................17

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NLRB v. International Union of Operating Engineers, 323 F.2d 545 (9th Cir. 1963) ................................ .......................................................27 Prestin v. Mobil Oil Corp., 741 F.2d 268 (9th Cir. 1984) ................................ .......................................................23 RT Computer Graphics, Inc. v. United States, 44 Fed. Cl. 747 (1999) ................................ ................................................................17 Recursion Software, Inc. v. Interative Intelligence, Inc., 425 F. Supp. 2d 756 (N.D. Tex. 2006) ................................ ........................................14 Shaklee U.S. Inc. v. Giddens, 934 F.2d 324, 1991 WL. 90003 (9th Cir. May 30, 1991) ............................................32 Shoals v. Home Depot, Inc., 422 F. Supp. 2d 1183 (E.D. Cal. 2006)................................ ........................................42 Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d at 1115 (9th cir. 1999) ................................................................ .......... passim Sun Microsystems, Inc. v. Microsoft Corp. ("Sun II"), 81 F. Supp. 2d 1026 (N.D. Cal. 2000) ................................ ................................. passim In re United Air Lines, Inc., 438 F.3d 720 (7th Cir. 2006) ................................ .......................................................23 Zajicek v. Koolvent Metal Awning Corp. of America, 283 F.2d 127 (9th Cir. 1960) ................................ .......................................................33 STATE CASES Arya Group, Inc. v. Cher, 77 Cal. App. 4th 610 (2000) ................................ .................................................. 42, 43 Asdourian v. Araj, 38 Cal. 3d 276 (1985) ................................ ................................................................ ..42 BMP Prop. Development v. Melvin, 198 Cal. App. 3d 526 (1988) ................................ ................................................. 23, 28 Baker v. Aubry, 216 Cal. App. 3d 1259 (1989) ................................ .....................................................23

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Black v. Kos, No. CIV 05-163 KBM/LCS, 2005 WL. 4564587 (D.N.M. March 29, 2005) ................................ ............................14 Boston Safe Deposit and Trust Co. v. Thomas, 53 P. 472 (Kan. 1898) ................................ ................................................................ ..19 Boughton v. Socony Mobil Oil Co., 231 Cal. App. 2d 188 (1964) ................................ .......................................................35 Boyd v. Oscar Fisher Co., 210 Cal. App. 3d 368 (1989) ................................ ................................................. 23, 28 Cadigan v. America Trust Co., 31 Cal. App. 2d 780 (1955) ................................................................................... 23, 28 Corporate Express Office Products, Inc., v. Martinez, No. CV-SA02 -87 AHS(ANX), 2002 WL. 31961458 (C.D. Cal. Mar. 8, 2002) ................................ ............................35 Davenport & Co. v. Spieker, 197 Cal. App. 3d 566 (1988) ................................ ................................................. 42, 43 Dayton Time Lock Serv., Inc. v. The Silent Watchman Corp., 52 Ca l. App. 3d 1 (1975) ................................................................ .............................32 Diepenbrock v. Luiz, 115 P. 743 (Cal. 1911) ................................ .................................................................19 Division 9646(JFK), 2006 WL. 3161467 (S.D.N.Y. Oct. 31, 2006) ................................ .............................18 Edwards v. Arthur Andersen LLP, 47 Cal. Rptr. 788 (Ct. App. 2006)................................................................ ................35 Fowler v. Varian Associates, Inc., 196 Cal. App. 3d 34 (1987) .........................................................................................32 Frangipani v. Boecker, 64 Cal. App. 4th 860 (1998) ................................ ........................................................27 Germaine Music v. Universal Songs of Polygram, 130 Fed. Appx. 153 (9th Cir. 2005)................................ ................................................................ ..............16

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Guthy-Renker Corp. v. Bernstein, 39 Fed.Appx. 584 (9th Cir. 2002) ................................................................ ................16 Handyspot Co. of N. Cal. v. Buegeleisen, 128 Cal. App. 2d 191 (1954) ................................ .......................................................38 Harrison v. Cook, 213 Cal. App. 2d 527 (1963) ................................ .......................................................38 Hill Medical Corp. v. Wycoff, 86 Cal. App. 4th 895 (2001) ................................ ........................................................40 Kaplan v. Nalpak Corp., 158 Cal. App. 2d 197 (1958) ................................ .......................................................40 Kashani v. Tsann Kuen China Enterprise Co., 118 Cal. App. 4th 531 (2004) ................................ ......................................................42 Keating v. Baskin-Robbins USA, Co. , No. 5:99-CV-148-BR(3), 2001 WL. 407017 (E.D.N.C. Mar. 27, 2001).....................32 King v. Gerold, 109 Cal. App. 2d 316 (1952) ................................ ................................................. 31, 36 Mayers v. Loew's, Inc., 35 Cal. 2d 822 (1950) ................................ ................................................................ ..28 Meier v. Paul X. Smith Corp., 205 Cal. App. 2d 207 (1962) ................................ ................................................. 23, 28 Merrill Lynch, Pierce, Fenner & Smith Inc. v. Chung, No. CV 01-00659 CBM RCX, 2001 WL 283083 (C.D. Cal. 2001). ................................................................ ..35 Monogram Industrial, Inc. v. Sar Industrial, Inc., 64 Cal. App. 3d 692 (1977) ................................................................................... 38, 40 Nevin v. Salk, 45 Cal. App. 3d 331 (1975) .........................................................................................23 Prudential Insurance Co. of America v. Fromberg, 240 Cal. App. 2d 185 (1966) ................................ .......................................................23 Shaw v. Regents of the University of Cal., 58 Cal. App. 4th 44 (1997) ................................................................ ..........................24 vi

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Smith v. San Francisco & N.P. Railway Co., 115 Cal. 584 (1897) ................................................................................................ .....31 Strategix, Ltd. v. Infocrossing W., Inc., 142 Cal. App. 4th 1068 (2006) ................................ ........................................38, 40, 41 Summerhays v. Scheu, 10 Cal. App. 2d 574 (1935) .........................................................................................33 STATE STATUTES Cal. Civ. Code § 1434 ................................................................ ..................................18 , 22 Cal. Civ. Code §§ 1435-38 ................................ ................................................................19 Cal. Civ. Code § 1642 ................................................................ ..................................19 , 23 TREATISES 1 B.E. Witkin, Summary of California Law, Contracts § 778 (2006) ...............................16 13 Williston on Contracts §§ 38:5, 38:13 ................................ ....................................17, 18

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Plaintiff, The SCO Group, Inc. ("SCO"), respectfully submits this memorandum in opposition to Novell's Motion for Partial Summary Judgment on SCO's Non-Compete Claim in its Second Claim for Breach of Contract and Fifth Claim for Unfair Competition. PRELIMINARY STATEMENT Novell's motion ignores key contractual language, the holdings of the very cases it cites, and the testimony of its own representatives who negotiated and signed the Asset Purchase Agreement ("APA") and Technology License Agreement ("TLA") on Novell's behalf. For example, although Novell devotes more than ten pages to proving the undisputed fact that a change in the control of Santa Cruz occurred in 2001, Novell makes only a passing footnote mention of the key fact ­ there was a two year limit on the change of control restriction on which Novell relies. The 2001 change occurred well outside the two -year period. No vell also fails to mention that the provision at issue only applies if control passes to a company on a specific list, and that SCO is not on that list. While the plain contractual language is so compelling that each of Novell's arguments can and should be rejected as a matter of law, the extrinsic evidence is even more conclusive, particularly the testimony of (1) Novell's own former Chairman of the Board, who signed the APA on Novell's behalf, (2) the person who was Novell's chief negotiator of the APA and the TLA, and (3) the person who signed the TLA on Novell's behalf. All three of these individuals have testified unequivocally that Novell's proposed interpretation of the APA and TLA is contrary to the intent of the contracting parties. Chairman Frankenberg candidly admitted that Novell breached the TLA by acquiring SuSE Linux (with $50 million of IBM funding) and distributing SuSE Linux:

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Q. (By Mr. Singer) With respect to the noncompete provision which you were asked about, and I think the question was stated in terms of Novell not going into the UNIX business, so I want to make clear in your understanding in distributing Linux, is Novell or its subsidiaries going into the UNIX business in violation of those divisions [sic]? MR. JACOBS: Objection, calls for a legal conclusion. A. I'm not a lawyer, but yes. (Declaration of Mark F. James (5/18/07 James Decl.) Ex. 7 at 157-58.) STATEMENT OF FACTS Promise Not to Use Such Technology in Competition With SCO 1. Novell, Inc. and SCO were parties to an Asset Purchase Agreement entered into

as of September 19, 1995. (5/18/07 James Decl. Ex. 1.) 2. Prior to entering into the APA, Novell was engaged in the UNIX and UnixWare

business. (5/18/07 James Decl. Ex. 1.) 3. 4. SCO was a leader in UNIX System servers. (5/18/07 James Decl Ex. 8.) The day after Novell and SCO entered into the APA, a press release was issued

entitled "SCO ACQUIRES THE UNIX BUSINESS FROM NOVELL AND LICENSES NETWARE TECHNOLOGY." (5/18/07 James Decl. Ex. 8.) 5. At the time of the execution of the APA, Novell was a leading networking

software company. Because it had developed its flagship networking product, NetWare, to work on the UNIX operating system, Novell needed and requested the right to distribute trivial portions of the UNIX source code embedded in NetWare. ( See 5/18/07 James Decl. Ex. 13 at 226-27.)

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6.

Accordingly, with the sole intent of accommodating these requests by Novell, the

parties to the APA agreed that Santa Cruz would license back to Novell "all the technology included in the Assets" transferred by the APA, as well as "all derivatives of the technology included in the Assets" (collectively, "the Licensed Technology"), subject to certain broad limitations. (5/18/07 James Decl. Ex. 1 § 1.6.) 7. To protect the value to Santa Cruz of the transferred UNIX and UnixWare assets,

the APA and TLA each contained a non-compete provision, whereby Novell covenanted not to use the Licensed Technology to compete with SCO's core operating-system products. (5/18/07 James Decl. Ex. 1 § 1.6, Ex. 4 § II.A. (2).) 8. Section 1.6 of the APA provides in part: Seller agrees that it shall use the Licensed Technology only (i) for internal purposes without restriction or (ii) for resale in bundled or integrated products sold by Seller which are not directly competitive with the core products of Buyer and in which the Licensed Technology does not constitute a primary portion of the value of the total bundled or integrated product. (5/18/07 James Decl. Ex. 1 § 1.6.) 9. The TLA implements the agreement between SCO and Novell described in

Section 1.6 of the APA and states, under Section II.A.(2), that Novell is permitted to distribute and sublicense "such Licensed Technology and modifications thereof," provided that (i) such technology and modifications may be sublicensed and/or distributed by NOVELL solely as part of a bundled or integrated offering ("Composite Offering"); (ii) such Composite Offering shall not be directly competitive with core application server offerings of SCO, and (iii) the Licensed Technology shall not constitute a primary portion of the value of such Composite Offering. (5/18/07 James Decl. Ex. 4 § II.A.(2).) 3

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10.

The "core products" and "core application server offerings" referenced in the

APA and TLA, respectively, refer to the UNIX and UnixWare operating systems owned by Santa Cruz upon the closing date. Even before acquiring the UNIX source code, Santa Cruz had been primarily involved in the business of distributing UNIX in binary form, so that with the acquisition of the UNIX and UnixWare source code and copyrights, the UNIX and Unix Ware operating systems undoubtedly represented Santa Cruz's "core products." In addition, as of the closing date, Santa Cruz had no "application server offering" other than UNIX and UnixWare operating systems. (5/18/07 James Decl. Ex. 13 at 226-27.) 11. After the execution of the APA, Novell continued its business of developing and

marketing its NetWare operating system, as it had contemplated in entering into the APA. (5/18/07 James Decl. Ex. 78 at 59). The APA and TLA Define the Rights Transferred in a Single Transaction 12. The APA and TLA refer to each other as part of the same transaction, as follows:

The APA calls for the execution of "a license agreement" and the terms thereof regarding the "Licensed Technology" addressed in the TLA. (5/18/07 James Decl. Ex. 1 § 1.6.) The TLA provides that its effective date is "the Closing Date of the Asset Purchase Agreement." (5/18/07 James Decl. Ex. 4 at 1.) The first "Whereas" clause of the TLA provides that "pursuant to the Asset Pur chase Agreement, NOVELL shall be entitled to retain and to exercise, after the Closing Date, certain licenses for Licensed Technology, including related documentation and support." (5/18/07 James Decl. Ex. 4 at 1.) 4

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The TLA provides that the term "Licensed Technology," and several other terms, "shall have the respective meanings attributed to such terms in the Asset Purchase Agreement." (5/18/07 James Decl. Ex. 4 at 1 -2.) The TLA provides that Novell shall have the license set out in the TLA "Effective upo n the Closing Date and in connection with the transfer of the Assets by NOVELL to SCO pursuant to the Asset Purchase Agreement." (5/18/07 James Decl. Ex. 4 § II.A.) The TLA provides that certain covenants on Novell's license rights "shall not affect any rights specifically retained by NOVELL under the Asset Purchase Agreement." (5/18/07 James Decl. Ex. 4 § II.A(2).) In the Section titled "ENTIRE AGREEMENT," the TLA provides: "This Agreement and the Asset Purchase Agreement constitute the entire understanding between the parties with respect to its subject matter, and supersede all prior understandings, both written and oral, between them relating to such subject matter." (5/18/07 James Decl. Ex. 4 § VIII.) 13. Section 1.6 of the APA also details how the TLA shall treat the rights of parties in

the event of a "Change in Control" of Novell or SCO distinctly, as follows: The license agreement shall also provide Seller with an unlimited royalty-free, perpetual, worldwide license to the Licensed Technology upon the occurrence of a Change of Control of Buyer described in Section 6.3(c) hereof... In the event of a Change of Control of Seller (as defined in Section 6.6 hereof), the license granted pursuant to the license agreement shall be limited to Seller's products either developed or substantially developed as of the time of the Change of Control.

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(5/18/07 James Decl. Ex. 1 § 1.6.) 14. In Section 6.3(c), in turn, the APA makes clear that Novell will have an

"unlimited" license to the Licensed Technology only as follows: Expansion of Seller's Rights Relating to the Licensed Technology upon a Change of Control. Until two (2) years from the Closing Date, in the event Buyer has merged with, sold shares representing 50% or more of the voting power of Buyer to, sold all or substantially all of Buyer's assets to, or engaged voluntarily in any other change of control transaction with, any party identified by Seller on Schedule 6.3(a) hereof, or in the event any party identified by Seller on Schedule 6.3(a) hereof, shall acquire shares representing 50% or more of the voting power of Buyer, Seller shall automatically have unlimited, royalty-free, perpetual rights to the Licensed Technology. (5/18/07 James Decl. Ex. 1 § 6.3(c).) 15. The TLA provides that Novell would obtain the "unlimited" rights to the Licensed

Technology "[i]n the event of a Change of Control of SCO," where the terms "Change of Control" and others "shall have the respective meanings attributed to such terms in the Asset Purchase Agreement." (5/18/07 James Decl. Ex. 4 § I) 16. Novell's chief business negotiator, Ed Chatlos, has confirmed that terms of the

TLA were intended to confirm the terms of the APA declaring that Novell would only obtain an "unlimited" license to the "Licensed Technology" upon a Change of Control as described in Section 6.3(c): As reflected in Section 1.6 of the APA, Novell intended to enter into a license agreement with Santa Cruz after the execution of the APA in which Novell would obtain a license to the "Licensed Technology" within the meaning attributed to that term in the APA. In addition, as also reflected in Section 1.6, Novell intended to obtain an "unlimited" license to the Licensed Technology upon the occurrence of a Change of Control as described in Section 6.3(c) of the APA. In my view and based on my experience, Novell

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intended to implement the directives set forth in Section 1.6 of the APA in the TLA. I did not possess any contrary intent, and I do not recall anyone on either side of the contracts saying or suggesting that anyone possessed any contrary intent. (5/18/07 James Decl. Ex. 68 ¶ 3.) 17. Thompson: I describe my education, work history, and involvement with the APA and TLA in my previous Declaration, which I incorporate and adopt here. In the negotiations and discussions of the APA, the parties specifically contemplated and discussed the license agreement that became the TLA. Section 1.6 of the APA reflects Novell's intent to enter into a license agreement with Santa Cruz after the execution of the APA in which Novell would obtain a license to the "Licensed Technology" within the meaning attributed to that term in the APA. I recall from the negotiations and discussions of the APA that Novell wanted to be free of the terms of the license agreement in the event that Santa Cruz entered into certain types of transactions with certain large companies in the same market or markets as Novell within a certain period of time after the closing of the deal. It is Section 1.6 of the APA that reflects Novell's intent to obtain an "unlimited" license to the Licensed Technology upon the occurrence of a Change of Control as described in Section 6.3(c) of the APA. (5/18/07 James Decl. Ex. 69 ¶¶ 2-3.) The APA and TLA Non-Compete Provisions Were Intended to Protect Value of SCO's Newly-Acquired Worldwide UNIX Business and Goodwill 18. SCO and Novell intended the non-compete provisions of the APA and TLA to This view is similarly confirmed by Novell's signatory to the TLA, R. Duff

protect the value of the business SCO obtained from Novell under the APA, as Mr. Thompson, who signed the TLA on behalf of Novell, explained to Alok Mohan, Santa Cruz's signatory: ...we're not going to be going into that business of trying to sell a competitor to UnixWare. That is not our business. That is not our 7

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intent. We are selling the business not for the purpose of going into competition with them. We are selling them the business so they can go take that business and make it grow. .... So it just didn't make sense for Novell, and we in the negotiations assured ­ and I think this is the part that I have fairly clear recollection of, that we assured Alok and his team that it is not Novell's intent to simply come in after the fact and jump back on top of this market on top of you. So that's the way I would get to the question of noncompetition. It was really that it was an assurance that we gave them that wasn't our intent to simply jump back on top of them. . . . . SCO was saying, well, okay. We'll give you the license, but there are some restrictions. And those restrictions seemed reasonable at the time, and we agreed to them. (5/18/07 James Decl. Ex. 11 at 94-95.) 19. Novell's CEO at the time of the execution of the APA and TLA confirmed this

intent, testifying that it was his "understanding was that we would not go into the UNIX business and compete with SCO." (5/18/07 James Decl. Ex. 7 at 118.) He confirmed that as long as Novell "didn't go into the UNIX business," Novell "could compete with SCO." (Id.) Mr. Frankenberg testified that "my recollection is that SCO was very concerned about Novell entering ­ being able to enter the business and compete with SCO using what we got out of the license and also being able at some point in the future to sell that to other people to compete with them. And we said, no, that is not our intent. We're not going to do that." ( Id. at 174.) 20. In his deposition, Mr. Frankenberg admitted that Novell breached the TLA by

distributing SuSE Linux: Q. (By Mr. Singer) With respect to the noncompete provision which you were asked about, and I think the question was stated in terms of Novell not going into the UNIX business, so I want to make clear in your understanding in distributing Linux, is Novell

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or its subsidiaries going into the UNIX business in violation of those divisions [sic]? MR. JACOBS: Objection, calls for a legal conclusion. A. I'm not a lawyer, but yes. .... MR. JACOBS: Now, you said in response to Mr. Singer's question that you thought that Novell was in violation of the TLA by distributing Linux. What did you base that on? A. I remember that provision very well because it was a significant concession to SCO to allay their concern about us coming back around and competing with them in the marketplace. And we had no intention of being in the UNIX business or businesses directly in competition with SCO, and that's what ­ ­ we memorialized that in that agreement. Q. And you believe that Linux competes with SCO? A. It would certainly ­ ­ it certainly did compete with SCO's products, yes. Q. But he asked about present day. Do you believe that Linux competes with SCO today? If you have no opinion on that, fine. I'm just trying to clarify your answers to his questions. A. Yes, it does, because SCO still sells UNIX-based software. Q. And the mere fact that Novell distributes Linux, that's all ­ ­ and that Linux compete with UNIX, that's all you need to know to know that you're in violation of the TLA? A. Yes. (5/18/07 James Decl. Ex. 7 at 157-58, 170-71; see also id. at 56-57 and 116-19.) 21. The absence of any express geographic limitation in the APA reflects the parties'

intent and the realities of the business at issue ­ namely, that the sales and marketing of the operating systems at issue occurred on a worldwide basis. If Novell were permitted to sell or

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market an operating system in violation of the terms of the license restriction where Santa Cruz was to be selling and operating the UNIX and UnixWare operating systems ­ that is, throughout the world ­ Novell's conduct would threaten to undercut Novell's sale of the UNIX and UnixWare businesses to Santa Cruz. (See 5/18/07 James Decl. Ex. 68 ¶ 4; Ex. 69 ¶ 4.) 22. Because Novell's use of the UNIX or UnixWare technology transferred to SCO in

competition with SCO would have threatened SCO's market for its products, SCO would not have agreed to license such technology to Novell without a promise from Novell that it would not use such technology in competition with SCO. (See 5/18/07 James Decl. Ex. 13 at 226-27; Ex. 7 at 56-57. ) 23. The APA expressly acknowledges "the intent of parties hereto that all of the

Business and all of Seller's backlog, if any, relating to the Business be transferred to Buyer." (5/18/07 James Decl. Ex. 1 § 1.3(a)(i).) This "Business" was defined as "the business of developing a line of software products currently known as Unix and UnixWare, the sale of binary and source code licenses to various versions of Unix and UnixWare, the support of such products and the sale of other products which are directly related to Unix and UnixWare." (Id. , Recital A.) 24. The APA further states that the parties intended for Novell to sell and for Santa

Cruz to acquire "all of Seller's right, title and interest in and to the assets and properties of Seller relating to the Business" identified on Schedule 1.1(a), excluding the "Excluded Assets in Schedule 1.1(b). (5/18/07 James Decl. Ex. 1 Schedule 1.1(a).) The opening description of the Assets transferred in Schedule 1.1(a), in turn, is extremely broad: All rights and ownership of UNIX and UnixWare, including but not limited to all versions of UNIX and UnixWare and all copies of 10

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UNIX and UnixWare (including revisions and updates in process), and all technical, design, development, installation, operation and maintenance information concerning UNIX and UnixWare, including source code, source documentation, source listings and annotations, appropriate engineering notebooks, test data and test results, as well as all reference manuals and support materials normally distributed by Seller to end-users and potential end-users in connection with the distribution of UNIX and UnixWare, such assets to include without limitation the following... (5/18/07 James Decl. Ex. 1 Schedule 1.1(a) § I.) 25. Goodwill is not listed among the "Excluded Assets" in Schedule 1.1(b) of the

APA. (5/18/07 James Decl. Ex. 1 Schedule 1.1(b).) 26. The broad transfer of "[a]ll rights and ownership of UNIX and UnixWare"

included the goodwill Novell had developed in its UNIX and UnixWare business, as confirmed in a letter dated November 16, 1995, from SCO's auditor Peat Marwick LLP, who wrote: Other property being sold includes business documentation such as customer lists, copies of contracts and agreements, employee lists and contracts, human resource materials, operating procedures manuals, accounting records, training materials, marketing materials and collateral, claims against third parties, and other items. The sale includes goodwill, trade names, and other intangibles. (5/18/07 James Decl. Ex. 70 at SCO1230550 (emphasis added).)
27.

The APA further states as follows: In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void, or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the 11

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economic, business and other purposes of such void or unenforceable provision.
(5/18/07 James Decl. Ex. 1 § 9.6.)

SCO Alleges That Novell Breached the APA and TLA Non-Compete Covenants 28. On November 4, 2003, Novell announced its acquisition of SuSE Linux, one of

the world's leading distributors of Linux. Since the closing of that acquisition in January 2004, Novell has been distributing Linux worldwide. (SCO Second Amended Complaint ¶ 46; see generally http://www.novell.com/linux/ and related pages on Novell's website.) 29. On December 22, 2005, SCO filed with the Court in the SCO v. IBM case a

compilation of 293 disclosures of technology which IBM has made to enhance Linux (in violation of its agreements with SCO) with the stated objective of making Linux a more enterprise-hardened operating system. (5/18/07 James Decl. Ex. 75.) 30. SCO alleges that Linux contains the Licensed Technology which, pursuant to

Section 1.6 of the APA and Section II.A.(2) of the TLA, Novell covenanted not to distribute in an operating system. (SCO Second Amended Complaint ¶ 48.) 31. SCO alleges that Linux is "directly competitive" with SCO's core application

server offerings. (SCO Second Amended Complaint ¶ 49.) 32. SCO alleges that the measure of UNIX technology in Linux far exceeds the trivial

portions that the parties intended Novell was authorized to use, in Netware, pursuant to the TLA. (SCO Second Amended Complaint ¶ 50.) Whereas UNIX became enterprise-ready after decades of development, Linux matured into a powerful enterprise-ready operating system in a few years, due primarily to the UNIX technology wrongly contributed by IBM to Linux. (SCO Second Amended Complaint ¶ 50.) 12

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33.

SCO alleges that Novell therefore breached Section 1.6 of the APA and Section

II.A.(2) of the TLA. (SCO Second Amended Complaint ¶ 51.) ARGUMENT SCO shows below that none of Novell's asserted bases for summary judgment warrants such relief, because SCO may bring a claim for breach of contract for Novell's use of the Licensed Technology beyond the scope of the license (Part I, below); Santa Cruz's sale of assets did not terminate the license restrictions at issue (Part II, below); and the license restrictions are not void or unenforceable under California law (Part III, below). I. SCO IS ENTITLED TO BRING A CLAIM FOR BRE ACH OF CONTRACT FOR NOVELL'S USE OF THE LICENSED TECHNOLOGY BEYOND THE SCOPE OF THE LICENSE. Novell first argues (at 17-21) that the provisions of the TLA at issue are not "an independent covenant not to compete," but rather "a limitation on the license" constituting a "condition." Novell then briefly contends (at 22) that the distinction is relevant because SCO assertedly cannot bring a claim for breach of contract for Novell's conduct beyond the limitation on the license. Novell is mistaken. A. Novell Presents a False Choice Between "License Limitations" and Covenants.

Novell argues (at 17) that SCO cannot bring a breach of contract or unfair competition claim based on Novell's use of Licensed Technology in violation of the APA and TLA noncompetition clauses because the clauses are "limitation[s] on the scope of Novell's license," not "affirmative covenants." Novell cites (at 18-22) to Sun Microsystems, Inc. v. Microsoft Corp. ("Sun I"), 188 F.3d 1115 (9th Cir. 1999), and Sun Microsystems, Inc. v. Microsoft Corp. ("Sun II"), 81 F. Supp. 2d 1026 (N.D. Cal. 2000), in support of this false dichotomy between "license 13

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limitations," which would allow SCO to bring a copyright infringement claim, and "affirmative covenants" which would allow SCO to bring a breach of contract claim. Copyright infringement and breach of contract claims may arise from the same set of facts: "[C]onduct that may give rise to a federal suit for copyright infringement may also give rise to a state law claim in tort for unfair competition, tortious interference, or breach of contract . . . [if such claim] requires an extra element, beyond mere copying, preparation of derivative works, performance, distribution or display." La Resolana Architects, PA v. Clay Realtors Angel Fire, 416 F.3d 1195, 1199 n.2 (10th Cir. 2005) (internal citations omitted); see also Harris Market Research v. Marshall Mktg. & Comm'ns, Inc., 948 F.2d 1518, 1522-23 (10th Cir. 1991) (upholding jury verdict of copyright infringement and breach of license agreement). Novell ignores this controlling case law, where its breach of the non-compete clauses of the APA and TLA clearly provide an "extra element, beyond mere copying, preparation of derivative works, performance, distribution or display." Black v. Kos, No. CIV 05 -163 KBM/LCS, 2005 WL 4564587, at *2-3 (D.N.M. Mar. 29, 2005) (holding that breach of contract claim meets "extra element" test); see also Recursion Softwa re, Inc. v. Interative Intelligence, Inc., 425 F. Supp. 2d 756, 766 (N.D. Tex. 2006) (citing law from several circuits holding that breach of contract claims meet "extra element" test). Novell does not cite a single case holding that a plaintiff cannot bring a breach of contract claim against a defendant who violates a non-competition clause, whether that clause is characterized as a covenant, condition, license limitation, or any other term of art. Rather, Novell exclusively cites to opinions discussing whether a plaintiff can bring a copyright infringement claim. For example, the issue before the Sun I and Sun II courts was not whether

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the plaintiff could bring state law claims, but whether the plaintiff had asserted a valid copyright infringement claim and could therefore rely on the presumption of irreparable harm applicable when seeking a preliminary injunction in a copyright infringement case. See Sun I, 188 F.3d at 1117, 1119. When determining whether a plaintiff can bring a copyright infringement claim against a licensee, it makes sense to determine whether any provisions in the license are "license limitations," because the licensee's use of the licensed work can only constitute copyright infringement if such use is outside the scope of the license. See Sun I, 188 F.3d at 1119. However, as applied to the instant dispute, this case law is irrelevant to the question whether SCO has a valid contractual claim.
1

The Sun courts simply were not asked to determine whether the plaintiff could have brought a breach of contract claim. See Sun I, 188 F.3d at 1119-23. Thus, even if language in Sun I or Sun II could somehow be read to suggest that a clause can only be a license limitation or a covenant, or that a licensor plaintiff can only bring a copyright infringement claim or a breach of contract claim, such language would merely be dicta and contrary to the square holdings of other Ninth Circuit cases. Indeed, the Ninth Circuit has repeatedly recognized that a defendant's
1

Novell goes on to argue that the lack of a license "shield" cannot be used as a "sword" against Novell. As explained herein, this argument mischaracterizes the fundamental nature of the APA and TLA noncompete clauses. Novell does not merely lack a license to use SCO-owned technology in competitive products, it made a covenant not to sell such products and breached that covenant. Moreover, the cases Novell cites are inapposite and do not support its claim that SCO's only remedy is a copyright infringement claim. In Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208 (E.D.N.Y. 1994), the court explicitly states that there was no contract between the plaintiff and defendant, much less a non- compete agreement. See id. at 211, 214. The cou rt therefore made no holding on whether a defendant who breaches a valid non- compete agreement can be sued only for copyright infringement. In Marshall v. New Kids on the Block Partnership, 708 F. Supp. 1005 (S.D.N.Y. 1991), the court addressed whether the plaintiff adequately plead a claim arising under the copyright laws for purposes of federal court jurisdiction, not whether the plaintiff could have asserted separate claims arising under state law. See id. at 1009. Indeed, the opinion acknowledges that a licensee's misconduct may give rise to claims under both the Copyright Act and state law. See id. (citing Kanakos v. MX Trading Corp., 216 U.S.P.Q. 1030 (S.D.N.Y. 1981)).

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failure to comply with the terms of a license to use copyrighted material can give rise to both copyright infringement and breach of contract claims. See, e.g., Germaine Music v. Universal Songs of Polygram, 130 Fed. Appx. 153, 155 n.1 (9th Cir. 2005) ("If [defendant] was using the song without paying royalties, it was likely both a breach of contract and a violation of the copyright.") (attached hereto as Exhibit A); Grosso v. Miramax Film Corp., 383 F.3d 965 (9th Cir. 2004) (reversing district court's holding that plaintiff could not bring a breach of contract claim in addition to copyright infringement claim); Guthy-Renker Corp. v. Bernstein, 39 Fed.Appx. 584, 587 (9th Cir. 2002) (upholding district court's damage award for breach of contract and copyright infringement) (attached hereto as Exhibit B); Rano v. Sipa Press, Inc. , 987 F.2d 580, 586 (9th Cir. 1993) (stating that licensor could sue for copyright infringement and breach of contract). B. The APA and TLA Non-Compete Clauses Are Affirmative Covenants. 1. The APA and TLA Non-Compete Clauses Are Covenants, Not Conditions.

SCO is entitled to bring a breach of contract against Novell for its violation of the noncompete clauses contained in the APA and the TLA, because these clauses constitute Novell's affirmative covenants. Courts evaluating whether a party's failure to comply with contractual provisions give rise to a claim for breach of contract (as opposed to a claim for copyright infringement) generally determine whether such provisions constitute either covenants or conditions.2 1 B.E. Witkin, Summary of California Law, Contracts § 778 at 867-68 (2006)

2

This is also true where the contract at issue is a license to use copyrighted works. See 3 Nimmer on Copyright § 10.15[A] at 10- 115 (2006 ed.) (citing In re Fantastic Fakes, Inc. v. Pickwick Int'l, Inc. , 661

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(distinguishing covenants and conditions); 13 Williston on Contracts § 38:5 at 382 (same, stating: "A promise is a manifestation of an intention to act or refrain from acting in a specified way, so made as to justify the promise in understanding that a commitment has been made, while a condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due."). Breach of a covenant entitles a licensor to bring a breach of contract claim. Id. The premise underlying the non -compete provisions is that SCO promised to grant Novell a license in exchange for Novell's promise (that is, covenant) that it woul d not offer directly competitive products including the Licensed Technology. Thus, Novell's violation of the non-compete provisions in the agreements establish that SCO is entitled to a breach of contract claim. 2. Contractual Provisions Are Presumed to B e Covenants.

The presumption is that contractual provisions are covenants, not conditions. See Mularz v. Greater Park City Co., 623 F.2d 139, 142 (10th Cir. 1980) ("In cases of doubt as to the intention of the parties, courts resolve the doubt in favor of an interpretation making the engagement a promise rather than a condition."); 13 Williston on Contracts § 38:13 at 425 ("If it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise."); see also Graham, 144 F.3d at 237 (holding that royalty and author credit terms of copyright license were covenants, based on "legal presumption favoring covenants over conditions"). The language necessary to create a condition must be unambiguous. See Mularz, 623 F.2d at 142 ("An intent to create a condition in a contract must appear expressly or by clear implication"); Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 559 n.7 (9th Cir. 1990) ("Conditions
F.2d 479, 483- 84 (5th Cir. 1981); Graham v. James, 144 F.3d 229, 236- 37 (2d Cir. 1998); RT Computer Graphics, Inc. v. United States , 44 Fed. Cl. 747, 756 (1999)).

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precedent are disfavored and will not be read into a contract unless required by plain, unambiguous language."); 13 Williston on Contracts § 38:13 at 429-30 ("Contract conditions are disfavored, and will not be found in the absence of unambiguous language indicating an intention to create a conditional obligation."); see also Ariel (UK) Ltd. v. Reuters Group PLC, No. 05 Div. 9646(JFK), 2006 WL 3161467, at *8 (S.D.N.Y. Oct. 31, 2006) (finding clauses were not conditions precedent where license language made no mention of conditions under which license would revert to either party, or under which either party would obtain right of rescission). Indeed, "[c]ourts are especially loath to find a condition precedent when the alleged condition is peculiarly within the control of one of the contracting parties." Lockwood v. Wolf Corp. , 629 F.2d 603, 610 (9th Cir. 1980). 3. The Non-Compete Clauses Cannot Constitute Conditions Under California Law.

Whether the non-compete language is a condition or a covenant must be resolved under California law, which indisputably governs the interpretation of the APA and TLA. California's statutory definition of "conditional obligation" must be applied to determine the nature of the language at issue. According to Cal. Civ. Code § 1434 (emphasis added), an obligation is a condition "when the rights or duties of any party thereto depend upon the occurrence of an uncertain event." A plain reading of the California Civil Code in connection with the APA and TLA reveals that the non-compete clauses do not contemplate the "occurrence of an uncertain event," because whether or not Novell offered a directly competitive product was completely within Novell's control. In other words, whether Novell chose to offer a directly competitive product was by no means uncertain. Novell could either adhere to its obligations under the TLA

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and the corresponding provision in the APA, or it could not. The non-compete clauses therefore should not be interpreted as a condition to the contract under California law. 4.
3

The APA and TLA in Their Entirety Show That the NonCompete Clauses Are Covenants.

As Novell concedes (at 20), to interpret whether a contractual provision is a covenant or a condition, the whole of a contract must be examined to determine the intent of the parties.
4

Under Cal. Civ. Code § 1642 , several contracts that relate to the same matters between the same parties "and made as parts of substantially one transaction, are to be taken together." Following this approach, the language of the TLA on which Novell focuses must be read in connection w ith corresponding language in the APA. Section 1.6 of the APA clarifies any ambiguity regarding placement of the non-compete clause in the TLA, which is merely a codification of Section 1.6 of the APA. (See Part II, below.) The express language of Secti on 1.6 also constitutes unequivocal language of promise or covenant between the parties ("Buyer shall" and "Seller agrees"), rather than a limitation on the license or a condition. (APA § 1.6 (emphasis added).) Moreover, Novell's argument (at 21) that the language of Section 1.6 of the APA is not a covenant because it was not expressly placed in the Article IV of the APA entitled "Certain
3

California law recognizes the three traditional types of conditions: conditions precedent, conditions concurrent, and conditions subsequent. See Cal. Civ. Code §§ 1435- 38. Viewed as a whole, the noncompete language in the APA and the TLA does not fit any of these types of conditions.
4

Despite this, Novell primarily seizes (at 17) on the TLA language stating that Novell would have a license "provided, however, that" Novell agreed not to distribute a Composite Offering that would be directly competitive with SCO's offerings in support of its argument that the non- compete clause is a limitation on the scope of the license (i.e., a condition). However, language alone is not determinative of whether a clause is a condition or a covenant. As discussed by The Supreme Court of California, the term "provided" may or may not indicate a condition, noting that "`there is no magic in the term ["provided"], and the clause in a contract is to be construed from the words employed and from the purpose of the parties, gathered from the whole instrument.'" Diepenbrock v. Luiz , 115 P. 743, 744 (Cal. 1911) (quoting Boston Safe Dep. and Trust Co. v. Thomas, 53 P. 472 (Kan. 1898) (finding that, based on a reading of an entire provision, a clause containing "provided, that" was not a condition)).

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Covenants" is misguided.5 The APA effected the sale of the entire UNIX business from Novell to SCO. (See APA Recitals.) The license-back arrangement represents an important part of the APA, which is why it was included in Article I addressing the major agreements surrounding SCO's acquisition of certain Novell assets, and not buried in Article IV, which primarily consists of boilerplate covenants. The non-compete clause, which was a "significant concession to SCO" by Novell (5/18/07 James Decl. Ex. 7 at 171), specifically applies to the license-back arrangement, which is why it is included in Section 1.6 and not elsewhere in the APA. Because the non-compete clause is essential to the entire agreement between Novell and SCO, it would be illogical to consider any part of the clause to be a condition. If Novell would not have agreed to the non-compete provision, SCO would not have agreed to a license -back arrangement; if SCO had not agreed to a license-back arrangement, then Novell would not have entered into an agreement with SCO. (See generally Part III, below.) As discussed above, the parties exchanged these crucial promises in order to come to a workable agreement, further indicating that the non-compete language in both the APA and the TLA represents a covenant. Thus, in the context of the contract as a whole (that is, the APA and the TLA), the language at issue is clearly language of promise or obligation (that is, a covenant ) rather than language of condition, or, as Novell argues, language that limits the scope of the license. 5. Novell's Reliance on the Sun Cases Exalts Form Over Substance and Ignores the Structure of the APA and TLA in Their Entirety.

As noted above, Sun I and Sun II, which did not even involve breach of contract claims, have no relevance to this case. In any event, to make its argument that the non-compete
5

In fact, under Novell's own line of logic, then Section 1.6 is a covenant rather than a condition because it was not expressly placed in Article V of the APA entitled "Conditions to the Acquisition."

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provisions of the APA and TLA are not covenants, Novell argues (at 20) that the Court should rely on Sun II, but should draw exactly the opposite conclusion drawn by that court. In this regard, Novell exalts the form of the APA and the TLA over actual substance and meaning. Novell's reasoning is based on the court's finding of a covenant in Sun II because compatibility was addressed in a separate section from the license grant sections, whereas in the APA and the TLA, the non-compete language is contained in the same section as the license grant. In fact, the only section in the APA to squarely address the license back grant to Novell is Section 1.6 of the APA. The reason for such placement is discussed above. SCO was concerned that the Licensed Technology it licensed back to Novell would be used to create and distribute products that would directly compete with SCO's products. For this reason, it would have been illogical to include a non-compete provision elsewhere in the APA because the non-compete agreement specifically applied to the license-back arrangement. Moreover, whereas the agreement at issue in Sun I and Sun II dealt solely with a license to use Java technology, Sun I, 188 F.3d at 1117, the APA concerned the transfer of Novell's entire UNIX business. (APA Recitals.) Accordingly, it makes sense to state terms regarding Novell's competitive use of licensed technology in the section of the APA that deals with such technology, rather than a generic "covenants" section, and such placement does not indicate that such terms were not intended to be covenants. In addition, Novell misinterprets the use of the word "limitation" by the Sun court. A breach of contract claim depends on whether a promise contained in the underlying agreement has been breached. Regardless of whether the non -compete clause is a limitation on the scope of Novell's license, SCO is entitled to damages for Novell's breach of its promise. The noncompete clause is central to the agreement, it is a promise, a covenant, not a condition. It goes to

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the heart of the agreement because SCO would not have agreed to license back use of the Licensed Technology to Novell if Novell were to be allowed to create and distribute directly competing products. This would have limited or destroyed SCO's market for its own products. As discussed above, and based on the plain language of Cal. Civ. Code § 1434, the noncompete language should be regarded as a covenant by Novell that it would not introduce directly competing products. As such, Novell's development and sale of directly competitive products was a breach of this covenant that entitles SCO to pursue its breach of contract claim. II. SANTA CRUZ'S 2001 SALE OF ASSETS DID NOT TERMINATE THE COVENANTS AT ISSUE. Novell's change of control argument is meritless because Section 1.6 of the APA plainly and unambiguously provides that the license restrictions termination proviso expired before 2001, and in any event did not encompass a change of control to SCO. The entire proviso was based on a "Change of Control of the Buyer as described in Section 6.3(c)" (APA § 1.6) and thus was only effective "[until two (2) years from the Closing Date," and even then it only applied if the acquirer was someone listed "on Schedule 6.3 hereof" (APA § 6.3(c).) SCO was not listed in Schedule 6.3, the second anniversary of the Closing Date was in 1997, and therefore the provision upon which Novell relies is completely inapplicable. Novell does not dispute this. In fact, Novell mentions the two-year limitation only briefly in a footnote (at 24 n.7), and it does not mention the Schedule 6.3 limitation at all. Novell's sole argument appears to be that the TLA "replaces and overrides Section 1.6 of the APA to the extent there is any conflict," and that there is a conflict because the TLA does not expressly mention the two- year term or the Schedule 6.3 list (at 26). Novell does not even suggest any reason why the parties might have intended such a drastic change in meaning, and in fact there is 22

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none. The two agreements must be read together and are easily harmonizable. Even if a potential conflict could be perceived, the relevant extrinsic evidence, including the testimony of Novell's own people, supports SCO's interpretation. Thus, at the very least there are factual issues precluding summary judgment. A. The APA and TLA Must Be Read Together.

Section 1642 of the California Code provides: "Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." Cal. Civ. Code § 1642; Prudential Ins. Co. of Am. v. Fromberg, 240 Cal. App. 2d 185, 189 (1966) ("It is the rule that when written instruments all relate to one single transaction, they should be construed together."); see also In re United Air Lines, Inc., 438 F.3d 720, 727-28 (7th Cir. 2006) (analyzing California law and finding that Section 1642 applies where the "structure of the relationship is such that one agreement cannot be understood in isolation from its counterpart"); Prestin v. Mobil Oil Corp., 741 F.2d 268, 272 & n.4 (9th Cir. 1984) (citing and applying Section 1642 and related precedent). The contracts need not have been executed on the same day to be parts of substantially one transaction. See Boyd v. Oscar Fisher Co., 210 Cal. App. 3d 368, 378 (1989) (citing cases) (attached hereto as Exhibit C); BMP Prop. Dev. v. Melvin, 198 Cal. App. 3d 526, 531 -32 (1988); Nevin v. Salk, 45 Cal. App. 3d 331, 338 (1975); Meier v. Paul X. Smith Corp. , 205 Cal. App. 2d 207, 217 (1962) (citing cases); Cadigan v. Am. Trust Co. , 31 Cal. App. 2d 780, 784-86 (1955) (citing cases). In addition, "Under California law, parties may validly incorporate by reference into their contract the terms of another document." Baker v. Aubry, 216 Cal. App. 3d 1259, 1264 (1989). The reference to the incorporated document must be "clear and unequivocal, the reference must

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be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties." Baker, 216 Cal. App. 3d at 1264 (quotations omitted); accord Shaw v. Regents of the Univ. of Cal., 58 Cal. App. 4th 44, 54 (1997) (citing cases). "The contract need not recite that it `incorporates' another document, so long as it guides the reader to the incorporated document." Shaw, 58 Cal. App. 4th at 54 (citing cases). The APA and TLA easily satisfy the foregoing standards. The same parties of course executed both documents. In addition: The APA calls for the execution of "a license" agreement and the terms thereof regarding the "Licensed Technology" addressed in the TLA. (APA § 1.6.) The TLA provides that its effective date is "the Closing Date of the Asset Purchase Agreement." (TLA at 1.) The first "Whereas" clause of the TLA provides that "pursuant to the Asset Purchase Agreement, NOVELL shall be entitled to retain and to exercise, after the Closing Date, certain licensed for Licensed Technology, including related documentation and support." (TLA at 1.) The TLA provides that the term "Licensed Technology," and several other terms, "shall have the respective meanings attributed to such terms in the Asset Purchase Agreement." The TLA provides that Novell shall have the license set out in the TLA "Effective upon the Closing Date and in connection with the transfer of the Assets by NOVELL to SCO pursuant to the Asset Purchase Agreement." (TLA § II.A.)

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The TLA provides that certain covenants on Novell's license rights "shall not affect any rights specifically retained by NOVELL under the Asset Purchase Agreement." (TLA § II.A(2).) In the Section titled "ENTIRE AGREEMENT," the TLA provides: "This Agreement and the Asset Purchase Agreement constitute the entire understanding between the parties with respect to its subject matter, and supersede all prior understandings, both written and oral, between them relating to such subject matter." (TLA § VIII.) The APA and TLA thus relate to "the same matter," were part of "substantially one transaction," "cannot be understood in isolation" from each other, and refer to each other. Under California law, the two documents must be read together. B. With Respect to the Consequences of Certain Changes of Control, the Language of the APA and TLA Confirm SCO's Interpretation

The APA details the terms of the "license agreement" that Santa Cruz "shall execute" in which Santa Cruz "shall grant to Seller a royalty-free, perpetual, worldwide license" to the "Licensed Technology" as defined therein. (APA § 1.6.) Section 1.6 of the APA further states: The license agreement shall also provide Seller with an unlimited royalty-free, perpetual, worldwide license to the Licensed Technology upon the occurrence of a Change of Control of Buyer described in Section 6.3(c) hereof. (Id.) Section 1.6 goes on to provide as follows: In the event of a Change of Control of Seller (as defined in Section 6.6 hereof), the license