SCO Grp v. Novell Inc

Filing 577

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of January 23, 2007-Motion Hearing before Judge Dale A. Kimball, re 567 Notice of Appeal,. Court Reporter/Transcriber Rebecca Janke, CSR, RMR, Telephone number 801-521-7238. NOTICE RE REDACTION OF TRANSCRIPTS: Within 7 calendar days of this filing, each party shall inform the Court, by filing a Notice of Intent to Redact, of the parties intent to redact personal data identifiers from the electronic transcript of the court proceeding. The policy and forms are located on the court's website at www.utd.uscourts.gov. Please read this policy carefully. If no Notice of Intent to Redact is filed within the allotted time, this transcript will be made electronically available on the date set forth below. Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 1/29/2009. Redacted Transcript Deadline set for 2/9/2009. Release of Transcript Restriction set for 4/8/2009. (jmr) Modified on 4/8/2009 - removed restricted text(rak).

SCO Grp v. Novell Inc

Doc. 577

1 2 3 4 5 6 7 THE SCO GROUP, INC. 8 9 10 ________ ) ) ) ) Plaintiff/Counterclaim-Defendant, ) ) ) vs. ) ) ) ) ) ) ) ) FOR THE DISTRICT OF UTAH, CENTRAL DIVISION IN THE UNITED STATES DISTRICT COURT

Case No. 2:04-CV-139 DAK

11 NOVELL, INC., 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Reporter: Defendant/Counterclaim-Plaintiff.

BEFORE THE HONORABLE DALE A. KIMBALL DATE: JANUARY 23, 2007

REPORTER'S TRANSCRIPT OF PROCEEDINGS MOTION HEARING

REBECCA JANKE, CSR, RMR

1

Dockets.Justia.com

1 2 3 FOR SCO GROUP: 4 5 6 7 8 9 10 11 12 13

APPEARANCES

HATCH, JAMES & DODGE BY: BRENT HATCH, ESQ.

10 WEST BROADWAY, SUITE 400 SALT LAKE CITY, UTAH 84101

BOIES, SCHILLER & FLEXNER BY: STUART H. SINGER, ESQ.

401 EAST LAS OLAS BOULEVARD FORT LAUDERDALE, FLORIDA 33301

14 FOR NOVELL: 15 16 17 18 19 20 21 22 23 24 25

MORRISON & FOERSTER BY: MICHAEL JACOBS, ESQ.

425 MARKET STREET SAN FRANCISCO, CALIFORNIA 94105

ANDERSON & KARRENBERG BY: THOMAS KARRENBERG, ESQ. HEATHER SNEDDON, ESQ. 50 WEST BROADWAY, SUITE 700 SALT LAKE CITY, UTAH 84101

2

1 JANUARY 23, 2007 2 3 4 THE COURT:

SALT LAKE CITY, UTAH PROCEEDINGS *** We're here this afternoon in the For

5 matter of SCO Group vs. Novell, Inc., 2:04-CV-139. 6 plaintiff, Mr. Brent Hatch, Mr. Stuart Singer. 7 8 9 10 11 12 13 MR. HATCH: THE COURT: Good afternoon. Good afternoon.

And Mr. Edward Normand. MR. NORMAND: THE COURT: MR. JACOBS: THE COURT: Good afternoon. For defendant, Mr. Michael Jacobs. Good afternoon, Your Honor. Mr. Thomas Karrenberg, and

14 Ms. Heather Sneddon, correct? 15 16 MS. SNEDDON: THE COURT: Yes, Your Honor. All right. We have Novell's motion

17 for partial summary judgment on the sixth, seventh, 18 eighth and ninth claims for relief or, in the 19 alternative, a motion for preliminary injunction, and 20 SCO's cross motion for partial summary judgment. 21 22 23 24 25 Who is arguing? MR. JACOBS: THE COURT: MR. JACOBS: THE COURT: I will for Novell, Your Honor. Okay. Mr. Jacobs?

That's correct. You're going to argue everything

3

1 for defendant. 2 3 4 Honor. 5 THE COURT: Well, since you're not splitting And, Mr. Singer? MR. SINGER: I'll be arguing for SCO, Your

6 arguments, can you argue the motions together; in other 7 words, you can argue -- while you're arguing, Mr. Jacobs, 8 about your motions, you can tell me why I shouldn't grant 9 the cross motion. And, Mr. Singer, while you're arguing

10 against Novell's motions, you can tell me why I ought to 11 grant this cross motion. 12 you need? 13 MR. JACOBS: Ten or 15 minutes, Your Honor, All right. How much time do

14 would be fine. 15 16 17 minutes. 18 THE COURT: Okay. And then I'll give you each THE COURT: MR. SINGER: Mr. Singer? Your Honor, I would ask for 30

19 a few minutes on rebuttal. 20 21 Go ahead, Mr. Jacobs. MR. JACOBS: Your Honor, I apologize. I seem

22 to have gotten a little gravel in my throat, so if you 23 have any trouble hearing me, please let me know. 24 motion for -25 THE COURT: It doesn't sound like it's going to On this

4

1 make it any harder to hear you. 2 Go ahead. 3 4 Honor. 5 6 THE COURT: MR. JACOBS: MR. JACOBS:

It might make it easier.

I'm reminded of Demosthenes, Your

Take the rocks out of your mouth. On this motion for summary

7 judgment and preliminary injunction, Your Honor, we have 8 two powerful things going for us. The first is SCO's

9 acknowledgement that they're a fiduciary for Novell when 10 it comes to the administration, collection and remittance 11 of SVRX royalties. I say "acknowledgement" advisedly.

12 We made quite an issue out of this in our opening papers. 13 They did not contest it in their opposition, and we 14 brought the issue home in our reply brief. 15 It's really a very important aspect of the

16 motion because it changes what might be seen as two 17 contesting versions of the situation into -18 THE COURT: But it would still leave open,

19 wouldn't it, the question of what SCO might be a 20 fiduciary of? 21 MR. JACOBS: Exactly. And the contract defines But because they

22 the scope of its fiduciary obligations.

23 are a fiduciary, they have certain duties not to play 24 around the edges of those obligations, and they have a 25 duty to act in the utmost good faith. We know these

5

1 doctrines well.

Most importantly, they have a duty to

2 put Novell's interests above their own when it comes to 3 the SVRX license royalty fiduciary duty that they 4 undertook through their predecessor in the Asset Purchase 5 Agreement. 6 So then that does bring us to the question of: And that is defined by

7 What is the scope of the duty? 8 the contract.

And that's the second thing we think We were joking among This is an The

9 powerfully argues in our direction.

10 ourselves preparing for this argument. 11 argument about the three alls.

And the alls are:

12 all royalty fees and other amounts due in 4.16A; all SVRX 13 licenses, also in 4.16A; and then in the annex that lists 14 the SVRX releases, the all contracts relating to the SVRX 15 licenses listed below. 16 17 18 THE COURT: MR. JACOBS: THE COURT: So it's a-l-l-s, not a-w-l-s? That's right, Your Honor. Think about this question, and you

19 don't need to get to it now. 20 21 MR. JACOBS: THE COURT: Sure. But if you have here -- part of the

22 relief you seek here is equitable. 23 24 25 contract. MR. JACOBS: THE COURT: Yes. And yet you're relying on a And, if so,

Does that make any difference?

6

1 what difference does it make, if you have a breach of 2 contract but you still seek this equitable relief based 3 on breach of contract? 4 in your mind. 5 MR. JACOBS: I think that's -- so, the Supreme Anyway. Have that rolling around

6 Court I think has helped us out on this issue recently 7 and, to some degree, trumped some of the case law that 8 might have preexisted on this question. I think I'm not

9 going argue that, on that breach of contract claim, where 10 our remedy is at law, that we have a constructive trust 11 remedy. I don't think I need to reach that point because

12 we are defined in the agreement as the equitable owner of 13 the SVRX royalties because they are a fiduciary 14 collecting for our benefit. 15 That set of predicate relationships, if you It's

16 will, sets up the claim for a constructive trust.

17 our property that they are holding in trust for us, and 18 it's defined that way in two ways: One. The strict

19 letter of the agreement, which allocates to us this 20 ownership interest; and, secondly, the fiduciary 21 arrangement that arises out of the contract. 22 So I think maybe the harder question is: Can a Can a

23 contract establish a fiduciary relationship?

24 contract allocate ownership in the way it does and not 25 convert the remedy that we would have, because it's in a

7

1 contract, to a legal remedy? 2 And I think the answer to that clearly, under

3 California law, is that the contract doesn't change the 4 essence of the claim. The fact that the relationship or

5 the ownership interests arise out of the contract doesn't 6 change this from a legal to an equitable -- doesn't 7 change this from an equitable to a legal claim, and, 8 therefore, we have a claim to a constructive trust, and 9 we have a claim to a preliminary injunction establishing 10 a constructive trust. 11 I think, concededly, we have a much harder row

12 to hoe if we are making strictly a claim at law as a 13 breach of contract action. That's why that first

14 doctrine, that fact that this is a fiduciary 15 relationship, is so important to the ultimate relief we 16 seek, as well as the way it, if you will, biases the 17 analysis of the provisions of the contract. 18 So, on the scope of the fiduciary relationship,

19 it's worth pausing on the specific language for a minute. 20 I don't know if you have the Asset Purchase Agreement 21 handy. 22 23 24 25 THE COURT: MR. JACOBS: THE COURT: MR. JACOBS: I do. So if you would turn to page 24. Twenty-four. And 4.16A. I'm there.

8

1 2

THE COURT: MR. JACOBS:

Okay. So the language, "All royalties

3 fees and other amounts due," is dispositive here of one 4 of the issues in SCO's opposition. Is it really just

5 royalties due under the binary aspects of the SVRX 6 relationships? Well, it doesn't say "royalties only." So,

7 It says, "royalties, fees and other amounts due."

8 any category of revenue under an SVRX license, regardless 9 of what it is attributed to and regardless of how it's 10 labeled, again, all royalties, fees and other amounts 11 due. 12 Now let me pause here because there is

13 something very interesting going on in the debate between 14 the parties. Their cross motion and their opposition

15 rests heavily on these declarations from business people 16 who have had some varying degree of association with the 17 actual transaction. And I think there is a basic

18 misapprehension about the role of contracts and the role 19 of lawyers that divides the parties on this motion. 20 Business people form -- I'm not telling you

21 anything new, but I thought it's worth articulating 22 what's going on here. 23 idea for a deal. Business people come up with an They model the

They model the deal.

24 transaction based on aspects of the transaction that they 25 understand. One of the aspects of this transaction that

9

1 they apparently modeled was the continuation of the 2 existing SVRX revenues because they could understand 3 that. 4 Lawyers then sat down and drafted an agreement.

5 And lawyers, they are not computer engineers, but they 6 are transactions engineers, and they try to draft 7 language that anticipates not only what the business 8 people might have specifically contemplated by way of the 9 business purpose of the transaction, lawyers try and 10 draft language that covers all contingencies. 11 That doesn't make that any less of the intent

12 of the parties simply because it's the result of the 13 lawyers doing drafting of an agreement. The lawyers are

14 the party at that stage of a relationship and then, of 15 course, the parties ratify what the lawyers do when they 16 sign the agreement. So there's -- what's basically going

17 on here is SCO would have us ignore what the lawyers did. 18 Now, there are ways to do that. They could ask

19 for the contract to be reformed if, in some way, the 20 contract didn't reflect the underlying intent of the 21 parties. But they haven't asked for reformation. They

22 could make an argument for mutual mistake, but they 23 haven't made an argument for mutual mistake. They

24 haven't said the lawyers were incompetent, although there 25 is a theme running through their papers that somehow

10

1 their lawyers didn't capture their intent or, to be more 2 precise, the predecessor's intent in the agreement. 3 It may be that, as the Asset Purchase Agreement It

4 was being drafted, people were working quickly.

5 may be that Novell had all sorts of leverage over old SCO 6 during the time of drafting the Asset Purchase Agreement. 7 That doesn't change the outcome. We look at what the

8 contract says, not what the business people might have 9 thought was the essence of the deal. 10 Now, here, we have one additional important

11 fact, if you will, that reinforces this basic point I'm 12 driving at. There were three months between the signing

13 of the Asset Purchase Agreement and the signing of 14 Amendment Number 1. 15 on. This provision was heavily focused There

4.16 is a major focus of Amendment Number 1.

16 was a lot of opportunity to tweak the language if 17 tweaking would have better conformed the agreement to 18 some different notion of what the transaction was all 19 about. 20 But, in particular, the language, "all

21 royalties, fees and other amounts due, under all SVRX 22 licenses" didn't change. SVRX royalties in Amendment There are various carve

23 Number 1 was used as a category.

24 outs from the category, but those carve outs confirm that 25 the set SVRX royalty is a very large set because certain

11

1 things were exempted from the set explicitly.

They

2 weren't said -- it wasn't not said that these things are 3 not SVRX royalties. It was said that these things which

4 are not SVRX royalties are not part of the payment 5 remittance obligation that SCO incurs. 6 So, these elements of the set help define the

7 set, and that was done three months after the Asset 8 Purchase Agreement was signed. So that's the first

9 "all," all royalties fees and other amounts due. 10 Then the second "all," all SVRX licenses as

11 listed in detail under Item 6 of Schedule 1.1A hereof and 12 referred to herein as SVRX royalties. 13 Now, this part has provoked all sorts of What

14 consternation and argumentation on the other side. 15 is an SVRX license, they ask.

The list of programs that

16 is identified under Section 1.1A makes this a non-issue 17 as far as this motion is concerned because what we 18 demonstrated in our papers is that if you take the SUN 19 and Microsoft agreements and lay them against the list of 20 programs in Schedule 1.1A, it's almost a -- it's a lay 21 down. It's a perfect match up. It's almost as if they

22 took Schedule 1.1A, added and subtracted a little bit 23 from it, but used the exact formulations for the names of 24 the programs in the SUN and Microsoft agreements. 25 So, we don't need to know the ultimate scope of

12

1 SVRX licenses.

We don't need to know how far it could What we

2 possibly reach in order to decide this motion. 3 know is:

If you take that list of programs and you lay

4 it down against the exhibits in SUN and Microsoft, 5 particularly NXB of the Microsoft agreement, the second 6 payment provoking annex of the Microsoft agreement, it's 7 a nearly perfect match up. 8 9 THE COURT: MR. JACOBS: What does "nearly perfect" mean? Well, there are a few additions. There are a

10 I didn't notice any important subtractions. 11 few additions to the list.

In annex B, it's two

12 additions at the top, I think, and everything else lines 13 up perfectly. So are these -- is there -- there are two Are the SUN and Microsoft

14 questions to ask, I suppose.

15 agreements SVRX licenses, or do they represent at least, 16 in part, SVRX licenses? 17 yes. The second. We think the answer to both is

They are at least in part an SVRX

18 license. 19

We think they are also SVRX licenses. And this is where I think the fiduciary One of the obligations of

20 obligation starts to kick in.

21 a fiduciary is to make it possible for the principal to 22 know whether you have collected on behalf of the 23 principal or on behalf of yourself. And you have a duty

24 to prevent the kind of commingling here that's gone on; 25 not commingling only in the sense of the pot of money but

13

1 commingling in the agreements.

So this is where I think

2 the fiduciary duty aspect of this should tilt the -- any 3 concerns that one might have about this lineup of 4 programs against SCO. 5 They had a duty to do this in a way that would

6 not provoke this kind of self-serving, "no, no we are not 7 your fiduciary for this" sort of declaration that they 8 have introduced. 9 Now, if you look, then, at Amendment 1, just to

10 underline the point about the scope of the obligation, I 11 think it's worth walking through that briefly. So the

12 first thing to note is that on page 9 of Amendment 1, 13 which is Exhibit 2 to my declaration. 14 15 THE COURT: MR. JACOBS: Uh-huh. It's in item four. The first line All

16 is amended in its entirety to read as follows:

17 contracts relating to the SVRX licenses and auxillary 18 product licenses collectively SVRX licenses listed below. 19 So what's going on here three months after the asset 20 purchase agreement is signed, are the parties cutting 21 back on the definition of SVRX license? No. They are

22 actually making sure that it's sufficiently inclusive and 23 so, with three months -- with the benefit of three 24 months, if it was rushed at the initial negotiation, it's 25 being cleaned up but, in this respect, not in a way that

14

1 helps SCO. 2 And in the other provisions, the elements of

3 the set that I was referring to here, are really quite 4 telling here because I think they answer all of SCO'S 5 arguments. So really this is a question about the

6 importantance of the language of the contract as against 7 the declarations of the business people that SCO 8 submitted. 9 If you look at page 3, revenues to be retained Buyer shall be entitled to retain 100

10 by buyer, it says:

11 percent of the following categories of SVRX royalties 12 collected by buyer. 13 So what this amendment is doing is making clear They

14 that the following categories are SVRX royalties.

15 would, therefore, fall under the scope of the fiduciary 16 obligation of the payment and remittance obligations of 17 4.16A, but we are going to exempt them explicitly. 18 are not going to define them away. 19 define SVRX more narrowly. We

We are not going to

We are going to take a few And one of them is

20 elements of the set and pull it out.

21 source code right-to-use fees under existing SVRX 22 licenses from the licensing of additional CPU's, proving, 23 we submit, that source code right-to-use fees in all 24 other circumstances are SVRX royalties and are not 25 exempted by the language of the agreement.

15

1

They are not exempted by this Section E of A specific

2 Amendment Number 1 from SVRX royalties.

3 category of SVRX royalties is taken out of the pool of 4 money that has to be remitted to Novell. 5 And then, similarly, in the next little bullet.

6 Source code right-to-use fees attributable to new SVRX 7 licenses approved by seller prusuant to Section 4.16B. 8 So, had SCO obtained approval for source code 9 right-to-use fees under these SUN and Microsoft 10 agreements from Novell, then SCO could have retained 11 those fees. 12 Now plainly, had they -- what the agreement

13 contemplates, then, is some kind of a discussion and 14 negotiation between SCO and Novell under those 15 circumstances. Novell has no obligation to approve a But here,

16 proposed agreement that SCO might enter into.

17 of course, there was no such opportunity to negotiate, 18 and Novell might very well have -- if asked, might very 19 well have declined to approve it, in which case SCO would 20 have been entering into the agreements at its own peril 21 under this provision. 22 So I think that Section E and little Section E

23 on page 3 make it very clear that SVRX royalties is not 24 limited temporally. It's not limited to existing, as

25 against future, and it's not limited as to source code or

16

1 that source code or binary dimension that SCO proposes as 2 a limitation. 3 Now, it is worth pausing for a minute on the

4 actual agreements themselves, and I want to observe that 5 the agreements are under -- I'm talking about the SUN and 6 Microsoft agreements are under seal. It's not our

7 confidential information, so if you want to stop me at 8 some point and propose to Judge Kimball -- however you 9 wish to proceed with this, Your Honor. 10 THE COURT: Do we need to clear the courtroom

11 before you proceed? 12 MR. JACOBS: I think what I will try to do is

13 keep away from something that might be sensitive. 14 15 THE COURT: MR. JACOBS: That would be better, if you can. Okay. So, first of all, with

16 respect to the SUN agreement -- part of SCO's argument is 17 that we should have filed this three years ago, this 18 motion three years ago before we saw the agreement, but 19 it isn't until you see the agreement, for example, that 20 you see that in the whereas clauses, SUN and SCO are 21 specifically referring to a 1994 agreement that is being 22 amended and restated, and that is an SVRX agreement. So,

23 if there is any question about whether the SUN agreement 24 is an SVRX agreement, as opposed to something else, that 25 statement, that this is part of a desire to amend and

17

1 restate the original agreement dating back to 1994, 2 pretty much answers what the intent of these parties was. 3 And then, if you go to the exhibit on the SUN

4 agreement, the list of technology, you will see a list of 5 System V release after System V release. 6 System V technology? 7 that are included. No. Is it alll

There are some other things

But, are the bulk of the listed Absolutely. Is it possible

8 programs System V releases?

9 that one could allocate the value between the various 10 components? Conceivably. Does a fiduciary get to make I

11 that kind of carve up under these circumstances? 12 submit not.

Only with the heaviest of presumptions

13 against them, if they can somehow demonstrate that there 14 is something to be excepted, but demonstrate as a 15 fiduciary has to demonstrate, then perhaps in the 16 accounting that we see, some portion of the SUN money 17 gets retained by SCO. 18 But looking at the purpose of the agreement,

19 and looking at the list of materials that are licensed in 20 the agreement, it's quite plain, we submit, that this is 21 an SVRX license within the meaning of the Asset Purchase 22 Agreement or that, at the the very least, it is, in 23 substantial part, an SVRX license. 24 Now, the only other thing that SCO tries to

25 argue, really, on this point is that it's incidental and

18

1 this falls under the incidental language of 4.16.

But I

2 don't think this is something on which there can be a 3 fact dispute when you look at the list of technology and 4 System V release after System V release is listed there. 5 To say that it's incidental, I think turns incidental 6 into something that it is not. 7 Incidental means by happenstance or by chance

8 or it might, in some minor way be related to, in my 9 dictionary. And I don't see how they can concoct an

10 incidental argument out of this agreement. 11 Now, that brings us to the Microsoft agreement,

12 and it had an interesting aspect to it which we think 13 also answers the question: 14 an SVRX license? Is it, in substantial part,

And that is the structure of the

15 agreement and the fact that, pursuant to an option, there 16 were -- there was a purchase of rights to additional 17 code. And if you compare the two lists -- I won't go

18 into it in detail because of the confidentiality, but if 19 you look at Exhibit A, it starts out with SCO UnixWear 20 and then lists a lot of technologies under it, including 21 the System V kernel in the first bullet. 22 Are you looking -- I'm on page 8 of the

23 Microsoft agreement. 24 25 THE COURT: MR. JACOBS: All right. So if that was what this agreement

19

1 was all about, you might say:

Well, gee, this is just

2 incidental because Exhibit A looks like a license to 3 UnixWear with a Unix component included. But then, if

4 you look at Exhibit C. -- I think I misspoke before. 5 Exhibit C, well, it, too, starts out with references to 6 UnixWear. Pretty soon we're in that body of the

7 additional assets that are listed there that lines up 8 letter perfect with releases on the Asset Purchase 9 Agreement's definition of an SVRX license, so in no way, 10 with Exhibit C, can this aspect of the Microsoft 11 agreement be thought to be an incidental licensing of 12 SVRX associated with UnixWear. The contrast between C

13 and A, we believe, makes that very, very plain. 14 To say it again, Exhibit A is how you would

15 document it if you were going to make an argument from 16 incidentalness, and Exhibit C is an SVRX license with 17 some additional licensing of UnixWear. 18 So we think that basically is the beginning and Now, we don't need to get into the

19 the end of it.

20 extrinsic evidence, but what we thought the extrinsic 21 evidence gave us an opportunity to do was to show Your 22 Honor how, in fact, in the wake of the agreement, the 23 parties' conduct was consistent with the interpretation 24 we offer. 25 And to the extent that gives the Court some

20

1 additional comfort, that we are not twisting the language 2 ten years later, the way it wasn't contemplated, we 3 thought actually their cross motion gave us an 4 opportunity to not get into the facts on the lead motion 5 which rests -- which really, as a matter of law, under 6 the contract, we win. 7 But if you look at the factual material we

8 submitted in opposition to their motion, to their cross 9 motion, you will see that, in fact, in the wake of the 10 Asset Purchase Agreement, the word "source code" was used 11 repeatedly to describe the rights that Novell retained. 12 There was no source binary distinction, in particular. 13 When there were various buyouts, such as the IBM buyout, 14 source code was -- revenues were paid 95 percent to 15 Novell, as well as binary code revenues. 16 So that's only five months after Amendment The Asset Purchase Agreement I think

17 Number 1 is signed. 18 actually closes.

So that's very close in time.

19 I'll stop there and see what important points SCO 20 advances in their motion. 21 22 23 24 THE COURT: MR. JACOBS: THE COURT: MR. SINGER: Thank you, Mr. Jacobs. Thank you. Mr. Singer. Thank you, Your Honor. Your

25 Honor, if I may approach, we have some argument

21

1 exhibits. 2 3 copy? 4 5 6 MR. SINGER: THE COURT: MR. SINGER: I have, Your Honor. Thank you. Your Honor, I would submit that it THE COURT: Sure. Have you given Mr. Jacobs a

7 is an extraordinary motion for summary judgment when a 8 party asks the Court to interpret a contract in direct 9 opposition to what all of the witnesses who were directly 10 involved in the negotiation of the agreement, in setting 11 the business deal, in directing the lawyers, testify was 12 the intent and the effect of that agreement. 13 the situation we have here. 14 declarations. Yet that is

We have submitted nine

Not just from individuals on the Santa

15 Cruz side, but numerous individuals who, at the time, 16 worked at Novell; from the senior executive, such as Doug 17 Thompson to Ed Chatlos, the chief Novell negotiator, to 18 Mr. Maciaszek, who worked throughout this period on these 19 products, and on and on, as well as witnesses on the 20 Santa Cruz side. 21 And they tell a very consistent story, that the

22 intent of this agreement was for Novell to retain 95 23 percent of the royalties on existing SVRX licenses. And

24 by SVRX licenses, they meant binary licenses that went to 25 end users.

22

1

Now, Mr. Jacobs suggests that, well, the

2 business people must not have understood what the lawyers 3 were drafting. First of all, I would submit that

4 position turns on its head the practice of contractual 5 interpretation followed by Courts throughout the country 6 that look at evidence reflecting the intent of the 7 business people, of the parties, and don't assume that 8 somehow the lawyers took it upon themselves to run amuck 9 and recut a different deal. 10 THE COURT: Hypothetically, could a contract

11 provide A, B and C, hypothetically, in the clearest 12 terms, and you could have a situation, then, 13 hypothetically, where most of or many of the people 14 involved say: 15 Well, what we meant was X, Y and Z.

What is a Judge to do, then, hypothetically? Hypothetically, what is

16 I'm not saying that's this case. 17 the Judge supposed to do then? 18 MR. SINGER:

Hypothetically -- and it's not

19 this case -- if the language is not at all open to the 20 interpretation that the witnesses say, then absent issues 21 of reformation and mistake and issues like that, which 22 one would need to go into, you look at the language. If,

23 for example, this was a case of a contract which said the 24 2003 Microsoft agreement and 2003 SUN agreement and the 25 fees related to those agreements should go to Novell,

23

1 that would be a clear statement, and one, then, doesn't 2 have to worry as much about these types of statements. 3 Or, if you had a statement which said that all

4 existing and future licenses for source code and binary 5 or object code are ones on which Novell keeps the 6 royalties, then you might get closer to your hypothetical 7 situation. 8 That is, of course, not the case here. But, not only does one not assume that the

9 lawyers run amuck in interpreting and writing the 10 agreement that is counter to what the business purpose 11 is, one would assume, then, that that would only be 12 counter to what the Santa Cruz witnesses said was the 13 business purpose and that, without negotiating with Santa 14 Cruz, they effectuated the intent of their client on the 15 Novell side. 16 But here we find that the declarations

17 indicate, from Novell as well as Santa Cruz, that they 18 very well understood the intent, that the intent was the 19 same and that the intent was a limited right with respect 20 to existing licenses, with respect to binary and not 21 source code and, as we'll see later, by operation of the 22 amendments, did not apply when you had a distribution or 23 license of SVRX that was incidental to, that accompanied 24 the sale of UnixWear, which was a new product being sold. 25 Now, not only is there this uncontroverted

24

1 testimony from the witnesses most directly involved in 2 the transaction, but it is reflected, as well, in formal 3 public statements by SCO -- by Novell to the public, to 4 the Securities & Exchange Commission. 5 If Your Honor would turn to tab 1 of the book

6 of exhibits, one finds an excerpt, and that excerpt is 7 taken from, at the time, the '95 annual report, the '96 8 annual report, the '96 quarterly reports that Novell 9 filed. And they describe the transaction because the

10 purpose of this transaction was the sale of the business, 11 the Unix business, and it was compensation which Novell 12 received, which was 17 percent of the SCO common stock. 13 It was a future revenue stream based on UnixWear that 14 Novell doesn't discuss that I'll get to later, but, most 15 importantly, they described the issue here by 16 specifically saying that Novell will continue to receive 17 revenue from existing licenses for older versions of Unix 18 System source code, which, again, is consistent with what 19 all the witnesses on both sides say. 20 Now, Your Honor, we would submit that the plain

21 language of the agreement is consistent with and 22 effectuates this intent when one looks at Amendment 1, as 23 well as when one looks exactly at what was put into those 24 agreements. But there is no controversy over the fact

25 that the purpose there was to transfer the entire

25

1 business to SCO and to provide this as a mechanism of 2 paying for that business. And, in fact, the evidence in

3 the record shows that Novell has received from SCO over 4 $200 million in royalties relating to the binary product 5 sales. 6 And the evidence shows that SCO has

7 consistently taken that interpretation in terms of what 8 was paid and also contrary to what Mr. Jacobs says, that 9 Novell, until 2003, never even asked about source code 10 focused on binary license revenue when they audited the 11 revenue stream that these licenses were generating. 12 Now, I'm going to only very briefly talk about We

13 the legal standard that California law applies here. 14 insert two cases at tabs 4 and 5. California law says

15 one uses extrinsic evidence to expose ambiguities and to 16 see if a contract is reasonably susceptible to the 17 parties' interpretation. And here we think whether this

18 was under California law or otherwise, the language goes 19 beyond reasonably susceptible but, in three critical 20 respects, fully supports the arguments SCO is making: 21 One, on the argument of existing-versus-future contracts; 22 two, on the issue of source code in light of Amendment 1; 23 and, third, on the issue of incidental licensing of SVRX 24 in the context of a new UnixWear license. 25 And I'd like to spend some time talking about

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1 each of those points.

First of all, the fact that we And if

2 were talking about licenses existing at the time.

3 one looks at 1.2B, one immediately sees how the language 4 supports that position because what is being defined here 5 is the transfer of SVRX licenses, is only legal title and 6 not an equitable interest. 7 to be existing at that time. Those are licenses that have How else could they appear

8 on the schedule of assets, which is schedule 1, which is 9 being sold? How else can you say that buyer has legal

10 title, if these contracts have not yet come into 11 existence? At the same time, when the drafters of this

12 contract wanted to deal with future sales, they knew how 13 to do so expressly. 14 Later, in the same provision of 1.2B, it talks That's the UnixWear. And it says

15 about future sales.

16 that on account of buyer's future sale of UnixWear 17 products, there will be a payment to the seller. That

18 provision is totally ignored by everything Novell has 19 said in its papers. If they had earned a royalty on That was a

20 UnixWear, they would have received it. 21 limited royalty.

It had to meet certain threshold

22 amounts of sales based on a Novell business plan that did 23 not occur, and it expired in December of 2002 before the 24 contracts at issue here were entered into. 25 But what it reflects is that the drafting of

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1 this agreement was talking about a transfer of 2 licenses -- and we submit you can't transfer something 3 that doesn't exist at that time -- and specifically dealt 4 with future sales with express language. You do not see,

5 Your Honor, any language in this agreement which says 6 future SVRX licenses entered by SCO or the buyer, the 7 revenue from those flow to Novell. 8 anywhere in the document. That is not found

If one follows 1.2 to the What does SVRX

9 reference in 4.16 where the issue is:

10 licenses mean? that refers, in turn, to a schedule. 11 Item 6 of Schedule 1.1A. It says these are

12 listed in detail. 13 in detail.

Of course the licenses aren't listed

If one turns to that provision, one sees just One finds, in other provisions of

14 a product listing.

15 this list of assets being sold -- because that's what 16 this was. This was a schedule of the assets being

17 sold -- references to UnixWear generally, references to 18 software and sublicensing agreement, including source 19 code and sublicensing agreements that the seller has, and 20 those agreements are under a different section here. 21 There is no specific listing of licenses There is no reason to believe that this

22 here in detail.

23 listing was intended to be more than the product 24 supplements which are the actual licenses by which a 25 royalty is generated.

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1

Now, there is an additional reason, looking at

2 4.16B why the parties didn't contemplate any need to deal 3 with future SVRX licenses, and that's found in Subsection 4 B because the expectation here was that the future sale 5 would be of the UnixWare, the new product. And it said:

6 Buyer shall not, and shall have no right to enter into 7 future licenses or amendments of the SVRX licenses except 8 as may be incidentally involved through its rights to 9 sell and license the assets for the merged product or 10 future versions. 11 And later, after the amendment, that was also But

12 expanded to where there was an approval from Novell. 13 the contemplation of the parties was that you weren't 14 going to have future SVRX licenses, which is perfectly 15 consistent with this being understood as meaning the

16 licenses in place which, in turn, is consistent with what 17 every person who has touched this transaction, nine 18 separate declarations, reflect was the intent. 19 Now, if the Court agrees on the issue of this

20 reaching only existing licenses either as a result of the 21 plain operation of the language or if it's reasonably 22 suceptible to that language, that's the end of the issue 23 because the 2003 agreements in question here did not 24 exist back at the time of the APA in 1995, and the result 25 of that should be denying the summary judgment motion

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1 brought by Novell and granting the cross motion. 2 But there is a separate, second issue which And that is the question

3 also leads on to that result.

4 of whether source code license fees would ever go to 5 Novell. Now, Mr. Jacobs suggests that Amendment 1, which

6 was entered into later, in the end of 1995, supports his 7 position. I submit it does not. One should look at what

8 these provisions meant rather than just the terms that 9 they use. Focus not on the fact that somewhere in here

10 there's a reference to source code, but what do these 11 provisions say? 12 They say, under Section 2, that the buyer,

13 that's SCO, shall keep 100 percent of SVRX royalties that 14 consist of source code right-to-use fees under existing 15 licenses from the licensing of additional CPU's or from 16 the distribution by the buyer of additional source code 17 copies. And then, if you have totally new licenses that

18 are approved by the seller, all of those fees also go to 19 SCO, go to the buyer. 20 There is no way, we submit, that you can

21 reconcile this amendment with the idea that some part of 22 source code fees go to Novell. I mean, first of all, it

23 doesn't say any of the source code fees goes to Novell. 24 There is nothing in Amendment 1 which says that. We

25 submit that they have covered the relevant universe in

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1 these two provisions when one considers where source code 2 fees can arise from. And if Your Honor turns to tab 11

3 in our binder, it indicates the four different categories 4 one could conceivably have of these source code fees. 5 One category are the paid-up source code Sun's agreement in 1994 is one of them.

6 agreements.

7 Novell received $84 million with respect to those rights. 8 They kept it all before the transaction. No need for the

9 agreement to treat the paid-up source code agreements 10 because they already have the revenue. If those

11 agreements are being expanded in terms of additional 12 units or distribution, that's the second clause here. 13 That goes to the buyer. If there are new licenses that If

14 are approved by the seller, that also goes to SCO.

15 there was an intent that source code licenses generated 16 revenue that went to Novell, that provision would say 17 Novell has to approve them, but then the revenue goes to 18 Novell. It makes no sense to suggest that there was an

19 intent that the revenue go to Novell when it says that 20 the revenue shall go to the buyer. 21 But then there's the question of: What happens

22 if there is something that is a new source code license 23 but it isn't approved by Novell? And we agree the

24 Microsoft and SUN agreements were not approved by Novell. 25 There is nothing in the APA or Amendment 1 that says that

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1 those fees in that circumstance would go to the seller. 2 We submit that those are properly treated under the 3 incidental language because what was contemplated was 4 that any licensing of source code of SVRX, along with 5 UnixWear, fell within the separate provision of Amendment 6 1 that dealt with that, and that is Section E. 7 Section E said: Notwithstanding the foregoing,

8 buyer shall have the right to enter into amendments of 9 the SVRX licenses, as may be incidentally involved to its 10 rights to sell and license UnixWare software or the 11 merged product or future versions of the merged product. 12 And it also provides that a licensee, such as

13 SUN, under a particular SVRX license, can be allowed to 14 use the source code on additional CPU's or to receive an 15 additional distribution from the buyer of such source 16 code. 17 So, through these provisions, which do not

18 require the approval of Novell, SCO was able to conduct 19 its business, sell UnixWare and, as I believe five 20 different witnesses have testified in their declarations, 21 it was a customary and ordinary part of that business 22 when you licensed a new product, when you licensed 23 UnixWare, to provide a license to the Legacy product as 24 well to go along with it. 25 incidental. That is what is meant by

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1

Now Mr. Jacobs suggests, without anything in

2 the record to support him, that this Court should 3 determine, as a matter of law, what's incidental by 4 counting up the lines on a product license or the number 5 of times that certain products on .6 appear on that list. 6 There is no basis in law or in fact for that. One looks

7 either at the agreement -- and this agreement does not 8 define what incidental means -- or one looks to what the 9 business people say was meant by incidental. 10 Here five witnesses, again both on the Novell

11 and the SCO side, say this is what was meant when you 12 license older Legacy products along with the UnixWare 13 current product. And that was specifically authorized,

14 and that is where the Microsoft and SUN agreements fall 15 within their treatment of the agreement. 16 So those agreements mean, first of all, that

17 because these are not existing SVRX licenses, they are 18 not subject to Novell's royalty rights. Number 2,

19 because they deal with source code, not binary rights, 20 the revenue certainly does not flow to Novell. And,

21 number 3, they fall squarely within this provision both 22 on the language here and as interpreted by the extrinsic 23 evidence of what was intended. 24 Now, Mr. Jacobs also says that his position on

25 source code is supported by Amendment X, which was an

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1 amendment that was entered into with IBM, and he suggests 2 that's because 95 percent of the revenue in that 3 Amendment X actually went to Novell. But, as we point

4 out at tab 12, it made perfect sense for that revenue to 5 go to Novell because that revenue related to expanded 6 binary rights. And Amendment X expressly provided that

7 when you are dealing with future source code rights, that 8 would be dealt with differently. 9 Section 1 of Amendment X said that upon payment And then -- this

10 to SCO, they would have these rights.

11 is the third bullet point under tab 12 -- however if IBM 12 requests deliveries of additional copies of source code, 13 IBM will pay certain fees that were then listed under a 14 separate topic. That would be in addition to the money That

15 that was paid when Amendment X was entered into.

16 money properly went -- at least 95 percent of it properly 17 went to Novell completely consistent with the 18 interpretation of the agreement that we, and the 19 witnesses who were there and operated these agreements, 20 testified to in their sworn declarations was the intent. 21 If one turns to tab 13, Your Honor, one sees

22 references to the declarations of Ms. Acheson, 23 Mrs. Broderick, Mr. Maciaszek, Mr. Chatlos, and Madsen, 24 all of which support the view that these products 25 commonly included -- or these licenses of UnixWare

34

1 commonly included licenses of SVRX.

Incidentally,

2 because the licensee wanted to have those rights and it 3 was authorized, it's exactly what was intended by the 4 language of Amendment 1. 5 Now, beyond the language of the agreements

6 which we've been talking about and beyond the intent of 7 the witnesses, the course of conduct on both Novell's 8 side and SCO's side is completely consistent with our 9 interpretation. 10 If Your Honor turns to tab 14, we indicate

11 that, in 1998, Novell conducted an audit of SCO's royalty 12 payments. That was in accordance with their rights. The

13 representatives at that time did not ask for anything 14 other than their reports of binary royalties from the 15 SVRX licenses that existed at the time of the APA, and 16 they never asked about the licensing of the source code. 17 That is powerful evidence that supports the other 18 evidence as to how the parties understood these 19 agreements. 20 It is only in 2003, after litigation

21 developed -- and this is now many years after the 1995 22 APA, eight years later -- that Novell starts asking about 23 source code. We submit, the relevant course of conduct

24 evidence is how, in the immediate aftermath of the 25 agreement, they, by their actions, interpreted those

35

1 provisions. 2 How about on the Santa Cruz side? If one turns

3 to tab 15, you see, based on this record, that Santa 4 Cruz's conduct is also consistent with SCO's position. 5 There's an April 23, 1996 letter which talks specifically 6 about the APA providing for Novell to receive the 7 residual royalties from the in-place SVRX license stream. 8 There was the fact that that is what Santa Cruz paid and 9 reported to Novell. They didn't pay anything else. So

10 this is not some new interpretation that SCO has moved to 11 in the last year or just with respect to the Microsoft 12 and SUN agreement. This is consistent with how SCO and

13 its predecessors have operated under these agreements 14 going all the way back. 15 There was a particular instance involving Craig

16 Computers where Santa Cruz reminded Novell it had no 17 right to negotiate source code right and fees, and Novell 18 agreed. And, of course, Santa Cruz and SCO has paid over

19 $200 million in SVRX binary royalties based on this 20 interpretation. 21 Now, if Your Honor turns to tab 16, we go a

22 step beyond opposing Novell's motion for summary judgment 23 and deal with our cross motion. And it's been an

24 interesting evolution in the language with which Novell's 25 attorneys in this case have used to describe the issue.

36

1 When they initially filed their motion for summary 2 judgment, they said: 3 4 say: Well, this is clear.

In opposing our summary judgment motion, they Well, we think the language is reasonably

5 suceptible to their interpretation. 6 We don't think that's true for the reasons that

7 I've outlined regarding the agreement, but even if that's 8 true, they have not come forth with any competent 9 evidence to counter the nine declarations of people who 10 were there on both sides of the transaction with personal 11 knowledge, explaining that only existing SVRX licenses 12 were covered and that source code license fees were not 13 covered. The only reference that they make is to a

14 testimony from Mr. DeFazio who provided a declaration in 15 the IBM case, and that declaration, while it talks about 16 source code, does not in any way dispute the fact that 17 the only licenses which Novell retained revenue on were 18 the existing licenses. So even if one looked at

19 Mr. DeFazio's declaration, that does not create a factual 20 dispute there. 21 Simply put, Novell has no witness directly

22 involved in the negotiations who supports their position, 23 and both sides' witnesses support ours.. 24 Now, what is the impact, then, on the SUN and If one looks at tab 17 as a

25 the Microsoft agreements?

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1 matter, then, of undisputed fact, the SUN agreement was 2 not a license in existence at the time of the APA. 3 was, therefore, not transferred by Schedule 1. It

Secondly,

4 it's a license for UnixWare as to which, based on this 5 record, the SVRX licenses, five different witnesses 6 support is incidental, and therefore it was authorized by 7 the buyer to enter into it, and none of the revenue flows 8 to Novell. 9 I don't even think we get to the third bullet If Novell did have rights,

10 point which is an issue of:

11 one would have to allocate how that fell within the 12 agreement. 13 If one turns to the next tab, tab 18, the same The

14 is true with respect to the Microsoft agreement.

15 Microsoft agreement did not exist at the time of the APA. 16 It was not subject to schedule 1. 17 Section 1.1 B. It was not subject to

Neither legal title or any other title Number 2, any licensing of

18 transferred at that time.

19 SVRX was incidental to the UnixWare license for the same 20 reason. And, third, if you looked at an allocation of

21 what was being treated there, contrary to Novell, the 22 Microsoft agreement does not provide for $8 million going 23 to the licenses that -- for SVRX. 24 Mr. Sontag, in his declaration, directly

25 explains, at length, that that section of the agreement

38

1 provided Microsoft with broader distribution rights for 2 UnixWare, and there is no counter to Mr. Sontag's 3 testimony on that point. 4 The UnixWare license basically was expanded by

5 this section of the Microsoft license that Novell 6 suggests only brought these other products, these Legacy 7 products, into play. 8 Now, I'm not going to take the Court's time

9 with all the other issues that we have briefed that one 10 only reaches in the event one were to find against us and 11 be prepared to either conclude it as a summary judgment 12 matter or as a likelihood-of-success matter on a 13 preliminary injunction. We have briefed those. We have

14 undisputed evidence that we have larger claims for 15 copyright infringement against Novell than these claims. 16 We show that, as a matter of law, the risk of

17 uncollectibility of a judgment is not a basis for an 18 injunction and that, if they wanted to pursue something 19 like that, they had to do it under Utah's Pre-judgment 20 Attachment Statute; that a constructive trust requires 21 proof that there is in existence today proceeds traceable 22 to these funds received in 2003, which Novell has no 23 evidence on; and that, in any balancing of the equities, 24 one does not have the effect -- I mean, Novell likes to 25 say that SCO is on the point of bankruptcy. It has no

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1 proof of that.

SCO obviously has been managing tight

2 cash situations for some years, and it is planned to be 3 in a position to continue through to conclusion of this 4 litigation doing that. 5 The only thing that's clear is that if this

6 injunction issued, it would greatly complicate and 7 undermine SCO's ability to do so and that there is a 8 public interest, particularly given the intellectual 9 property rights here being involved in SCO being allowed 10 to fully vindicate in litigation those rights. 11 So, for all of those reasons, even if one got

12 through the merits issues that I have devoted most of my 13 time discussing because I think that's the key here, one 14 should not, under any circumstances, consider the relief 15 which is being suggested here. 16 One last point. The issue is not fiduciary

17 relationships.

We have not contested a fiduciary

18 relationship with respect to collecting money, but a 19 fiduciary relationship doesn't extend beyond what the 20 contract establishes here is the proper scope of that. 21 It only kicks in once the Court were to conclude that an 22 SVRX license is implicated by the Microsoft and the SUN 23 agreements. Other than that, there is no case law or

24 anything else that says that the Court interprets the 25 contract any differently, just because, the way the

40

1 parties set this up, we would collect and hold the money 2 for them and then transmit it to them. 3 This is an issue of contract interpretation,

4 and it's an issue on which all of the evidence, the 5 language, nine declarations, the course of conduct, 6 everything, points in favor of SCO. 7 8 9 THE COURT: Mr. Jacobs. MR. JACOBS: I would like to lever off of SCO's Thank you.

Thank you, Mr. Singer.

10 reliance on a provision of the Asset Purchase Agreement 11 that helps explain why there are no declarations that 12 deal with this circumstance. As SCO knows, under Section

13 4.16, it wasn't supposed to enter into new SVRX licenses. 14 It was barred from doing so. I offer -- for purposes of

15 this motion, let's assume that no business person present 16 at the negotiation of the Asset Purchase Agreement or on 17 the periphery of those negotiations contemplated that, in 18 2003, old SCO would have sold its business to new SCO, 19 that new SCO would have decided that there's not much 20 profit in UnixWare and instead it's going to launch the 21 SCO Source intellectual licensing campaign. 22 Let's assume that for a minute because I

23 suspect it may well be true that no one, in 1995, 24 contemplated what SCO has wrought over the last three or 25 four years. But that doesn't answer the question: Did

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1 the lawyers draft language covering that exigency? 2 Studiously missing from SCO's argument is any explanation 3 of how "all" doesn't mean "all." 4 "All" can only mean "all." 5 "all." "All" does mean "all."

"All" can't mean less than

The lawyers drafted language that covers the What if SCO takes this set of rights in SVRX

6 situation.

7 and in violation of the agreement, goes out and gets more 8 SVRX revenue? Who gets that money? The fiduciary

9 relationship established by Section 4.16 answers that 10 question. I imagine it's a little bit like the situation

11 where a client hires a lawyer and the lawyer sues, with 12 the client's permission, A, B and C based on some 13 fundamental right. And then the lawyer, without the Does the

14 client's permission, goes off and sues D. 15 client get the recovery? 16 recovery. 17

Of course the client gets the

And that's, in essence, what has happened here.

18 SCO, without authority from Novell, went out and got more 19 SVRX money, a lot of it. And the contract tells us that

20 that money is within the scope of SCO's fiduciary 21 obligation to Novell and that it must remit it and that 22 failing to remit it, we are entitled to an accounting and 23 a constructive trust. 24 That answers all these questions that SCO

25 raises about course of conduct, about the declarants

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1 because I offer to stipulate for purposes of this motion; 2 in fact, I offer to stipulate it for purposes of society 3 at large, no one really contemplated what SCO has done 4 with SCO Source. 5 6 THE COURT: MR. JACOBS: Stipulate it for society at large? That was a pretty broad

7 stipulation. 8 9 THE COURT: MR. JACOBS: It might exceed your authority. The authority of all of us is a

10 little limited. 11 was:

I think, just to clarify, what I meant

This change of business strategy by SCO, by new

12 SCO, by Caldera renaming itself as SCO was, as we all 13 know because of the attention this case has gotten, an 14 extraordinary event in the life of the computer industry, 15 and I dare say few, if anybody, contemplated that the 16 1995 asset purchase agreement would, by virtue of the 17 chain that we have seen, lead to this campaign that SCO 18 launched. 19 That doesn't -- the fact that that set of

20 circumstances may not have been contemplated by the 21 business people doesn't negate the legal effect of the 22 language the lawyers drafted. 23 24 25 THE COURT: Mr. Singer. MR. SINGER: Your Honor, I'll be very brief. I Thank you, Mr. Jacobs.

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1 don't see how SCO Source has really anything to do with 2 this. To the extent SCO entered into certain SCO Source

3 licenses, those clearly are not covered by anything in 4 the relevant agreements here from which Novell would 5 receive any share of revenue. The focus on "all," by "All" modifies SVRX

6 Novell, does not answer this case. 7 licenses.

The SVRX licenses have to be the SVRX licenses Otherwise you can't transfer

8 in existence at that time. 9 the title.

Otherwise, it doesn't make any sense in the

10 context of the agreement. 11 Similarly, "all" does not mean "all" after

12 Amendment 1 because, at that point, indisputably, source 13 code fees for both amended licenses and new licenses with 14 approval go to SCO, not to Novell. 15 changed "all" in that respect. 16 And, thirdly, "all" does not mean "all" when So, clearly, that

17 you have language in the agreement, Section J of 18 Amendment 1, that makes clear that incidental 19 distributions and licenses of SVRX are okay as long as 20 it's in the context of the selling of the new or merged 21 products. 22 And that's what we have here. I would suggest to the Court, if it has any

23 question about that, it could look in Exhibit 3 to the 24 Microsoft agreement which specifies Open Unix products, 25 distribution rights for UnixWare and things which go well

44

1 beyond the listing of SVRX licenses.

You have only one

2 side offering evidence in this record that what was done 3 there was incidental to the licensing of UnixWare. And,

4 therefore, the plain language of the agreement is carved 5 out of those provisions, those SVRX royalties on existing 6 licenses, which Novell enjoys and continues to enjoy 7 revenue that currently has generated more than $200 8 million to Novell. They do not have a right to the

9 revenue from the Microsoft and SUN agreements 10 11 Thank you, Your Honor. THE COURT: Thank you. Thank you both. I'll

12 take the matter under advisement and get a ruling out in 13 due course. 14 15 16 17 18 19 20 21 22 23 24 25 (Whereupon the proceedings were concluded.) We'll be in recess.

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1 2 3 STATE OF UTAH 4 5 COUNTY OF SALT LAKE 6 7 I, REBECCA JANKE, do hereby certify that I am a REPORTER'S CERTIFICATE ) ) ss. )

8 Certified Court Reporter for the State of Utah; 9 That as such Reporter I attended the hearing of

10 the foregoing matter on January 23, 2007, and thereat 11 reported in Stenotype all of the testimony and 12 proceedings had, and caused said notes to be transcribed 13 into typewriting, and the foregoing pages numbered 1 14 through 45 constitute a full, true and correct record of 15 the proceedings transcribed. 16 That I am not of kin to any of the parties and

17 have no interets in the outcome of the matter; 18 19 May, 2007. 20 21 22 23 24 25 _______________________________ REBECCA JANKE, CSR, RPR, RMR And hereby set my hand and seal this 3rd day of

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