SCO Grp v. Novell Inc

Filing 583

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of 5/25/05 - argument on Motion 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 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 2/17/2009. Redacted Transcript Deadline set for 2/27/2009. Release of Transcript Restriction set for 4/27/2009. (jwt) Modified on 4/27/2009 - removed restricted text(rak).

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SCO Grp v. Novell Inc Doc. 583 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -vsNOVELL, INC., IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION ----------------------------- SCO GROUP, et al., Plaintiffs, Defendant. ) ) ) ) ) ) ) ) ) ) ) 2:03-CV-139 K BEFORE THE HONORABLE DALE A. KIMBALL DATE: MAY 25, 2005 REPORTER'S TRANSCRIPT OF PROCEEDINGS ARGUMENT ON MOTION Reporter: REBECCA JANKE, CSR, RMR 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 FOR THE DEFENDANT: MORRISON & FOERSTER BY: MICHAEL A. JACOBS, ESQ. FOR THE PLAINTIFF: BOIES, SCHILLER & FLEXNER BY: EDWARD J. NORMANDD, ESQ. SEAN ESKOVITZ, ESQ. 333 MAIN STREET ARMONK, NEW YORK 10504 APPEARANCES 425 MARKET STREET SAN FRANCISCO, CALIFORNIA 94105 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MAY 25, 2005 SALT LAKE CITY, UTAH PROCEEDINGS *** THE COURT: We're here this afternoon in the matter of the SCO Group, Inc., vs. Novell, Inc., 2:04-CV-139. Plaintiff is represented by Mr. Brent Hatch, Mr. Sean Eskovitz, Mr. Ed Normand, correct? MR. HATCH: THE COURT: Correct, Your Honor. Defendant by Mr. Michael Jacobs, Mr. Thomas Karrenberg and Mr. John Mullen. MR. KARRENBERG: THE COURT: That's correct, Your Honor. This is defendants' motion to dismiss the Amended Complaint, correct? MR. KARRENBERG: MR. HATCH: Correct. Yes, Your Honor. Mr. Jacobs will handle the MR. KARRENBERG: presentation, Your Honor. THE COURT: Mr. Jacobs. Who's going to argue for the plaintiff? MR. HATCH: THE COURT: Mr. Normand will, Your Honor. Mr. Normand. There was some talk in one Go ahead, Mr. Jacobs. of the briefs about treating this as a motion for summary judgment? MR. JACOBS: Yes, Your Honor. 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: inclined to do that. into it briefly. MR. JACOBS: That seems premature to me. I'm not I guess somebody could try to talk me I'll try briefly, Your Honor. They submitted documents outside of the record, of the Complaint. The rules are clear. The Tenth Circuit has been very strong on this, that if you go outside the record and you submit additional evidence, you risk conversion of the motion into summary judgment. Your Honor. But it is your call, I think you have a lot of discretion in this area and, given your initial inclination, I think I'll argue this as if it's a motion to dismiss. THE COURT: Why don't you do that. Take a minute at the end and try to persuade me otherwise. MR. JACOBS: First, Your Honor, I want to note the overlap of the issue in this case with the SCO v. IBM case that you are handling. I believe Your Honor will recall that there is a -- that the same copyright ownership issue that underlies the slander-of-title claim here is at issue in SCO v. IBM, and, in the IBM case, IBM moved for summary judgment. In your order of February 9, you noted that that issue was out, and I just wanted to make sure we keep you informed of the crossovers here. THE COURT: MR. JACOBS: I do know something about that. Yes. You noted in your order, first 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of all that SCO had made a -- that there was a plethora of public statements concerning IBM's and others' infringement of SCO's purported copyrights to the UNIX software. then you observed that SCO, in its briefing, chose to cavalierly ignore IBM's claims that SCO could not create a disputed fact regarding whether it even owned the relevant copyrights. And this is since we filed the motion to dismiss. There was a motion for summary judgment on And ownership, and SCO could not create a disputed issue of fact on ownership. Looking at our motion, Your Honor, it seems to me, just stepping back from the briefing, there are two things that leap out. One is that, in trying to argue that they have well-pleaded the issue of malice, SCO has shifted gears in their theory of ownership. On the original motion to dismiss, they were arguing the Asset Purchase Agreement plus Amendment Number 2. And you parsed the language of those carefully in your original order and gave us your views on what they meant. And what Your Honor said about the Asset Purchase Agreement was that it was undisputed that it, standing alone, didn't transfer copyright ownership. In arguing that their Complaint is well-pleaded, what SCO has done, notwithstanding that reading of the underlying documents that they attached to their Complaint, 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 what they have done is gone back and said that the Asset Purchase Agreement transferred copyright ownership, and that's why their Complaint is well-pleaded, that's why they can show malice. That they have had to do this I think tells us that there are problems with the pleading in their Complaint. The basic issue on the motion to dismiss side If the Asset Purchase Agreement of this, I think, is this: indisputably didn't transfer ownership, and if they can't -- and if they are still arguing that it did, does it suffice, for the purposes of an allegation of malice, merely to say "malice" and attach other malice-like words to it? That can't be the standard on a motion to dismiss when there is a record like the record you have before you on this motion. It's a well-pleaded Complaint that we look at, and we construe only reasonable inferences in their favor. And if what they have to do to argue to you that we acted maliciously in asserting that -- we, Novell, acted maliciously in asserting that we believe we owned the copyrights, is point to an agreement that you have already construed and said it's undisputed that it doesn't transfer copyright ownership, then I don't see how they overcome their pleading burden. I call it a pleading burden, but I think really 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 what we are saying is, if you look at this Complaint, the allegations are controverted by the very documents that they attach to their Complaint, and that doesn't pass pleading muster. So, the first point, the first title of the point was, they have gone back and they are now looking at the Asset Purchase Agreement and saying that, on a stand-alone basis, transferred copyright ownership. Number 2 was merely confirmatory. support that. They say Amendment The documents don't To argue it, to base your allegations on it, is to make allegations that are controverted by the underlying documents. The second point that leaps out is this: In our opening memorandum on this motion, we pointed out that part of the back-and-forth between the parties was a letter from Novell to SCO in which Novell says, "The fact that you came to us and asked us to transfer the copyrights to you, and we refused, tells us that we own the copyrights." We flagged that in several places in our opening brief. SCO's opposition doesn't even treat that issue. They don't mention this once, and so our basic -- at a very simple intuitive level, our argument to you is this: How can it be that if they came to us and asked us to transfer to them the copyrights, they can now turn around and say it's malicious for us to claim that we own the copyrights? 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The two don't go together, and, once again, what we're saying is, this allegation of malice is controverted by the underlying record, the record that's within the four corners of the Complaint. Complaint. You don't need to go outside the It's The letter is a letter they averted to. properly in the record on the motion to dismiss. So we have two gut-level instincts or two gut-level points to make on this motion to dismiss. One. If we have a meritorious argument on ownership, then just saying malice can't controvert the basis for that, where the basis for that appears in the four corners on the Complaint. And, number 2, taking that a step further, where the four corners of the Complaint show that they came to Novell and asked Novell to transfer copyright ownership to SCO, it can't be malicious for Novell to say, having not transferred copyright ownership in response to that request, it can't be malicious for Novell to say, "We own the copyrights." And no amount of argument about the standard on a motion to dismiss will overcome that basic controversion of their essential theory. the motion to dismiss. That's the core of the argument on We went off and did some exegesis on conditional privileges, on the proper standard on malice, but I don't think you need to reach a lot of those issues in order to decide the motion. I'm happy to 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 entertain questions and try and pars where the law is on the motion to dismiss. I think that's -- just maybe one note on it. think the basic issue between the parties is whether the restatement applies, and if the restatement applies, then the conditional privileges apply and then we have this argument from structure and logic that the standard on malice has to be higher to overcome the conditional privileges because, as Your Honor noted in the original order, knowing falsehood is an element of a claim of slander of title. So to say knowing falsehood is a sort of If it's just knowing falsehood is I recursive problem here. sufficient to overcome the conditional privileges, then we haven't done anything to a defendant to protect the interests that the conditional privileges protect if we just leave the standard at knowing falsehood. One reason to think of this as a motion for summary judgment is you then don't have to worry about our successive motion to dismiss issue, which they briefed -the parties briefed well. I would note a couple of things, One is though, on the successive motion to dismiss issue. that in response to your -- to your earlier order's mandate that they clarify their pleading of special damages, their clarified pleading highlighted the availability to us of a conditional privilege because their point on pleading 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 special damages was that the -- that Novell's assertion of ownership caused people that they were communicating with not to take licenses. And our point is, on a conditional privilege, that is exactly right. issue of ownership. These are interested parties in the We properly communicated with them. We are, therefore, We didn't overly communicate with them. eligible for the conditional privilege, and we cite their additional pleading of special damages. I think one reason to treat this as a motion for summary judgment, Your Honor, is, I believe the following is true. slander-of-title case. This is not a It is, at best, a declaratory judgment of copyright ownership. That's what they should have pled originally. That's what they certainly should have pled in response not only to our original motion but to your order. Your order should have said to SCO -- if I were in SCO's shoes, and I get an order, which the order says, "Novell has some persuasive arguments here," how then do I turn around and just refile allegations of malice? How do I satisfy my Rule 11 obligations to just say malice, when the Court's order; well reasoned, articulate, detailed, says persuasive arguments? And that's the basic problem here. However you kill this claim, whether on a motion to dismiss or a motion 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 for summary judgment, this is not a slander-of-title case, and SCO must have some strategic reason for trying to treat it as a slander-of-title case. I think they want the community out there to believe that they have a slam dunk on copyright ownership and so if they plead it as a declaratory judgment of copyright ownership, they must feel they are going to be conceding what we all know to be true, which is that there is a real horse race here of who owns these copyrights. And I don't think any of us are really going to know, really going to know in a positive sense, until you rule on the ultimate question of who owns the copyrights. Again, though -THE COURT: You say I can grant the motion to dismiss without even reaching that question, right? MR. JACOBS: That's exactly right. You can grant the motion to dismiss the slander-of-title claim, and our argument to you is you should do it with prejudice because they have had several chances to plead it right. What it really is -- and to use this courtroom for some outside strategic purpose is not something that should be countenanced. It's a declaratory judgment of copyright ownership at best. They didn't plead it that way. The slander-of-title claim should be dismissed. Maybe it 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 should be dismissed on both theories. a summary judgment. They converted it to They haven't created a disputed issue of fact, but if we didn't convert it to a summary judgment, looking within the four corners of the Complaint, their allegations of malice are controverted within those four corners. Thank you. THE COURT: Mr. Normand. MR. NORMAND: name is Ted Normand. Good afternoon, Your Honor. I represent the SCO group. My Thank you, Mr. Jacobs. I'm going to be alluding to some slides in binders that I will be giving to opposing counsel. THE COURT: MR. NORMAND: All right. Thank you. Your Honor, this is Novell's second motion to dismiss challenging SCO's claim for slander of title. In its first motion, Novell argued that SCO had not adequately pleaded the falsity or special damage elements of its claim. The Court ruled on that motion in June, 2004 and held that SCO had adequately pleaded the falsity element of the claim but had not adequately pleaded the special damages. Let me quote the relevant portion of the Court's order. At Tab 2 the Court said, "Drawing all inferences in favor of SCO, which this Court must do on a motion to dismiss, this Court cannot conclude that SCO can present no 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 set of facts that would prove this claim." SCO, thereafter, filed an Amended Complaint in which it pleaded special damages. SCO's allegations concerning the other elements of this claim remain the same. Novell then filed its second motion to dismiss. In that motion, Novell does not challenge the sufficiency of the allegations of the malice element of SCO's claim. It does not challenge the sufficiency of the allegations of any other element of the claim. Instead, Novell argues that where Novell has asserted a colorable legal argument on the ownership issue, it must follow that Novell, when it has made claims of ownership, did not act with malice. Now, of course Novell could have made that argument in its first motion to dismiss and has not disputed that fact. Novell's motion to dismiss fails for three independent insufficient reasons. argument in its second motion. First, Novell waived the Under Tab 3, Your Honor: Rule 12(g), a party shall not thereafter make a motion based on the defense or objection so omitted from its initial motion to dismiss. In tab 5, Your Honor: Under 12(g), the filing of an Amended Complaint will not revive the right to present, by motion, defenses that were available but were not asserted in timely fashion prior to the amendment. 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Novell has said in its briefing and has said today that its motion was triggered by the Court's June, 2004 order, but nothing the Court said in that order constitutes a new matter in the Amended Complaint, and nothing precluded Novell from arguing that the falsity issue affects the malice issue in its first motion to dismiss. The second reason that Novell's motion fails is that SCO properly alleges the fact supporting a claim for slander of title. Although SCO is obligated under Rule 9(b) to allege malice only generally, we have alleged malice specifically. Novell argues today otherwise but SCO's allegations of malice are plainly sufficient to overcome the privileges that Novell has asserted. Tab 8, Your Honor: SCO has alleged that Novell's false public statements of ownership were made intentionally, maliciously and with utter disregard for the truthfulness thereof. That is, of course, the conclusory language that Mr. Jacobs referred to, but, in Tab 9, we go on in some detail: SCO has alleged Novell's purpose and motivation SCO for making its false public statements of ownership. has alleged that Novell made its wrongful and injurious statements to interfere with SCO's exercise of its rights, rights with respect to UNIX and UNIXWare technologies, to 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 cause customers and potential customers of SCO to not do business with SCO and to attempt, in bad faith, to block SCO's ability to enforce its copyrights. Tab 10, Your Honor: Novell suggests that SCO must prove a certain level of malice to overcome the asserted privileges. At least Novell made that argument in its briefing, but SCO has alleged that Novell acted with the full range of malice, all sorts of malice that are addressed in the line of precedent under the Utah Supreme Court precedent. Those allegations satisfy the requisite pleading standard and defeat the privileges that Novell has asserted. The third reason Novell's motion fails is that Novell's argument about the relationship between the falsity element and the malice element are mistaken. In fact, Novell cites no case to support the argument that a party's assertion of ownership can preclude a finding of malice. Instead, Novell argues again -THE COURT: Your position is that even if there's a real contest over ownership, you can still have malice; is that right? MR. NORMAND: That is our position, Your Honor, and I'll address that argument in a little bit more detail when I get to what Novell has called the merits of its 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 claim. I'm trying now to show that on its own terms, as a motion to dismiss, the allegations are sufficient to defeat the privileges that Novell has asserted. Novell's main argument is that this Court has -this is Novell's words -- that this Court has made an objective determination that Novell's statements were made in good faith. Now, we don't think that is a remotely This reasonable reading of this Court's June, 2004 order. Court concluded that SCO's Complaint presented a substantial federal question regarding copyright ownership. The Court did not even comment on Novell's state of mind when it made its claims of ownership. The Court did not address whether Novell actually believed the copyrights had been transferred when it made its claims of ownership, and, in fact, the Court declined to consider such questions in the order. Tab 15, Your Honor: The Court stated, "The parties each have their own divergent interpretations of the agreements at issue in this case. However, the Court agrees with SCO and concludes that all of these arguments as to the parties' understandings and interpretations of the agreements would more properly be before the Court on motions for summary judgment or trial." We made these three independent points in our opposition memorandum, and we believe that they defeat 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Novell's motion to dismiss. Now, in response to these arguments, Novell has essentially, and confirmed that today, abandoned its motion to dismiss. Novell concedes that it seeks conversion in order to avoid the application of the waiver rule. Novell now argues that this Court should convert the motion because, in the background section of its opposition memorandum, SCO cited certain materials on the issue of falsity, not on the issue of malice. This Court has broad discretion in determining whether to convert, and if the Court does not rely on the materials outside the pleadings, there is no basis to convert. And we set forth those cases at Tab 19. I won't dwell on this argument in light of Your Honor's comments, but I will summarize our arguments as to why there is no basis to convert, Your Honor. First, as I mentioned, SCO expressly submitted the materials in its opposition memorandum on the falsity element, not as to malice. Novell, itself, attached Novell repeatedly numerous materials to its moving papers. says that SCO submitted the materials to try to show Novell's malice, but that is not a fair reading of our memorandum as we show in Tab 21, Your Honor. By way of example, we stated in our memorandum that to provide the context for its allegations, SCO 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 addresses here the numerous bases -- even before discovery has begun in this case -- that compel the conclusion that Novell's claim to ownership of the UNIX copyrights is meritless. We also stated that the legal plausibility of a party's argument for ownership does not even constitute direct evidence of the party's good faith, let alone resolve the question. We made clear that the Court need not consider the materials SCO submitted in resolving Novell's motion, and if there is any lingering doubt, let me be clear that we are not relying on any material outside the record in opposing the motion to dismiss. I mean, in the argument I just made in opposition to the motion to dismiss, I did not refer to any material outside the record. Very quickly, Your Honor, two other points. Case law bears out Novell has not even filed a 56.1 statement. There are cases pointing out that in a party's failure to do that, there is no basis for a conversion, and there has been no discovery. We cite the relevant precedent at Tabs 24 and 25 on those issues, Your Honor. As to what Novell calls the merits, Your Honor, again, I won't dwell, but Novell's motion, as revised, fares no better. As we show in some detail in the slides, each of Novell's two main arguments fail under the relevant 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 precedent. Let me summarize these arguments very quickly in light of Your Honor's comments. First, Novell continues to assert that its legal arguments on falsity preclude a finding of malice as a matter of law. earlier. This goes to the question Your Honor asked Novell again insists that the Court has already resolved that issue, that the Court has undertaken what Novell says is an inquiry into Novell's subjective state of mind. order. More to the point, Your Honor, let me emphasize how the necessary implications of Novell's argument are unreasonable. If fact issues on falsity precluded a Again, that's not a fair reading of the June, 2004 finding of malice, then a slander-of-title claim could survive summary judgment only by first proving the falsity as a matter of law. In other words, a slander-of-title plaintiff would have to prevail on a required partial motion for summary judgment on the falsity issue in order even to get to trial. There is no basis in logic or the authority for that argument, and, in fact, the cases Novell cites made clear that a defendant can have a plausible argument as to legal ownership and still act with malice. Novell's second-made argument is that it is entitled to judgment as a matter of law on the basis of the asserted privileges. 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 As Mr. Jacobs says, there is a complicated line of authority on the question of what, exactly, malice is under Utah law, where the Utah cases come out as to the elements of a claim for slander of title. Suffice it to say that, regardless of how the Court resolves those issues -- and they need not be resolved now -- our allegations are sufficient to overcome the privileges, and even pre-discovery, the documents we already have defeat those arguments that their privilege requires judgment as a matter of law in their favor. Novell concedes, for example, that common law malice would be sufficient to defeat the privilege they assert. Even in the absence of any discovery, we have documents that demonstrate common law malice -- we can demonstrate common law malice -- and certainly documents from which the Court can infer that Novell acted with malice, which is, of course, the standard that applies if the Court deems it appropriate to convert this into a motion for summary judgment. One example is Novell's press release on June 6, 2003, which we quote at Tab 43, Your Honor. That press release alone controverts the arguments that Mr. Jacobs made today about how the APA operates. release states: Novell's press "Amendment Number 2 to the APA was sent to To Novell's knowledge, this 20 Novell last night by SCO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 amendment is not present in Novell's files. The amendment appears to support SCO's claim that the ownership of certain copyrights for UNIX did transfer to SCO." At an absolute minimum, Your Honor, the press release constitutes one, and the admission that Amendment Number 2 is relevant on the question of ownership, and, two, evidence that Novell had acted recklessly in claiming ownership because it was not even aware of the amendment. Certainly the Court can infer those facts from that evidence. As the Court noted in its June, 2004 order, "Moreover, the press release may indicate that Novell initially believed that the APA, as amended, appeared to be a sufficient Section 204(a) writing for purposes of the Copyright Act, i.e., that Amendment Number 2 confirms that there had been a transfer of copyrights." Novell tries to explain away the press release -at least it did in its papers -- asking the Court to infer certain unstated meaning to the words that Novell used in the press release. One of the many reasons that argument fails is that the Court must draw inferences in SCO's favor. And, of course, Your Honor, it almost goes without saying, the entire point of the press release was for Novell to correct what it had previously and publicly said about the APA. 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 55 and 56. new. Tabs? It's important to note, Your Honor, that the premise of Novell's own argument is that the Court can infer, from the evidence on the question of falsity, Novell's own malice. in SCO's favor. Those are inferences the Court draws It follows from Novell's argument that the evidence on falsity that is before the Court does bear on the issue of malice. We have, we would submit, new material that we have obtained, even since our opposition memorandum, on the question of falsity. Novell has taken issue with that evidence prior to the Court's June, 2004 order and in both its memoranda on its motion to dismiss. We have not had discovery, but we have been able to obtain additional affidavits that confirm that, one, the APA was intended to transfer the copyrights; and, two, Amendment Number 2 to the APA confirms that the transfer was made. And, again, if Your Honor likes, I can walk through that testimony. One final point, Your Honor. THE COURT: That's here under several of your MR. NORMAND: Yes, Your Honor. It is at Tabs 54, The testimony summarized at Tabs 55 and 56 is We have obtained it since the time of our opposition memorandum. Given Mr. Jacobs' focus in his argument, let me 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 address, in some detail, the May, 2003 press release that Novell relies on so heavily. Tab 46, Your Honor: Novell says the press release demonstrates that Novell could not have disseminated a knowing falsehood. In that press release, according to Novell, Novell confirmed that SCO had recently asked Novell to transfer the copyrights to SCO. Novell says SCO asked for a transfer, Novell refused, and then SCO asserted that it owns the copyrights anyway. Then Tab 47, Your Honor, Novell relies, as they have again today, on that press release above all other evidence. Indeed, reviewing the record, one single uncontroverted fact is enough to defeat SCO's claim that SCO asked Novell to transfer to the copyrights to it. as an initial matter, we are in a Catch-22. Now, Novell claims We that we have not controverted their evidence on malice. have not submitted material on malice. material on falsehood. Tab 48, Your Honor: We have submitted Novell does not present any evidence that SCO had actually made any such request for a transfer. As to SCO's supposed request, the press release As Novell says, only admissible is inadmissible hearsay. evidence can be heard on summary judgment. And, again, we have the document that Novell purports to characterize, and it shows that SCO expressly asked Novell to clarify that in the APA the parties did 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 transfer all right, title and interest. In short, the document on which Novell places its heaviest reliance is inadmissible and mischaracterizes the actual facts of SCO's communication with Novell. One final point, Your Honor. Tab 58 will summarize some of the abundant case law on the issue of malice. Although the Court may address malice as a question of law, in the absence of any evidence, such evidence does create a classic fact issue. malice is ordinarily a factual issue. The issue of Malice is a question of intent that involves many intangible factors, such as witness credibility, which the Court has seen none of, that are best left to the consideration of a fact finder after a full trial. And as to public statements, in particular, malice calls into question a defendant's state of mind, about which we know virtually nothing, or about which we have had no discovery, and does not lend itself readily to summary judgment. In sum, Your Honor, Novell's motion fails as a motion to dismiss. There is no basis to convert it, and even the pre-discovery evidence defeats it, to the extent the Court wants to treat it as a motion for summary judgment. THE COURT: Thank you, Mr. Normand. 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Reply, Mr. Jacobs? MR. JACOBS: There are a couple of One is that falsity and I think there oversimplifications going on here. malice don't intersect and have no overlap. are a couple of reasons why that's an important argument for SCO to make. One is the conversion argument. Having put this in a section on falsity of their brief, SCO now argues, well, falsity has nothing to do with malice and so don't convert a motion on malice to a motion for summary judgment. important. But the law is not so simple, and malice is not so simple, as many of the cases we cited show. argument is not so simple. we had a good faith basis. Our We didn't mean it, Your Honor. It wasn't really Our argument is not simply that Your order demonstrates our Our argument good faith basis for our ownership argument. is, look at the record of the communications back and forth between the parties. communications. Look at the thoughtfulness of those Look at the fact that Novell asked SCO, do you have any basis, under Amendment Number 2, for believing that the copyrights were required? SCO was silent. In each case, we're relying on evidence, now characterized as inadmissible, that SCO relied on in its Complaint. The press release, for example, that says -- and SCO asked us to transfer the copyright -- is referred 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to in SCO's Complaint. It can't be inadmissible. It's part of the Complaint for purposes of the motion to dismiss. What the -- what a detailed review of the correspondence back and forth shows, coupled with the fact that the Court has held, has found, preliminarily, to be sure -- and I'm cautious about over relying on an initial order -- but that's what triggered the motion was, how can we have malice when there's a real horse race here? the correspondence back and forth. Take Take the points that Novell made to SCO that were not responded to during that period. Couple that with a review of the Asset Purchase Agreement and the conclusion that the Asset Purchase Agreement excluded copyrights. That is enough to grant a motion to dismiss or, if converted, a motion for summary judgment. Let me flip Mr. Normand's opening argument on its head. If ever there was a case where a motion to dismiss could be granted on a slander-of-title claim, if ever there was a case where litigants could head off getting into each others' subjective, legally-informed, legally-advised state of mind about a legal dispute, this is it. There is no evidence of malice in the tenor or content of the back-and-forth between the parties. race on ownership. There's a real horse We should not have to go further and 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 find out why people said what they said. Thank you, Your Honor. THE COURT: MR. NORMAND: speak briefly? THE COURT: Sure. Then he gets to speak again Thank you. With Your Honor's permission, may I because it's his motion. MR. NORMAND: points very quickly. Of course, Your Honor. Just a few We did say, expressly, in our opposition memorandum that falsity and malice are related. We just don't think they are related nearly as closely as Novell argues, and we think the cases show that they are not related that closely. Second, we do not believe that there is a horse race or a real contest on the question of ownership. Under California law, the extrinsic evidence of the sort that we have already presented creates ambiguity in the agreement. There clearly is ambiguity, and the extrinsic evidence is not ambiguous. We think the documents argue they are The extrinsic ambiguous, as the Court acknowledged. evidence is clear. Novell's own chief negotiator says, "We And our intended to transfer the copyrights in the APA." position is that Amendment Number 2 clarifies that intent. Finally, Your Honor, Mr. Jacobs argues as to the tenor or the substance of the claims of ownership 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 themselves. We explained in our slides why there is no The question is Novell support for that argument in the case law. Novell's state of mind when it made assertions. can't essentially put up the words it used in claiming ownership as a shield to an inquiry into its state of mind. In fact, Novell's own argument is that this Court has already made an inquiry into Novell's state of mind in the June, 2004 order. Novell concedes that there has to be Thank you, Your some assessment of its state of mind. Honor. THE COURT: Mr. Jacobs? MR. JACOBS: Honor. Thank you. I think the issue is joined, Your I think you have it. THE COURT: Thank you. I'll take the motion under advisement and get a ruling out hopefully not too far off. Thank you all. Court will be in recess. 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 REBECCA JANKE, CSR, RMR I, REBECCA JANKE, do hereby certify that I am a Certified Court Reporter for the State of Utah; That as such Reporter I attended the hearing of the foregoing matter on May 25, 2005, and thereat reported in Stenotype all of the testimony and proceedings had, and caused said notes to be transcribed into typewriting, and the foregoing pages numbered 1 through 28 constitute a full, true and correct record of the proceedings transcribed. That I am not of kin to any of the parties and have no interest in the outcome of the matter; And hereby set my hand and seal this 20th day of July, 2005. REPORTER'S CERTIFICATE STATE OF UTAH ) ) ss. COUNTY OF SALT LAKE)

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