SCO Grp v. Novell Inc

Filing 857

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of March 10, 2010-Jury Trial-Volume II before Judge Ted Stewart, re 567 Notice of Appeal,. Court Reporter/Transcriber Ed Young, Ray Fenlon, Patti Walker, Telephone number [phone]. NOTICE RE REDACTION OF TRANSCRIPTS: Within 7 business 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 5/10/2010. Redacted Transcript Deadline set for 5/20/2010. Release of Transcript Restriction set for 7/19/2010. (Attachments: # 1 Part Two, # 2 Part 3)(jmr) Modified by removing restricted text on 7/19/2010 (rks).

SCO Grp v. Novell Inc

Doc. 857 Att. 2

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THE COURT: MR. ACKER: MR. SINGER: THE COURT: the jury in.

Ready, counsel? Yes. Yes. Ms. Malley, if you would please bring

(Jury present) THE COURT: MR. SINGER: Go ahead, Mr. Singer. Thank you, Your Honor. I only have a

REDIRECT EXAMINATION BY MR. SINGER: Q Mr. Thompson, the document that you were looking at at

the end of cross-examination by Mr. Acker is something called a form 10-K filed by public companies, in this case SCO, with the Securities and Exchange Commission. familiar with that type of document? A Q Yes. Is there a section required in these documents to You are

disclose risks of corporate action and issues that are affecting the corporation? A Q Yes. Is that so investors and shareholders can make an

informed choice as to whether or not to buy or hold the company stock? MR. ACKER: Object to leading, Your Honor, every

Dockets.Justia.com

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question. THE COURT: BY MR. SINGER: Q Is the discussion on page 41, which you were being I'll overrule the objection.

asked about in connection with cross-examination, part of the disclosure in a context of saying that investors should be aware of risks that are involved in the company? A Q Yes, it is. Now specifically, and I don't think this part was shown

you when you were being asked about this paragraph on page 41, is that discussion relayed back to what is said three paragraphs earlier? MR. SINGER: And, Mr. Calvin, if you would blow up

that whole section so that the jury can see it. BY MR. SINGER: Q Three paragraphs earlier it says, on January 20th of

2004, in response to Novell's actions, we brought suit against Novell for slander of title. A Q I see that. So the discussion that follows in connection with this Do you see that?

very lawsuit, correct? MR. ACKER: That end was correct. BY MR. SINGER: Q Does this -Objection, leading. I know that was.

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MR. SINGER:

I'll reframe the question, Your

THE COURT: BY MR. SINGER: Q

All right.

Does the discussion which you were being asked three

paragraphs below when it talks about legal action against Novell refer to this lawsuit? A Q This is the lawsuit that's being referred to, yes. And was the discussion, then, that the efforts of

Novell and other Linux proponents may cause Linux ends-users to be less willing -- I don't think I've -- I'm going to ask the question again. Does the discussion that pertains to the paragraph here that Linux users may be less willing to purchase SCO IP licenses, that is saying it's due to the efforts of Novell and Linux proponents; is that correct? MR. ACKER: MR. SINGER: THE COURT: BY MR. SINGER: Q What was your understanding of why the disclosure Objection, is that correct. I will reframe the question. All right. Go ahead.

statement was talking about a possible adverse effect on SCO's IP licensing program? A My understanding was that the action -- the conflict

over the question of copyrights was causing doubt in the

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marketplace about SCO's ability to license the software. Q This is a disclosure document in 2003, I believe. Did

you anticipate it would take time for this lawsuit to be resolved? A Actually, isn't this the document for the period ending

in 2003 and actually filed in 2004? Q A Q Yes, but the fiscal year ended in 2003. Yes. So this would have been filed -- this was filed in

early 2004? A Q Yes. And it's referring to a January 2004 lawsuit that's

filed? A Q I see that, yes. And would you anticipate and did the board anticipate

that it would take some time for this lawsuit to be concluded and litigated? A Q Yes. Did the board and you anticipate in making this

disclosure that shareholders should know that you would be -- there would be a likely adverse effect on SCOsource licensing during the time that the lawsuit is pending? A Well, I think we were trying to say there could be an

adverse effect because of this doubt and confusion, what we call the FUD factor -- fear, uncertainty and doubt -- in the

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marketplace about whether SCO owned the technology. Q And when you say even if we are successful in our legal

action against Novell, end-users may be less willing to purchase from us, did that refer to what was being said in a prior paragraph about getting the title to the copyrights cleared up? A Q Actually I didn't read any of the prior paragraphs. If you would look at the paragraph right before that

where it says, in the lawsuit, we request preliminary and permanent injunctive relief as well as HELP. An injunction

would require Novell to assign to us all copyrights that we believe Novell had wrongly registered, prevent Novell from representing any ownership interest in those copyrights, and require Novell to retract or withdraw all representations it has made regarding its purported ownership to those copyrights. A Q Yes. Then it's in the following paragraph where it says, Do you see that?

even if we are successful in our legal action against Novell, these efforts may have had an adverse effect on the willingness of people to buy Linux -- Linux users to buy IP licenses from SCO? A Q Yes, I see that. So that is the context -- is that the context in which

these statements were made?

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A Q

Yes. Now with respect to how Linux users feel about the

program, is it true that certain Linux users have bought licenses? A We have sold licenses. I assume that those users also

have Linux within their organizations. Q And when you were being asked questions by Mr. Acker

about what Linux users feel one way or the other, is that a group that only has one voice or are there millions of people who are a potential market in this area? A I would assume it is the later. I don't think there is

any one organization for Linux.

In fact, I think that's

kind of the Linux community, is a community of many, many components and parties and participants. Q In connection with the decision to pursue SCOsource

licensing, was information presented to the board which convinced you that there was a basis to believe that UNIX intellectual property was contained in Linux? A Q A Q Yes. That was looked at -- was that looked at by the board? Yes. Now turning to a second topic. On section 1.1(a) of

the asset purchase agreement, you were asked some questions by Mr. Acker about the fact that section V talks about intellectual property and doesn't mention copyrights. Do

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you recall that question? A Q Yes. If you go to the first part of schedule 1.1 -- can we

go to the first page and can we blow up section one, including the part below it -- you see where it says all rights and ownership of UNIX and UnixWare? A Q Yes, I see that. Did you understand copyrights would be included in a

statement that says all rights and ownership of UNIX and UnixWare? A Q A Q Yes. And then the specific products are listed below? Yes. Are there various parts of this schedule such that you

would need to repeat that in a later section if it's covered up here? A Q I would think not. And do you have any understanding of any way that all

rights and ownership of UNIX and UnixWare, including source code, could be conveyed to Santa Cruz without conveying copyrights? A Q They were one in the same in my mind. Now you were asked some questions about, well, from the

Novell point of view, would it have made any sense to hold back the copyrights when you were selling the rest of the

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business, and I believe your testimony was it wouldn't make any sense. A Q A Q Do you recall that?

It would not make any sense. Right, because you were selling the business? Yes. From the Santa Cruz perspective, however, would it make

a difference whether they were getting a company with the copyrights as opposed to without the copyrights? A Q Okay. Whether they were the getting the UNIX business with

the copyrights and without the copyrights? A So are you asking me to testify what my belief was at

the time we were negotiating it -Q A Q it. A At the time I was negotiating it, I did not represent I'm asking --- or just in general now? Well, let's talk about at the time you were negotiating

SCO's interest in that, I represented Novell's interest in that, and that was something we proffered as part of the sale was the entire business. Q Did you do it on -- did you have any belief at that

time that it would make any sense to offer the entire UNIX business to Santa Cruz but then say, well, you're not going to get the copyrights?

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A Q

No. In fact, can you tell me whether or not you would have

gone about selling the business to Santa Cruz, the UNIX and UnixWare business, and not tell the purchaser that you are going to withhold the copyrights? you would do? A Well, it is an inconsistency. If there was something We Is that something that

that we were withholding, we would have told them.

wouldn't have tried to sneak it in somehow on the last page of a document. We would have actually had that discussion.

So the answer is no, I would not have the done that. MR. SINGER: THE COURT: MR. ACKER: THE COURT: MR. ACKER: THE COURT: Thank you. Mr. Acker. One question, Your Honor. Go ahead. Can I do is from here? You may. RECROSS-EXAMINATION BY MR. ACKER: Q Sir, to your knowledge, did the lawyers and business

people at Santa Cruz have the opportunity to read the included and excluded asset schedule before they agreed to the APA? A Yes. MR. ACKER: That's all I've got.

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THE COURT: MR. ACKER: MR. SINGER:

Counsel, may Mr. Thompson be excused? Yes, Your Honor. Yes, Your Honor, subject to possible

re-call at the end of the case. THE COURT: I've used that term? MR. SINGER: THE COURT: may be re-called. Yes. Mr. Thompson, it's possible that you I do So he may not be excused, then, as

So if you would remain available.

have to instruct you to not discuss your testimony with any other witness in this case or in the presence of any other witness or in any way communicate with any other witness. All right? THE WITNESS: THE COURT: MR. SINGER: Yes. Thank you, Mr. Thompson. Mr. Normand will present our next

THE COURT: MR. NORMAND: THE COURT:

Mr. Normand, who might that be? Our next witness will be Ed Chatlos. All right. A

Mr. Normand, could I get you to do me a favor? lot of exhibits were left up here. Would you come and

retrieve those that will not be used. MR. ACKER: THE CLERK: Some of those are mine, Your Honor. Mr. Chatlos, do you want to come

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forward? EDWARD CHATLOS, Having been duly sworn, was examined and testified as follows: THE CLERK: If you would please state and spell

your name for the Court. THE WITNESS: Edward S. Chatlos. C-h-a-t-l-o-s.

DIRECT EXAMINATION BY MR. NORMAND: Q A Q A Good morning, Mr. Chatlos. Good morning. Could you summarize your educational background? Yes. I have a bachelor's of science degree in A master's of science

electronic engineering technology.

degree in computer science from Johns Hopkins. Q Can you briefly summarize your employment before you

joined Novell? A After my bachelor's degree, I joined Western

Electric -THE COURT: Mr. Chatlos, can I get you to scoot

forward, and also make certain the microphone is closer to you. THE WITNESS: THE COURT: THE WITNESS: Is that better? I think so, yes. After my bachelor's degree, I went

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to Western Electric.

Stayed there for about nine months.

And then left Western Electric, got my master's at John Hopkins. Came back to Western Electric, and stayed there

for about nine months moving to the microprocessor product management group, department management for software systems there. Left after about a year and a half and went to the

AT&T microelectronic -- I'm sorry, the UNIX group in AT&T. Stayed there until '87. Then, in '87, I moved to London and

did software licensing for UNIX in Europe for three years. I came back and did business development, business planning for UNIX with AT&T. Q A When did you join Novell? Right after the sale of UNIX to Novell by AT&T, 1993

maybe. Q A Q A And what position did you assume? Senior director of strategic relationships. What were your, in brief, responsibilities? I managed the big company relationships, like Computer

Associates, how we partnered with them. Q A Q A Q A How long were you at Novell? Through 1995, the end of 1995. So when did you leave? Actually it was January 5th of 1996. Why did you leave? I had an offer from AT&T and I thought it was a good

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offer, so I left for that reason. Q A Q Did Novell want you to leave? No. Did you have a chance to work with a man named Duff

Thompson during your time at Novell? A Q A Yes. In what capacity? I worked in his organization at one time and then

reported to him towards the end. Q A Over what time span did you report to Mr. Thompson? Since I joined Novell, which was, again, '93 through

January of '96. Q Now as of the beginning of 1995, what were the major

lines of business at Novell? A You certainly had Netware. That was the biggest one.

You had UNIX.

Some smaller lines of business, like

documentation training, WordPerfect, and may be others. Q Did there come a time when Mr. Thompson -- Duff

Thompson spoke with you about Novell's intent to sell the UNIX and UnixWare business? A Q A Q Yes. Do you recall, approximately, when that occurred? In the May time frame of 1995. What did Mr. Thompson tell you about his intent

regarding the sale of these assets?

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A

He said he wanted to sell the entire UNIX business to a I am not sure if he said SCO at that time.

buyer. Q

Did you have an understanding at that time as to why

Novell had decided to sell this entire business? A I think so. It really was about Novell focusing on

their core NetWare products given all the competition coming around them. Q When you say you think so, did you discuss this issue

with Mr. Thompson? A Q A Q I don't believe so. Did you discuss it with anyone else? I don't remember. What role did Mr. Thompson ask you to play with respect

to the sale of these assets? A He asked me to lead the negotiations for selling the

business. Q Did you have a view at that time as to why he had asked

you to play that role? A I think it was my background. I was certainly the UNIX

expert, business expert. before. Q

I had done a lot of negotiation

So I think that was the reason.

As of that time, late 1995, how many transactions would

you estimate you were part of negotiating? A sure. I don't know, anywhere between 30 and 50. Some small, some very big. I'm not

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Q

Was there any effort within Novell around the time you

learned of this intent to find a proposed purchaser? A Q Yes, there was. Did you come to a decision as to who an appropriate

purchaser would be? A Q A Yes, SCO. On what basis did you make that decision? Primarily their market reach, their experience in UNIX, It was a really good fit. They were

their staffing.

focused on binary sales, so that was an important thing as well. THE COURT: Mr. Chatlos, may I ask that you slow

down a little bit, primarily for the court reporter. MR. NORMAND: BY MR. NORMAND: Q Now did there come a time when you took Mr. Thompson up Thank you, Your Honor.

on his request and began to negotiate with this potential purchaser? A Q Yeah, that began in mid June of 1995. With whom from Santa Cruz did you begin and continue

these negotiations? A The daily discussions and the regular discussions were

with Jeff Seabrook and Jim Wilt. Q A Over what period of time did these negotiations occur? We started mid June of 1995 and finished early

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September 1995, so it was throughout the summer. Q Can you explain for me physically how you went about Where were you? I

doing these negotiations? A

Most of the negotiations occurred in California.

live in New Jersey, so I went out every week. actually every week.

I commuted

There were several hotels we used from

Palo Alto, Los Gatos and Santa Cruz. Q What was the general nature of the transaction that you

were discussing with Mr. Wilt and Mr. Seabrook? A To sell the entire business to SCO so they could

continue with it fully. Q Did you and the Santa Cruz negotiators have a nickname

for this proposed transaction? A Q A We did. Sleigh ride.

Why was that the nickname? The first hotel we met in June of 1995, outside -- it

was a Holiday Inn in Palo Alto, and outside there was a Santa Claus and a sleigh. call it sleigh ride. Q How much of the UNIX business was to be sold in this For some reason James decided to

transaction, as you recall it, during your negotiations? A Q A Q Well, the entire business. Was it the sale of just UnixWare? No. It was definitely UNIX and UnixWare.

What was the relationship between UNIX and UnixWare as

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those terms sometimes get thrown around? A UnixWare was the latest offer and it encompassed most So really one can use

of the previous efforts, like UNIX. that term interchangeably. Q

As part of the deal you negotiated with Santa Cruz,

were the UNIX and UnixWare copyrights to be included or excluded from the transfer? A Q The deal with SCO was to include the copyrights. Would holding back the copyrights have been consistent

with your instructions from Mr. Thompson? A Q Absolutely not. Did you ever instruct anyone on the deal to hold back

the copyrights? A Q No. Did you ever suggest to Santa Cruz that they were

buying the UNIX software business but not its copyrights? A Q Absolutely not. When do you first recall discussing the possibility of I'm going

the transaction with the Santa Cruz executives? back a little bit now. A Q Sometime in May of 1995.

Did there, after that point, arise an issue with

respect to the cash or money that Santa Cruz could pay for the transaction? A Yes. It was going to -- in one of the meetings in late

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1995. Q A Can you briefly describe what the issue was? Yeah. SCO didn't have enough cash to pay up front, so

we constructed a deal such that there would be three payment components. One is the customers that existed in Novell

that were licensing binary copies of UNIX, that revenue would be substantially paid to Novell as one component of the compensation. Second component, stock in SCO. The

third component is a share of the revenue that SCO got for any UNIX sales in the future. Q Can you, again, briefly, but can you describe the

distinction between what you described as the first component and the third component? A Yes. The first component was the binary licenses that

existed at the time the APA was signed. Q A What is a binary license? Binary is a machine readable software. It's like the

application you buy when you buy a Microsoft operating system. Q A And the third component, the UnixWare? Excuse me. It's the future UnixWare offer that SCO

sales, a portion of those binaries. Q So if Santa Cruz had sold a certain amount of UnixWare

licenses in the future, it's your testimony that some of that money would have gone back to Novell?

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A Q A Q

Correct. Do you know whether that threshold was ever met? I don't know. I had left.

Was it ever your intent on behalf of Novell to hold

back the copyrights because Santa Cruz couldn't pay enough cash up front? A Q Absolutely not. Did you form any view as to whether the payments to

Novell through the ongoing binary royalties, what you described as the first component, did you form any view as to whether that would be valuable to Novell? A Q Yes, and we did some modeling. Again, briefly, what were the results of the modeling,

if you can recall? A Q Hundreds of millions of dollars. Were you personally involved in the transaction up to

the date that the APA was signed? A Q Yes. Did you ever give the lawyers authority to hold back

any UNIX or UnixWare copyrights? A Q Absolutely not, no. Would it have bothered you if anyone had drafted the

language of the APA to hold back the copyrights from UNIX and UnixWare? A Absolutely.

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Q A

Why? The deal I negotiated with SCO included the copyrights, And from a

so we modeled it to include the copyrights.

personal standpoint, it would have been unethical to exclude them. Q Now just before the APA was signed, did Novell own all I

of the lines of businesses that you identified earlier? think you said NetWare, WordPerfect, UNIX, UnixWare. A Q A Q Just before the APA was signed did they own them? Yes. I believe so, yes.

Were they transferring all of those lines of business

to Santa Cruz? A Q A Certainly not. Which ones were they transferring? Just the UNIX and UnixWare business. MR. NORMAND: Exhibit 1. BY MR. NORMAND: Q A Is that in front of you on your screen, Mr. Chatlos? Yes. MR. NORMAND: BY MR. NORMAND: Q Do you see that language in from front of you, Mr. Highlight recital A. Mr. Calvin, could we look at SCO

Chatlos?

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A Q

Yes. It says, quote, seller is engaged in the business of

developing in the line of software products currently known as UNIX and UnixWare, the sale of binary and source code licenses to various versions of UNIX and UnixWare, the support of such products and the sale of other products which are directly related to UNIX and UnixWare, collectively, the business. A Q Yes. How does that language compare to your understanding of Do you see that language?

the business in which Novell was engaged at the time? A It reflects it. MR. NORMAND: BY MR. NORMAND: Q This language, as you can see, Mr. Chatlos, says, the Mr. Calvin, can we have recital B?

boards of directors of each of seller and buyer believe it is in the best interests of each company and their respective stockholders that buyer acquire certain of the assets and assume certain of the liabilities of seller comprising the business, the, quote, acquisition. see that language? A Q Yes. How does that language comport with your understanding Do you

of what Novell was intending to sell Santa Cruz? A The intent was for Novell to keep its core NetWare

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business and some other businesses and sell the UNIX and UnixWare business. THE COURT: to please slow down. THE WITNESS: MR. NORMAND: you can mimic me. THE COURT: Mr. Chatlos, I am serious about this, I'm sorry. I will try to speak even slower and That reflects it. Mr. Chatlos, again, I have to ask you

that only for the court reporter, but my guess is that members of the jury are having trouble following some of your answers. have to say. MR. NORMAND: MR. NORMAND: highlight that. BY MR. NORMAND: Q I'm trying to save time, Mr. Chatlos. I take it you Thank you, Your Honor. Mr. Calvin, section 1.1(a), It's very important that they hear what you

are familiar with this language, you've seen it before? A Q Yes. If you need time to read it, let me know. How does

this language comport with your understanding of what the assets were at issue in this transfer? A Q It reflects it. Do you see the reference to both schedules 1.1(a) and

schedule 1.1(b)?

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A

Yes. MR. NORMAND: Could we go to schedule 1.1? Let's

bring out Roman numeral I. BY MR. NORMAND: Q Mr. Chatlos, this is from schedule 1.1(a), all rights

and ownership of UNIX and UnixWare, including but not limited to all versions of UNIX and UnixWare and all copies of UNIX and UnixWare, and I'll stop there. of UNIX and UnixWare? A The actual individual versions, and it would be the What are copies

source code copies and any binary copies we had. Q In what forms do those exist -- or did they exist at

the time? A They certainly did exist and they could have been on a

disk, a tape drive. Q Were those physical materials being sent over as part

of the transfer, to your understanding? A Q Yes. Keep going, all technical, design, development,

installation, operation and maintenance information concerning UNIX and UnixWare, including source code. stop there. A Remind us again what source code is. I'll

Source code is human readable computer code where a

human can read it, understand it, modify it, and then you take the compiler and compile it into binary.

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Q A

You say modify it.

What does that mean?

Change aspects so it does something different than was

originally intended. Q Keep going, source documentation, source listings and

annotations, appropriate engineering notebooks, test data and test results, as well as all reference manuals and support materials normally distributed by seller to end-users and potential end-users in connection with the distribution of UNIX and UnixWare, such assets to include without limitation the following. A Q Yes. How did that language overall comport with your Do you see that language?

understanding of what assets were included in this transfer? A Q It fully describes it. Did you have a view at the time of the APA as to

whether this description, descriptions of materials such as copies of UNIX and UnixWare, and the source code for UNIX and UnixWare included the copyrights thereto? A Without a doubt, yes. MR. NORMAND: up Roman numeral I? BY MR. NORMAND: Q Mr. Chatlos, you've seen this language before. Roman Go to schedule 1.1(b). Can we bring

numeral II refers to NetWare operating system and services. Do you see that language?

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A Q

Yes. How does that language, the inclusion of that reference

in the excluded asset schedule, comport with your understanding of what was intended to be excluded? A It was Novell's desire -- our desire to not include any

core business of Novell like NetWare, so we excluded it in this attachment. Q Did you ever intend to sell Santa Cruz the NetWare

business? A Q No. Did you ever intend to transfer to Santa Cruz any of

the NetWare copyrights? A Q A No. Do you see Roman numeral IV, Mr. Chatlos? Yes. THE COURT: Mr. Normand, just for the benefit of

the jury, you maybe want to indicate which page of the Exhibit A you are referring to, title of this, please? MR. NORMAND: BY MR. NORMAND: Q Do you recognize this Roman numeral IV, Mr. Chatlos, as Thank you, Your Honor.

from schedule 1.1(b) of the APA? A Q Yes. And do you have an understanding of the role that

schedule 1.1(b) was designed to serve within the APA?

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A

It was intended to identify the assets which did not go

to SCO and for the most part address the NetWare business that would not be transferred to SCO. Q I'm looking at the top of the screen, Roman numeral

IV-A, which says NetWare and other Novell code contained in UnixWare 2.01 and Eiger. A Q Yes. Did Novell intend to transfer NetWare and other Novell Do you see that language?

code contained in UnixWare to Santa Cruz? A Q No, certainly not. Do you see Roman numeral V entitled intellectual

property? A Q A Q Yes. Do you see the reference to all copyrights? Yes. Did Novell intend to exclude from the transfer the UNIX

and UnixWare copyrights? A Q No, not at all. Do you think this language can be read to refer to the

exclusion of copyrights for UNIX and UnixWare? A This language, section V, is in the NetWare schedule.

So it was certainly intended to deal with just NetWare. Q A You think it says NetWare? It's in a Novell attachment, so it means NetWare. That

was the intent of the agreement.

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Q

Was it your understanding, in your review of these

documents, that this referred to NetWare? A Q Yes. Did you have a chance to review this document before

the APA was signed? A Q Yes. Was it ever your understanding that this Roman numeral

V referred to the exclusion of UNIX or UnixWare copyrights? A No. MR. NORMAND: BY MR. NORMAND: Q Mr. Chatlos, I'm going to direct your attention to Section 1.6.

section 1.6 of the APA -A Q Yes. -- which is titled license back of assets. I won't

read this paragraph.

Do you recall discussions of Novell's

intent regarding this prospect of a license back? A Q Yes. Can you briefly describe what the point of the license

back was? A Since Novell was transferring the entire business to

SCO, there were groups within Novell that were using some of the UNIX and UnixWare technology, both within labs and within product that is distributed to customers. This

section covered Novell continuing to have the right to use

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some of that UNIX code and include portions in their binary products. So it's licensing from SCO to Novell the right to

use the source code and create some limited derivative works. Q Did you have a view, during the course of your

negotiations, as to why it would be necessary for Novell to have a license back? A Well, we were instructed to transfer the entire

business to SCO, so Novell would have no rights to it, so this section covered giving back rights to Novell. Q Mr. Chatlos, we're going to bring you back to schedule

1.1(b), the excluded assets schedule, and we're going to look at the old language of the APA, the language that was replaced referring to all copyrights. To your

understanding, if Novell had retained the UNIX and UnixWare copyrights, would it have needed a license back? A Q A Absolutely not. Why not? Retaining the copyrights is tantamount to having rights

to modify the source code. Q Now you will recall, Mr. Chatlos, we had just looked at We

section 1.6 of the APA which referred to a license back.

now have on the screen Exhibit 162 titled Technology License Agreement. A Yes. Do you recognize this document?

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Q

Did you have an understanding at the time as to the

substance of this document? A Q A Yes. Could you briefly describe that? Sure. This addressed that previous paragraph we saw.

This was a license back to Novell and the terms in which they could use source code and make derivative works. Q Do you recall whether Novell intended to agree to any

restrictions on the extent to which they could use this UNIX and UnixWare technology in selling products? A Q A There are restrictions in this document. Why? We didn't -- excuse me -- SCO didn't want Novell to use

the technology they are getting back from SCO to create competitive offer. So the restrictions, if I remember

correctly, were the source code could be used in the labs and they could create derivative works. And then the binary

versions of those could be used in their NetWare product or other products, but only in a very minor way. It couldn't

be considered a primary component of the developing product. Q Were those restrictions subsequently imposed in the

technology license agreement? A Q Yes. They are in a subsequent section, I believe.

If Novell had retained the UNIX and UnixWare

copyrights, wouldn't it have been able to do anything it

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wanted to do with the source code? A Q Exactly right. Mr. Chatlos, we're going to bring up section 1.2 of the

asset purchase agreement which is titled payments, and we're going to keep it on two pages for a second. Do you see

there are three subsections, (a), (b), (c), and then running down to (d)? A Q Yes. How does this language comport with your understanding

and intent as to what consideration Santa Cruz was giving Novell for this transfer of assets? A I think I said earlier that there were three components

to Novell being compensated for selling the business to SCO. Paragraph (a) reflects the stock aspect of that. Paragraph

(b) reflects the royalty payments that would go back to Novell of those existing customers. And paragraph (b), the

second half, reflects the future royalty -- sorry, the future share of royalty payments SCO would receive for sales of UnixWare. Q Did you consider both of those components part of the

consideration that Novell was receiving? A Q A Q All three of those components, yes. Now you are aware of Amendment No. 1 to the APA? Yes. Were you part of the negotiation or discussion at that

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time? A Q that? A After the APA was signed, Novell created -- we created More of the discussion, correct. And how did that come about that you were involved with

a transition team consisting of mostly Novell people -Novell people, but it included some SCO people. The members The

of this team were HR, development, support, so forth.

team was to work on how do you now effect this agreement and transfer the business to SCO. Q team? A I was an adviser to all the individual team leaders for What was your role with respect to that transition

the subsections. Q A Q A Do you recall when the APA closed? Yes. What is a closing, by the way, in your experience? Very uneventful. It's where both parties sign the That's it.

agreements in front of each other. Q A Q A

It's like signing legislation into law? Yes. Who was at the closing? I don't remember everybody, but on Novell's side, it There may have been a lawyer

was Duff Thompson and myself. or two and maybe a banker.

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Q

On this issue of Amendment No. 1 in your transition

work, did the issue of copyrights ever come up? A Q No. Was it ever suggested to you by anyone that Novell had

retained copyrights? A Q Absolutely not. In your transition teamwork, did you ever tell anyone

that Novell had retained the copyrights? A Q A No, I didn't. Why not? The whole business went. And when you are in the I didn't need to.

software business, you understand copyrights are associated with software. Q A Q A Q A Was it your intent to have the copyrights transferred? Without a doubt. At the beginning of the negotiations? In the beginning and in the end. And in the middle? In the middle, yes. MR. NORMAND: BY MR. NORMAND: Q We're looking, Mr. Chatlos, at section 4.16 of the Can we look at section 4.16.

asset purchase agreement, and I take it you are familiar with subsection (a)? A Yes.

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Q

There is reference to SVRX royalties in the third line.

Do you see that? A Q Yes. Did you have an understanding or intent as to what SVDX

royalties were and why they are referenced here? A Yes. This was one of the compensation components I

mentioned earlier, and that is the royalty stream from the existing licensees that SCO would collect and pay Novell a substantial portion of. Q A Q Do you see subsection (b)? Yes. Do you see on the third line there is a sentence that

begins in addition, at seller's sole discretion and direction? A Q Yes. Buyer shall amend, supplement, modify or waive any

rights under, or shall assign any rights to, any SVRX licensee to the extent so directed and in the manner or respect by seller? A Q Yes. Did have you an understanding or intent as to what that

provision was intended to accomplish? A Yeah. This is dealing with the binary revenue stream And we were trying to give Novell the

mentioned in (a).

flexibility to modify the payment terms of that binary

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royalty stream so it could be accelerated if they wanted more cash up front. So instead of the computer companies or

the resellers of the binary paying over time as they distributed the product, Novell could get them to pay up front, almost like paying off your house or paying off your car. Q Did you have an understanding at the time as to what an

SVRX license was? A In this context, it was the binary sublicense agreement

and the associated schedule for each product. Q And, again, simply as you can, you won't offend us,

what is the difference between a source code agreement or a software agreement on the one hand and on the other hand what you are describing as an SVRX license? A There are three agreements that address the licensing The first one is a software licensing agreement. Included in

of UNIX.

It gives the customer the right to modify it.

that language is protection of trade secret and intellectual property, so on and so forth. particular product, per se. The second agreement is the software sublicensing agreement. That gives the customer the right to make binary And it's the structure It doesn't address a

copies and distribute binary copies.

in which they pay for those distributions. THE COURT: Mr. Chatlos, you do have water right

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there, if you would like to -THE WITNESS: in. Excuse me. There is a third component which is called a schedule, and the schedule is associated with each specific product. In that schedule are the fees. I believe it And that's it. So I'm going to put another cough drop

includes where that source code existed.

the sublicensing fees and where the source code existed, plus some up front fees for the source code. Q A What is sub about the sublicensing? I don't know. Why sublicensing?

I wasn't involved in the original But what you are doing is

definition of these agreements.

making a derivative of a higher form, so it's sub to the original source code. Q Let me understand this. You have got whatever

entity -- and you worked at AT&T, the entity that owns the source code; is that right? A Q Correct. At one point, yes.

They enter into source code agreements with companies

who do what? A Q They modify the source code. After they modify that source code, what do they do

with the modified source code? A First of all, they modified it to adapt it to their Then they would compile it down, which turns it into

needs.

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binary.

Then they would put it on their computers, or sell

it to stand alone and sell it. Q Then they sell this third level, sublicensing

agreement? A Q Correct. Now did you have a view at the time of the APA as to

whether Novell had the right to waive Santa Cruz's rights under the source code agreements? A No, that wasn't included in this agreement. Section

(b) is waiving rights under the binary side. Q Why did you not intend for Novell to have the right to

waive Santa Cruz's rights in the source code agreements? A The source code is really the intellectual property of If Novell had a right to waive that, it could

the business.

have potentially created SCO's business. Q Last question on this topic. Why would that have hurt

SCO's business? A Well, Novell could have changed the rights of a source

code licensee so they could distribute the product however they wanted to. Q So I lied. That wouldn't have been right for us. One more question on this. Was it Novell's

intent to secure for itself the right to waive any efforts Santa Cruz might make to enforce its rights in the source code agreement against a third party if that third party was infringing the source code agreement?

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A

I heard part of it.

I want you to say it again so I

can parse it. Q The question is whether it was Novell's intent to

secure for itself the right to waive Santa Cruz's claims against a third party that Santa Cruz thought was violating the source code agreement? A Q A No. Why not? It wasn't Novell's intent. Novell's intent was to It was

provide SCO to protect those source code agreements.

Novell's intent to allow Novell to modify the payment terms of the binary license agreement such that it could accelerate payment and get cash up front. Q A Q A Q A Q A Mr. Chatlos, are you married? Yes. How long have you been married? Ten years in October. What is your wife's name? Laura. When did you meet Laura? I first met her in 1991. She joined AT&T in the UNIX

group. Q A Q When did you begin dating? After I left Novell, when I went to AT&T. So Laura has been working in the UNIX and UnixWare

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business for about 20 years? A Yes. She started at AT&T, went to USL, which is the

subsidiary, then went to Novell, then went to SCO through this transaction to Caldera, then the current SCO Group. Q A Q A So she's still at SCO? She is still at SCO. Does she hold any stock in SCO? She owns very little stock. She probably owns a couple

hundred shares and some options, probably less than 8,000. Q A Is that of any material value to you? Most of them are underwater. The strike price is above

the current stock price. Q Now if this lawsuit were to work out successfully for

SCO, would that represent any material benefit to you? A Q No, not really. Mr. Chatlos, when you first learned in the last few

years that Novell was claiming to own the UNIX and UnixWare copyrights, what was your reaction? A Q A I was shocked. Why? Certainly that wasn't the deal that we did, and I

thought it was not right to claim that when that wasn't the deal. Q A To your view, did the claim have any foundation? Correct. Correct.

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Q A

Did it have any foundation to you? No, it didn't. MR. NORMAND: THE COURT: MR. ACKER: No further questions, Your Honor. Mr. Acker. Thank you, Your Honor. CROSS-EXAMINATION

BY MR. ACKER: Q Let me start, Mr. Chatlos, where counsel left off with

you and your wife and your wife's stock ownership in SCO. Let me just be clear, your wife works at SCO now? A Q Correct. She owns several hundred actual pieces of stock --

shares of stock? A Q I think the number is around 200. She also owns options, and it's several thousands

options; is that right? A Q It's less than 8,000 at various strike prices. So the jurors understand, an option is the ability to

buy a share of stock at a given price, right? A Q Correct. And the strike price is the price you've got to pay to

buy a share of stock, right? A Q Correct. So if you buy a share of stock at the strike price, say

it's a dollar, and the share of stock is actually trading at

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$10, you made the $9 difference? A Q Correct. So if SCO would be successful in this litigation and

its stock price were to go higher than the strike price of your wife's options, she could sell those and make money, right? A Q Correct. So if SCO was successful in this case and that results

in SCO's stock price going up, your wife could make money, right? A Q Correct. Now, sir, your tenure at Novell, I just want to be You left the company, sounds like, right at

clear on that.

the end of the year in 1995 or the first day of 1996? A Q It was probably the first week of 1996, correct. So really this deal sounds like the last thing you did

at Novell, correct? A Q Yes. And when I say this deal, your involvement was in the

original agreement that was approved by the board of directors in September of 1995, right? A Q Yes. And then you also worked on this Amendment No. 1 that

was worked on between September of '95 and December of '95, correct?

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A Q A

Yes. That was the end of your involvement, right? No. I was involved in putting together the closing I didn't write them. I

documents for the December signing.

made sure they were all done and prepared. Q After the deal got closed in December, you were done

with the deal? A Q A Correct. And no involvement in anything after that, correct? I'm sure I did some work, but certainly not major. I

mean I did work at Novell at that time. Q You worked on no amendments to this agreement after

Amendment No. 1? A Q Correct. Now this deal took place a long time ago, right, 15

years? A Q Yes. And it's true, isn't it, that the first time that you

had reason to focus on the intent of the meaning of the APA after 1995 was when you were approached by SCO's lawyers in 2004; isn't that right? A Q Correct. And so you did a deal in 1995, nine years pass, you are

on to other things, correct? A Yes.

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Q A Q

Working other places, doing other deals, right? Yes. Then the lawyers for the plaintiff come find you in

2004 and you have a conversation with them, and that's the first time you focused on what the intent of the deal was for the prior nine years; is that right? A Q A Probably, yes. Nine years is a long time, isn't it, sir? Yes, it is. MR. ACKER: If we could bring up one more time

today the schedule 1.1 of the asset purchase agreement, please. BY MR. ACKER: Q Now you would agree with me, sir, that if we look at

paragraph V of 1.1(b), excluded assets, this is the paragraph -- this is the paragraph in the asset purchase agreement that tells us what was the intellectual property that was excluded, that is did not transfer from Novell to Santa Cruz under the asset purchase agreement, right? MR. NORMAND: discussed previously. MR. ACKER: BY MR. ACKER: Q As far as you knew, in 1995, September of 1995, this Let me deal with that. Object to the form for reasons we

paragraph, paragraph V of 1.1(b), was the section that dealt

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with what intellectual property was excluded from the transfer, correct? A Q Yes. And as far as you knew when you left the company at the

end of the year, it was still this paragraph in this form is what told both parties what intellectual property was excluded from the deal, right? A Q Yes. And that paragraph reads, the intellectual property

paragraph of what was not transferred, in A, all copyrights and trademarks, except for the trademarks UNIX and UnixWare, correct? A Yes, but I read this in the context of the entire

schedule, page 1 and page 2, and I had in my mind the intent of what we were trying to accomplish. Q sec. I'm trying to focus -- and I'll get back to that in a I want to focus on the words here. You would agree with me, wouldn't you, sir, this doesn't say all NetWare copyrights, correct? A That's correct. This whole language does not say that,

correct. Q A Q What it says is all copyrights, correct? Correct. Now do I understand your testimony to be because there

were other references to NetWare in schedule 1.1(b), you

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somehow imported the word NetWare into this exclusion? have that right? A Q A Q That's the way I read it, correct.

Do I

Despite the fact that the word NetWare is not there? Not on this page. It's in the previous bullet points.

But when talking about what intellectual property was

excluded, there is no reference to limiting it to NetWare copyrights, correct? A Correct. MR. ACKER: BY MR. ACKER: Q Now this is the paragraph -- there is a lot of language Let me see if I can boil it down. Section If we could go to 4.16(b), please.

in there.

4.16(b) is a section that Novell wanted in the agreement to allow them to tell Santa Cruz they had to waive certain rights in order to protect Novell's SVRX revenue stream; is that fair? A Yes, it was intended to protect Novell's SVRX binary

royalty stream. Q It's your testimony this was limited to simply waiver

of rights regarding binary licenses; is that true? A Q Correct. Now can you show me in this paragraph where it says

binary licenses or it's limited to binary licenses? A It doesn't say binary explicitly, but it's in a section

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that deals with binary licensing. Q So in this waiver provision it says buyer shall not,

and shall not have the authority to, amend, modify or waive any right under or assign any SVRX license without the prior consent of seller. A Q A It says any SVRX license, right?

It says that, yes. It doesn't say any binary SVRX license, correct? No. But, again, you have to take the context of the

section. Q Would you think that the same context would apply to

4.16(a), that that is limited solely to -- the pass through of revenues for SVRX licenses was limited solely to binary licenses? A It's limited to binary licenses for the most part. I

can't see the top. Q Let's go back. Let's look at 4.16(a).

So if I understand your position, despite the fact that 4.16(b) doesn't say binary licenses, you are limiting it to that because it's in this 4.16 paragraph; is that right? A Well, no. Yes, the language should say -- says that, The intent when we

but also I'm going back to the intent.

were sitting down around the table was for SCO to collect the royalties and pay Novell 95 percent of them, in paragraph (a), and then, in paragraph (b), to allow Novell to modify the payment terms of those sublicensees on the

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royalty payments. Q So, again, the contract doesn't expressly say that, but

you are relying on your memory of a deal you did 15 years ago? A Q Without a doubt. Now your working relationship with Tor Braham and the

rest of the Wilson team on the asset purchase agreement was such that the lawyers drafted the APA because you did not have the legal background to draft a lot of the terms in the agreement; is that fair? A Not completely, no. There were other lawyers involved.

I don't know that Tor Braham drafted the original APA. Q I'm really drawing a distinction from yourself and the The lawyers from Wilson drafted the

lawyers from Wilson. language, correct? A

I don't believe so.

I believe it was originally

drafted by lawyers from Novell. Q And then the lawyers from Wilson took over; is that

right? A Q Most likely, yes. So you are remembering that the lawyers at Novell

actually drafted the language and then the lawyers from Wilson worked on it after that? A I think they worked on it to reflect the intent of the

business relationship.

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Q

So the lawyers at Novell and the lawyers from Wilson

worked on the language to reflect the intent, and that is the words that are in the agreement, according to you, as of September of 1995? A Q Yes. It's your belief that the actual language in the

agreement, as of September 1995, reflects the deal? A Q Yes. Because the language, as of September of 1995, reflects

the deal, in your opinion, there would be absolutely no reason to want to modify that deal or alter that deal after you left the company in January of 1996, correct? A I don't know what they would do. I think it included

the deal.

But just as we created Amendment No. 1, there may

have been things they discovered afterwards that they wanted. Q With respect to copyrights, you think it's clear as day

that the copyrights exclusion only applies to NetWare and there would be no reason to change that language? A I believe that was our intent. Whether the language

needed to be tweaked to reflect that, that's an opportunity I'm not aware of, but that was the intent. Q Is it your position that the actual words in the

contract that don't refer to just NetWare copyrights being excluded, is it your belief that that language is

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inconsistent with your belief of what the intent was? A I think it's consistent. I've read it and I thought it

was consistent. Q So it's your belief that the language of the agreement

is consistent with what you believe the intent was? A Q As I read it, yes. So given that, there would be no reason to want to

amendment the agreement after you left in January of 1996? A Q A I can't give a view on that. I'm asking you your view on that? I don't know the circumstances that existed when I left

the company to come to a conclusion that they needed to modify. Q When you read the agreement and you read the words at

the end of 1995 and you saw that it excluded all copyrights and it didn't limit it to NetWare copyrights, did you think that language needed to be amended? A Well, my thinking was the intent of the deal was to

completely transfer the business, including the source code, the copyrights, everything, the agreements, the revenue streams. And when I read it September 15th -- 13th, I felt

it covered that. Q By the way, did you attend a board meeting in the

middle of September when the deal was approved? A No.

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Q

Because you were not present at that board meeting, you

obviously don't know what was discussed, right? A Q Correct. It was the Novell board that had the responsibility or

had the authority to approve the deal, correct? A Q Correct. And you don't know what was communicated from the

lawyers, Larry Sonsini and others from the Wilson firm or in-house lawyers from Novell about what the deal was, correct? A Q I don't know what was stated in the meeting, correct. Because you weren't there and you don't know what was

stated in the meeting, you don't know what was in the minds of the directors when they approved the deal, correct? A No. I have an idea as a result of what happened after

the meeting, that it was in line with the intent of the agreement. Q A Q But you weren't in the room? I was not in the room, correct. So you don't know what was in the minds of the

directors who approved the deal? A Correct. MR. ACKER: THE COURT: else? That's all I have, Your Honor. Mr. Normand, do you have anything

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MR. NORMAND:

Very few, Your Honor.

REDIRECT EXAMINATION BY MR. NORMAND: Q Mr. Chatlos, do you recall being asked about meeting

with attorneys for SCO in 2004? A Q A Q Yes. By that time had you met with attorneys for IBM? Yes. And what did you tell them about this issue of

copyright transfer? A The same thing I'm saying today, that we transferred

the entire business, and that included the copyrights. Q A Q A Did they propose that you sign a declaration? They did want me to sign a declaration, correct. What happened? Well, after our meeting they said they would write up a

declaration and send it to me for signature. Q A Q A Q A Q Did they do that? They did do that. Did you sign it? No, I didn't. Why not? It didn't reflect anything near my conversation. Do you have a clear recollection of your intent on

behalf of Novell to transfer all of the UNIX and UnixWare

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assets? A Q Yes, I believe so. And whether it's nine years ago or 15 years ago, would

you remember something as fundamental as Novell's intent to keep the copyrights? A SCO. That would have destroyed the value of the deal for Of course I would have remembered that. MR. NORMAND: THE COURT: MR. ACKER: THE COURT: No further questions, Your Honor. Mr. Acker. Nothing else, Your Honor. Thank you.

Mr. Normand, may this witness be

excused, again, meaning he need not worry about being re-called? MR. NORMAND: THE COURT: MR. ACKER: THE COURT: Yes, Your Honor. Mr. Acker? Yes, Your Honor. Thank you. That means

Mr. Chatlos, thank you.

you do not need to worry about being re-called in this case. You may go about your business. I will advice you to please

not discuss your testimony with any other witness in this case or in the presence of any other witness or communicate your testimony to any individual who may report that, okay? THE WITNESS: THE COURT: Okay. Thank you.

Do you have a witness you can get done in ten

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minutes? MR. SINGER: THE COURT: answer. Ladies and gentlemen, we'll recess, then, for the afternoon. I will not repeat everything that you've been I'm afraid not, Your Honor. I kind of figured that would be the

told now for several days, but I'll briefly remind you of the importance of you not making up your mind in any way, even though you have now heard two days of opening statements and testimony. And, again, I will stress that

you are not to discuss this case with anyone or allow anyone to discuss it with you. You are not to read or watch or

listen to anything about this case, nor are you to allow or to do any research on your own or anything similar to that. We'll start tomorrow morning at 8:30. recess until then. (Jury excused) THE COURT: I'm curious, Mr. Singer, are we on We'll be in

schedule as you contemplate? MR. SINGER: Honor. We're a bit behind schedule, Your

We had hoped today to get through several of the That would mean we're about an hour and

video depositions.

45 minutes behind our schedule. THE COURT: You will begin tomorrow with those

video depositions; is that correct?

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MR. SINGER:

We would begin with Mr. Messman's

To break up the day, we probably will put on

Mr. Davis, then -THE COURT: MR. SINGER: As a live witness? As a live witness, and then return to

the video depos after that. THE COURT: MR. ACKER: All right. Your Honor, if we could inquire, will

their be any live witnesses other than Mr. Davis tomorrow? MR. SINGER: It's possible we would get to Bill

Broderick, but that would only be after a number of depos. The order which we contemplate would be Mr. Messman, Mr. Davis, then going back to the Mohan, Wilt and Michels videos. MR. ACKER: MR. SINGER: So Broderick and Maciaszek after that? Broderick would be after that if

there was time on Thursday. MR. NORMAND: be here this week. THE COURT: MR. ACKER: happy to -THE COURT: Well, if you want to pursue that, I'll Is that all you need, Mr. Acker? If they will tell me more, I'd be There is a travel issue. He may not

let you do it out of my presence. MR. ACKER: Thank you, Your Honor.

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THE COURT:

Counsel, we do not have any hearings

this afternoon, so you do not have to clear the desks unless you want to. We'll be in recess until 8:30. (Whereupon, the trial was continued to Thursday, March 11, 2010 at 8:30 a.m.)