SCO Grp v. Novell Inc

Filing 861

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of March 16, 2010-Jury Trial-Volume VII before Judge Ted Stewart, re 567 Notice of Appeal. Court Reporter/Transcriber Ed Young, Becky Janke, Patti Walker, Telephone number (801) 328-3202. 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 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 Three)(jmr) Modified by removing restricted text on 7/19/2010 (rks).

Download PDF
SCO Grp v. Novell Inc Doc. 861 977 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 vs. IN THE UNITED STATES DISTRICT COURT DISTRICT OF UTAH CENTRAL DIVISION THE SCO GROUP, INC., a Delaware corporation, Plaintiff, ) ) ) ) ) ) ) CASE NO. 2:04-CV-139TS NOVELL, INC., a Delaware corporation, Defendant. _______________________________) AND RELATED COUNTERCLAIMS. ) _______________________________) BEFORE THE HONORABLE TED STEWART -------------------------------March 16, 2010 Jury Trial Volume VII 978 1 2 3 4 5 6 7 8 9 10 11 12 For Defendant: 13 14 15 16 17 18 19 20 21 22 23 24 25 Court Reporters For Plaintiff: APPEARANCES BRENT HATCH 10 West Broadway, #400 Salt Lake City, Utah STUART SINGER 401 East Las Olas Boulevard Suite 1200 Fort Lauderdale, Florida EDWARD NORMAND JASON CYRULNIK 33 Main Street Armonk, New York STERLING BRENNAN 60 East South Temple Suite 1000 Salt Lake City, Utah ERIC ACKER MICHAEL JACOBS 425 Market Street San Francisco, California Ed Young Becky Janke Patti Walker 247 U.S. Courthouse 350 South Main Street Salt Lake City, Utah (801) 328-3202 979 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 Exhibit Defendant's Defendant's Plaintiff's Plaintiff's Plaintiff's Plaintiff's Defendant's Defendant's Plaintiff's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Defendant's Plaintiff's Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Witness Darl McBride Darl McBride Darl McBride INDEX Examination By Mr. Singer (Direct Cont.) Mr. Acker (Cross) Mr. Singer (Redirect) Page 990 1053 1153 Received Y-10 Y-11 174 241 532 533 H-18 T-19 394 N-12 I-12 P-12 C-12 O-14 A-16 P-17 X-17 A-15 M-14 N-13 and T-13 J-16 L-17 J-19 P-45 748 995 1004 1005 1017 1028 1030 1031 1034 1051 1064 1064 1064 1095 1103 1106 1107 1109 1111 1116 1127 1133 1138 1140 1142 1160 980 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 March 16, 2010 PROCEEDINGS 8:30 a.m. THE COURT: MR. BRENNAN: THE COURT: MR. BRENNAN: Good morning. Good morning. Mr. Brennan, you have something? I do. Thank you, Your Honor. In the interest of avoiding surprise, and to make sure that we have fully apprised the Court of developments as we see them and raise issues, we have been informed by counsel for plaintiff that they intend likely today to call as one of their witnesses one of their designated experts, Dr. Christine Botosan. This is the issue. Dr. Botosan in One is a causation her analysis forms two general opinions. opinion and the other is a damage opinion premised on the lost profits analysis. The period for which she calculates There is significance damages runs through the end of 2007. to that for several reasons, but let me first back up and explain how this is connected to her analysis regarding causation. As the Court may recall from the Daubert motions, Dr. Botosan conducted what is known as an events study, pegged certain events and marked those as against variations in SCO's stock price performance relative to the NASDAQ composite index, and if there was a variation that she 981 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 believed was not explained by the market, then looked to see whether there was an event that occurred that could be explained or a predictor for the variation. Of the events that she seized on, some of them are litigation activities. For example, the filing of the She identifies that as a lawsuit by SCO against IBM. significant predictor of a variation in SCO's stock performance. There are events that she does not include. For example, the filing of this lawsuit against Novell in early 2004. There are other events, litigation related, that she does not include in her analysis that we believe would be subject to cross-examination, and by virtue of offering her opinions would open the door to various litigation events that occurred during the period of her damages analysis. In 2004 there is significant litigation activity in this case when Judge Kimball made his initial ruling that it did not appear that the asset purchase agreement constituted a transfer of copyright assets, and that in any event it was unlikely that that agreement met the written description or written requirement for transfer of the copyright ownership. That was in the public domain. That was information that the market could react to. That was Dr. information that potential licensees could react to. Botosan's opinion is premised entirely on the 982 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 prognostication or prediction of what both the marketplace would do in reaction to certain events and, more importantly, what potential licensees might do. So if, in fact, the opinion that is going to be offered through direct examination is what is the mind-set, the state of mind of the market for potential licensees in either 2004, 2005, 2006 or 2007, which is her damages period, then in all fairness Novell ought to be able, since they would open the door, to examine the witness regarding other events. In fact, these are not even predicted events, these are actual events that would have a significant impact on the reaction both in the market and to potential licensees. I have pointed out Judge Kimball's initial ruling in 2004 which is within the damages period and because, according to Dr. Botosan's report, and the deposition testimony that was taken, she also includes damages, a very significant amount of damages for 2007, and that is the very year where Judge Kimball, of course, issued his ruling finding in favor of Novell. So, Your Honor, I wanted to alert the Court that if they are going to proceed with this line of testimony, they would be clearly opening the door and Novell in every respect ought to be able to examine Dr. Botosan regarding these events. This is not simply an analysis of what was 983 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 state of mind, because the expert testimony now goes to what is the state of mind of third parties. Similarly, Dr. Pisano, we are told they may also call, and is the one that conducted the analysis based on surveys, again, prognostications. Here we have actual real world events that play a significant role, and we ought to be able to cross-examine both Dr. Botosan and Dr. Pisano regarding these developments should they seek to recover damages at any point beyond 2003. THE COURT: Mr. Hatch. MR. HATCH: Your Honor, of course, this is the Thank you. first time we have heard of this listening to it today, but Dr. Botosan's regression analysis only involves events in 2003. We don't intend, given the prior discussions with the Court, we don't intend to specifically identify court hearings or talk about court hearings, and those were part of her report, and, as I understand it, that does not come in as evidence, but we'll be discussing her event study analysis and oral opinions and as we did when we had the Daubert hearing. THE COURT: Mr. Brennan is saying, if I understand him, that regardless of whether you plan to discuss them that her report would have to reflect those events. MR. HATCH: Well, he is kind of mixing two things, 984 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 because he is talking about causation again and then damages. On the event study, which talks about causation, The particular event that he is those are events in 2003. most concerned about apparently is Judge Kimball's summary judgment ruling which came down in August of 2004. me, 2007. Excuse The damages study, and that is where he moves to damages, the damages study went through October of that year, because that was the month leading up to the trial, so we are only going to talk about a couple of months there. So I think in large part what Novell is trying to do is essentially they are trying to bootstrap in information that is not relevant. It is not relevant to the causation study, which is only the 2003 time period, and it really does not have an effect on damages. THE COURT: MR. BRENNAN: Mr. Brennan. Well, clearly we have the right to cross-examine the witness regarding the efficacy of the events study. If the witness, that is Dr. Botosan, cherry picked, in other words said I am going to pick a regression period that does not include other events, and I am going to cut it off before there are signal events that could have an impact, we should be entitled on cross-examination to ask about that. Here is a perfect example. through the end of 2003. Her event study runs What is Why stop there? 985 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 significant about the end of 2003? days into early 2004? was filed. Why not go another 20 January 20th is when this litigation We will be able to show through stock analysis, the very premise that Dr. Botosan's testimony is based on, that a precipitous change in SCO's stock price was the day that this lawsuit was filed. In addition, the causation is not necessarily cut off at a particular date, particularly when they are seeking damages all the way through 2007. lines of analysis. So, yes, there are two The first is her causation analysis. There is nothing in the law that says that we can't go beyond the arbitrary period that she picked and say, well, let's look at events that happened right after 2003. look at early 2004. Let's Let's look at what happened to SCO's stock price in 2005, 2006, 2007, because that is their damages period. Now, moving to the other side, the lost profits analysis, they are seeking multi-millions of dollars of damages, more than $50 million of damages in 2007 alone. In that year Judge Kimball issued his summary judgment ruling. We don't need to wait until 2007. In 2004 Judge Kimball ruled on a motion to dismiss that the asset purchase agreement did not transfer copyrights, and that it was highly unlikely that amendment number two met the writing requirement for transfer of ownership of a copyright. 986 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 Now, whether or not that ultimately proved to be correct or not, that was in the marketplace. Dr. Botosan is going to present to this jury events in the marketplace and make prognostications. So as long as they are going to put on expert witnesses who are going to testify as to what happened in 2004, 2005, 2006 and 2007, and seek multi-millions of dollars of damages on the premise of how the market would have reacted, what was the state of mind of people in the market for causation, and what was the state of mind of potential licensees, Novell has every right then to look at all of the events, other events that would have occurred in those same periods. They will open the door if they present this testimony, Your Honor. THE COURT: Counsel, the Court will try to give you some more precise parameters, but the Court is inclined to allow the cross-examination request by Mr. Brennan. I will say to you that if the issue of Judge Kimball's motion for summary judgment comes up, then this Court is ultimately going to have to reveal to the jury that that decision was reversed. We'll just have to play that by ear. If I think I can give you more guidance, I will give you something before she testifies, but I do believe that it is within the realm of your cross-examination -MR. BRENNAN: THE COURT: Thank you. -- that you be allowed to do that. 987 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 issue. The Court received a letter from the plaintiffs regarding the deposition testimony of three former SCO employees whose depositions were taken in the IBM case. First of all, counsel, it is much preferable that you bring this to the Court's attention by way of motions not by way of letters, okay, if you can remember that in the future. MR. SINGER: THE COURT: Yes, Your Honor. Mr. Brennan, I am going to assume that you want to respond to that. MR. BRENNAN: We do. Our intention was to put something together today and we can get it to Your Honor. THE COURT: You do not intend to use the depositions today, do you, Mr. Singer? MR. SINGER: THE COURT: No, we do not, Your Honor. Get us something as early this That would be very afternoon as possible, Mr. Brennan. helpful. MR. BRENNAN: THE COURT: MR. SINGER: We'll do that, Your Honor. Mr. Singer. Your Honor, there is an additional We received last night notice from Novell that they One of intended to add two exhibits to their exhibit list. them involves an H.P. transaction, and we don't have a problem with the late notice on that. We are not saying it 988 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 is admissible, but we will deal with it like any other exhibit. The other one, however, is a different matter. It is an exhibit that essentially involves the financial terms of the retention of our law firm in 2003, and does not seem to have any particular relevance beyond that. It has, of course, been disclosed now at the eleventh hour with Mr. McBride already on the stand. of that document. MR. ACKER: Your Honor, it is Exhibit P-45, and We strongly object to the use what it is is a transcript of a conference call that Mr. McBride and others had in November of 2003. I am fully willing to redact any reference to the Boies Schiller law firm or how much they were paid. I simply want to use it for statements that Mr. McBride and others made to the investing public in November of 2003. THE COURT: If the portions pertaining to your law firm and the amounts paid, and what ever else it may be, if those are redacted do you have a continued opposition to it? MR. SINGER: We would like to see from Mr. Acker what parts he plans to show the jury, because the retention of the law firm is -- in fact, my partner, David Boies, is involved in this conference and starts at the headline and goes throughout the article, so we would like to see how it is planned to be redacted to see if we have an objection. 989 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 jury. Honor. MR. ACKER: I will represent to the Court and to Mr. Singer that I won't show any portion of that part of the conference call to the jury or ask it be admitted. THE COURT: Mr. Acker, I am going to trust you on this and just presume that you'll be very prudent and not allow anything inappropriate pursuant to Mr. Singer's opposition. MR. ACKER: THE COURT: MR. SINGER: I will do that, Your Honor. All right. We don't have anything further, Your THE COURT: Mr. McBride? Would someone get him? Ms. Malley, if you would please bring the jury in. Mr. McBride, if I could get you to please re-take the witness chair. Thank you. (WHEREUPON, the jury enters the proceedings.) THE COURT: Good morning, ladies and gentlemen of In case you're wondering why the blinds are shut, it is because we didn't want you to see that the sun is shining outside and have any desire to be out there. right. Mr. Singer, were you through your examination with Mr. McBride? All 990 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 A. A. Q. MR. SINGER: THE COURT: MR. SINGER: No, Your Honor, I have more. Go ahead, please. Thank you. DIRECT EXAMINATION (Cont.) BY MR. SINGER Q. Good morning, Mr. McBride. I would like to start by bringing up SCO Exhibit 1 and amendment two which is part of SCO Exhibit 1. Do you recognize this as amendment number two? Yes, I do. Yesterday in your testimony you were saying that you had obtained some comfort from finding the language in amendment number two with respect to the transfer of copyrights. Can you explain that? Yes. My initial concern was when I read the asset purchase agreement, and the excluded assets section said the copyrights were excluded. some comfort around that. That was why I was trying to get When this amendment number two came in it gave me exactly the comfort that I was looking for, because this effectively replaced the language that was in the A.P.A. with this new language which said we had the copyrights for UNIX and UnixWare necessary to run our business. Q. You also testified yesterday with respect to certain 991 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 letters on June 9th and June 12th from Jack Messman pertaining to the waiver of SCO's claims against IBM. Do you remember that testimony? A. Q. Yes, I do. I want to ask you this morning whether or not you know if Novell had any continuing interest in a royalty stream from IBM at the time of these letters in June of 2003? A. Q. A. No, they did not. At one time was there such an interest? Yes, there was. At the time of the asset purchase agreement in September of 1995 there was an interest. However, one year later that was replaced or that was taken out in a buyout. IBM effectively bought out their interest of ongoing royalties, so there was not anything ongoing at the point in time when they were sending me these letters. Q. I would also like to ask you, Mr. McBride, if you're still the C.E.O. of SCO Group? A. Q. A. Q. A. Q. A. No, I am not currently. When did you lose your job? That was in October of last year. Do you have any stock holdings in SCO Group? Yes, I do. Approximately how much? As far as the shares that I own it is a little over 26,000 shares. 992 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 Q. A. Do you hold a substantial number of options? Yes, I do have a material number of options that I hold as well. Q. What I would like to do now, is go back to 2002 and when you became C.E.O. What was SCO's business at the time? A. The core business of S-C-O was selling operating systems. Q. A. Which particular products were being sold? There were two main products being sold, the UNIX operating system and then they had started to dabble in trying to sell the Linux operating system. Q. A. Q. A. Which UNIX based products were being sold? Which were UNIX based? Yes. We had two main products. One was called UnixWare and the other one was OpenServer. Q. A. Explain what OpenServer was. OpenServer was a product that a lot of store owners and a lot of companies, large companies and small companies would use to run their business. It was very popular in retail environments and with companies like McDonald's, Good Year Tire, BMW, let's see, C.V.S. Pharmacy, Walgreens. There were a number of large organizations that would use these in their branch offices. 993 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 Q. time? A. How about your server base, how large was that at the Between both products, both of the UNIX products we had over two million servers worldwide. Q. A. What are some examples of SCO's UNIX customers? Well, besides the ones I mentioned, and, again, when you have two million servers obviously that touches a lot of customers. A lot of retailers had them. Many governments around the world had them. For example, the United States Even today before you can government uses SCO UnixWare. launch an F-16 fighter jet off from a deck, it has to get an okay from a SCO UnixWare system. Until it has this encrypted key that says launch, it does not go. The German train system, basically our SCO UNIX runs the entire network of trains in Germany. in China runs on SCO UNIX. The postal service Large banks in Russia and India There are a and other parts of the world run on SCO UNIX. number of small organizations that run it too, but I'm kind of giving you the flavor of the big brands or the big ones that you would recognize. Q. A. Q. A. You mentioned McDonald's, I believe? Yes, McDonald's is another one. How does McDonald's make use of SCO UNIX? Well, every time you pull through to order a Happy Meal or a Big Mac, there is a server back there that is 994 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 processing these orders. The attendant will take your order and enter it into a computer, and the SCO UNIX is the think that is processing that transaction. So there are over 10,000 McDonald's, I think all of them here in the United States that run on SCO UNIX. When you go into McDonald's and you see the green screen computer behind the clerk there, you see these orders rolling through, behind that is OpenServer, SCO UNIX. Q. Mr. McBride, what was the financial condition of the company in July of 2002? A. Q. A. It was in pretty rough shape when I joined the company. Can you elaborate on that? Yes, I can. The company had gone through a serious decline when I joined. In fact, I had been brought in for a turn around, The to try and get those revenues to go back up again. company was once a high flying seller of this UNIX operating system, had over $200 million per year in revenue, that was in the late nineties, and then by the time that you get to 2002 you see that revenue coming all the way down to 50, $60 million. It was heading south rapidly. It was not in good shape when I joined the company. Q. How much money on research and development was being spent during that time period? A. There was millions, tens of millions of dollars being 995 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 spent on research and development for new products. Q. I would like you to turn to Exhibit Y-10 that appears in your binder of exhibits. A. Q. Okay. Is Y-10 a memorandum or letter that you sent to shareholders of Caldera on August 12, 2002? A. Q. Yes, it is. Is Caldera the company whose name was changed to SCO Group, Inc.? A. That is correct. It was changed just right after this letter went out. MR. SINGER: MR. ACKER: THE COURT: I move the admission of Y-10. No objection. It will be admitted. (Defendant's Exhibit Y-10 was received into evidence.) BY MR. SINGER Q. Mr. McBride, explain the purpose of your letter to shareholders on August 12, 2002. A. It was to inform them of my findings having been on board now for not quite two months, as to what the state of the company was, what the assets were that I had found inside of the company. Generally it was a road map as to where I hoped to take the company going forward and how to capitalize on the assets that the company did have. 996 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 Q. Can you look at the first paragraph and explain what you were doing during the first month that you became C.E.O.? A. Q. Do you want me to read that? You can read it to yourself. The question is to explain what you were doing when you joined the company. A. Right. It was, again, going through this diligence process, focussing on the assets that we had and trying to understand how we can take those assets into the marketplace and try to come up with some new ideas, instead of the revenue going south, trying to figure out how to get it to go up again. Q. A. Q. You state here that your findings were encouraging. Yes. Explain why. Feel free to point to any of the bullet points or discuss any of the bullet points in the course of that. A. Sure. If you look at the bullet points -- I can't see If you could blow up that section there them right now. just a bit. Thank you. I would almost take these in order of importance as to how I wrote them out here in the letter. The first thing that I found that was incredibly valuable was the ownership rights to the UNIX operating system. If you look at the world of operating systems, worldwide you would essentially 997 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 see two very big systems. You would see one that was UNIX and you would see one called Windows. As we all know, Windows has become pervasive in our daily use and lives, but as big as windows is, UNIX is much bigger in the business environment. Through my understanding and research and really coming down to what our assets were, we had this asset purchase agreement and we had this document that says in it, in part, SCO owns all right and interest in the UNIX operating system, in UNIX and UnixWare. Q. SCO owns all versions of UNIX and UnixWare. Let me interrupt you three, if I might, for a moment, Mr. McBride, and ask is ownership of the UNIX copyrights required for SCO's business? A. Q. Yes, absolutely. Can you explain why ownership of the UNIX copyrights is required? A. Well, you can't make copies of things if you don't have You can't go out and do deals the copyright protection. with people. You can't enforce your rights if somebody There are a tries to take advantage of your property. number of reasons. It would be like the Beatles trying to protect their music catalog without having the underlying copyrights. Q. You have to have the copyrights to protect it. Can you continue with your explanation of the points that you were making in memorandum Y-10. 998 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 A. Sure. Again, UNIX was the first big thing we saw. We mentioned the customers, and that was a big deal. When you have seven of the top ten retailers in the country that run on your servers, that is a good thing. NASDAQ is another example. Every stock trade that goes So the through NASDAQ runs through a SCO UNIX server. customer base was something that we felt like we could go back to and offer them new products and new offerings. Q. Can you describe the importance of the distribution channel? A. Sure. As we mentioned earlier, we have these big companies that we're talking about, but you also have a lot of small companies, thousands and thousands of small companies that run their business on SCO UNIX. If you were to go over here to Wasatch Marine in Salt Lake City, a little company like that, they have built their operating business on a SCO UNIX server. The problem is when you go to a small company like Wasatch Marine, we don't have the capacity with the 300 people in the company to reach out and service thousands of those kinds of customers. So what you see in bullet number three, was we had over 16,000 resellers worldwide that had signed up to support and be an extension, if your will, of SCO's sales force but also of SCO's service and support team. 999 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 We were selling into 82 countries and we had 12 offices around the world, so we had a very broad reach through that distribution channel. Q. A. Can you explain item four? Yes. We felt like we had this very good business and we had a market capitalization at the time of $10 million, but we were competing against other companies doing similar things that had a market value of, in the case of Red Hat, our number one competitor, who had $800 million. We believed that from a shareholder standpoint that we were undervalued, and that it was an opportunity that we could have for our investors to make more money in the stock as we went forward. Q. A. Can you explain item number five? Yes. I mentioned that we had been dabbling with Linux We actually had and we have been trying to get in there. formed a group or joined in a group called United Linux. The idea was that we have our UNIX system over here, and if people want to try this Linux system, even though it is a smaller part of our company, we have an offering there. was back to this idea of what are some new things that we can go to our customers with. Q. A. Finally, can you talk about item number six? Yes. The company did not have any debt. Although the It revenues were coming down and we were in a loss position on 1000 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 a quarter-by-quarter basis, we felt like if we could get the loss situation turned around, and we didn't have debt, we were undervalued as a company, we felt like we had an upside for investors. Q. Were you aware in 2002 of what SCO's market share had been in the late 1990s? A. Yes. When we talk about SCO, the SCO UNIX product line, which at the time was owned by the Santa Cruz Operation, it had revenues that exceeded $230 million, and market capitalization that was multiples more than that. Q. In terms of the share of the market, though, of servers, of UNIX servers -A. At that point in time when the company was selling a couple hundred million dollars a year, the market share for UNIX, the UNIX operating system that the company held was 43 percent. Additionally, if you take just the UNIX on Intel, which is really where the company specialized, which was the P.C. Intel type chips, the company had an 85 percent market share. Q. What had been happening to the sales of UNIX over the time frame of the late the 1990s to when you joined the company in 2002? A. Q. They had been falling precipitously. Did you develop an understanding why the company's 1001 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 sales were falling precipitously? A. Yes. It was mainly due to the competition from this Linux operating system. Q. Can you explain how Linux became a competing operating system? A. Yes. Linux, as we talked a little bit about yesterday, in the initial phases was somewhat of a hobbyist tool, a hobbyist operating system. It was like a garage band operating system with college students and free programmers and people getting together and coming up with this fun little operating system. Somewhere along the way, though, there was a transition where it went from being a fun little garage band toy to being a major operating system that big companies used. What happened along the way is we had a joint venture partnership with the IBM Corporation that went sour, and later we found that important materials of ours had found their way via IBM into Linux, which made it a very viable operating system for businesses to buy. Q. Now, why would IBM want to spend money on something like Linux that was being distributed for free? MR. ACKER: Honor. THE COURT: THE WITNESS: Overruled. IBM's main business was selling Objection, calls for speculation, Your 1002 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 hardware systems and selling service to support those systems. The fact that Linux was there as a free operating They liked system played right into their strategic hands. the fact that they could go out and sell a system and get people to buy an entire package from them, and they could sell the value saying, look, you got your software for free. That was a big strategic opportunity for them. BY MR. SINGER Q. Did there come a time, Mr. McBride, when you became concerned that Linux contained within it propriety UNIX technology? A. Q. A. Yes, I did. Can you explain how that came to your attention? Sure. I joined the company in June of 2002. The company is in a free fall in terms of revenue. point in my life I had done a lot of start-ups. Up to that I had done companies that were at zero going up, and now I'm looking at you take a company that is coming done and turn it around. My first thought was, well, this can't be that hard. have a lot a revenue. proposition. What I did first when I came in is I brought together the top 12 managers of the company and asked each of them what is going on with the company? this around? What can we do to turn In the They It ends up that it is a difficult How can we get our revenues returned? 1003 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 course of discussing opportunities with those 12 managers, one of them, who was the Linux evangelist, who had come to me in my one-on-one interview with him, said to me that there were UNIX materials that were being misused with Linux, and that it was a problem for the company, but it could also be an opportunity if we played it right. That was really the first introduction that I had that there was misuse going on inside of Linux. Q. A. Q. Did you have people investigate that further? Yes, I did. Did you determine what part of UNIX you were initially concerned with that had been put into Linux? A. Yes. The individual we're talking about, his name is John Terpstra, and he is a very bright individual and has been around the Linux environment for many years. He informed me that the main area he was concerned with was something called shared libraries. Attached to the shared libraries was this thing called a dynamic linker. That was the main thing that he had introduced to me that he felt like was problematic. Q. Did you develop a program to license those libraries for use with Linux? A. Yes, we did. As I talked through this with Mr. Terpstra, the idea that he had, and I supported it, was this concept of saying, 1004 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 well, instead of going to all these people who are running Linux and saying, you know, you can't use that, take it out, the idea was to go to them and say, okay, you're using this. We have a license here, and those are our materials, but we will sell you a license and then it would be a win win. They would be able to continue to use those libraries and we would be able to get some royalty or some revenue from it. Q. A. Q. Could you look at Exhibit Y-11. Okay. Was this a press release that you planned to issue on December 11, 2002? A. Yes. That is correct. MR. SINGER: MR. ACKER: THE COURT: I move the admission of Y-11. No objection. It will be admitted. (Defendant's Exhibit Y-11 was received into evidence.) BY MR. SINGER Q. A. What was this press release about? This was a press release that was going to announce our introduction of this licensing program for those shared libraries that we just talked about. Q. A. Q. What was the date that was set for this press release? That was December 11 in 2002. Was this press release issued at that time? 1005 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 A. Q. A. Q. A. No, it was not. Did you delay the announcement? Yes, we did. Why is that? Two days before the announcement IBM approached us and was understanding that we were going to make this announcement and was not happy about it, and asked us to hold off on the announcement so that we could have time to talk about it. Q. What was your understanding of why IBM didn't want you to make this announcement at this time? MR. ACKER: THE COURT: BY MR. SINGER Q. Did you subsequently issue a press release announcing Objection, calls for speculation. Sustained. the program? A. Q. Yes, we did. I would like you to turn to Exhibit 174 for SCO. Is this a press release that, in fact, was issued on January 22, 2003? A. Yes. That is correct. MR. SINGER: MR. ACKER: THE COURT: I move the admission of Exhibit 174. No objection. It will be admitted. (Plaintiff's Exhibit 174 was 1006 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 received into evidence.) BY MR. SINGER Q. Mr. McBride, can you take the jury through the points which are being made here in terms of the announcement of a SCOsource division? A. What was that? We had gone through this now and we had been working on this for several months, and the decision was -- we have had this really rough run with our products getting beat up by this free operating system called Linux, and now we're going to come back out and put together a licensing program. We are going to announce this library licensing deal that we have been talking about, but we had to put them inside of a group. We formed a new group which was different from our Our products group continued to sell to products group. McDonald's and other people. The SCOsource division, on the other hand, had a charter to take SCO's valuable intellectual property and go out and license them in different ways to different people. SCOsource then is the division, and later had product names that were branded SCOsource, but it starts off SCOsource is the division for licensing these properties. Q. Can you move to page 2 of the release. MR. SINGER: the first paragraph. BY MR. SINGER Mr. Calvin, if you would highlight 1007 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 Q. A. Read the quote that is attributed to you. Sure. SCO was the developer and owner of SCO UnixWare and SCO OpenServer, both based on UNIX System Five technology. SCO owns much of the core UNIX intellectual property and has full rights to license this technology and enforce its associated patents and copyrights. SCO is frequently approached by software and hardware vendors and customers who want to gain access to pieces of key UNIX technology. SCOsource will expand our licensing activities, offering partners and customers new ways to take advantage of these technologies. Q. Turn to the third paragraph. MR. SINGER: BY MR. SINGER Q. A. Who was Mr. Sontag? Chris Sontag was the vice president over the SCOsource Mr. Calvin, highlight that paragraph. division. Q. Can you read to the jury the statement in the press release that Mr. Sontag made. A. Sure. The most substantial intellectual property in UNIX comes from S-C-O. While Linux is an open search product it shares velocity and architecture and A.P.I.'s with UNIX. Starting today, SCO's libraries will be available to third party application developers, O.S. vendors, hardware 1008 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 providers, service vendors and end users. SCO will help customer legitimately combine Linux and UNIX technology to run thousands of UNIX applications. SCOsource plans to create other new licensing programs to make our rich inventory of UNIX system technology available to the market. Q. Now, were you seeking to sell the SCOsource products to your existing customers who were using UnixWare on OpenServer? A. No. This was primarily going out to a new set of customers. Q. If there were customers who had bought a Linux product for SCO, would they have to buy this product? A. Q. No. Now, at the time of the actual launch of this product, which this is January 22, 2003; is that correct? A. Q. That is correct. Did anything occur at that time to cause you to be concerned about copyrights? A. Q. A. Yes. Can you explain that. Let me back up just a little bit. In December IBM had come to us and was very concerned about our announcement of this SCOsource licensing division and the subsequent products that came from it. We negotiated back and forth with them a couple times and they did not want us to go 1009 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 launch this product. Ultimately we came to a disagreement and said we are going to. On the day that we launched it I was at a trade I received a call from show in New York called Linux World. a senior executive from IBm by the name of Karen Smith, who was very upset and wanted to sit down and have a meeting to talk about what happened with this announcement. We had a breakfast meeting the next day. very upset. out. She again was She was very upset that the announcement went We talked for a couple of hours and there were other discussions about their UNIX license that was becoming an issue at the time as well. In the context of those discussions, Karen Smith said to me, well, we are not worried about you being able to sue us or others, because you never got the copyrights from Novell in that transaction in 1995. Q. A. Did she say what her source of information was? She implied that there were discussions going on with Novell. Q. Had you previously taken any steps to assure yourself that SCO, in fact, owned the UNIX copyrights? A. Q. Ask that again. Had you previously taken any steps to assure yourself that SCO did own the UNIX copyrights? A. Yes, I had. 1010 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 Q. A. Can you explain what you did? In the fall time frame of 2002 when we started putting together this licensing program and this licensing division, the first thing that I did was to do a lot of research and due diligence to get an understanding of all of the agreements and all of the intellectual property that we owned. I had a number of attorneys that we engaged at that time. The first person that I called was my older brother, Kevin, who is an attorney, one of the smartest people I know, and he came in and did an initial analysis. He is not an intellectual property attorney, but he connected me with some that were. We had an intellectual property attorney As we went come in and start looking at the agreements. through those agreements, the word that was coming back to us was -MR. ACKER: on this. THE COURT: Okay. I object. I think we need a sidebar (WHEREUPON a sidebar discussion was begun.) MR. ACKER: I suspect we're going to get into some sort of advice of counsel that he in fact was told they did own the copyrights, and this was the subject or discussion in Mr. McBride's deposition and the privilege was asserted when we started to inquire into this area. So they can't on 1011 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 one hand not let us get at this during the course of discovery, and now try and present it to the jury. MR. SINGER: a statement. It is not my intent to get into such My point is simply getting Mr. McBride to say I why he approached Novell for clarification on this issue. will try and focus the questions to make that clear, and I am not planning to get into anything Mr. -- advice of counsel or otherwise. MR. ACKER: The problem is is that clearly the implication of this line of questioning is just that, and he in fact just said that it was what my brother told me that everything was okay, and there is no other reason to ask that other than to -MR. SINGER: THE COURT: That is not in fact what -Do not ask anymore questions about specific legal advice based upon the representations that you raised the privilege on in the course of deposition. can't allow you to do that. MR. SINGER: THE COURT: I understand. All right. I (WHEREUPON, the bench conference was concluded.) BY MR. SINGER Q. Mr. McBride, in this fall 2002 period, did you look at the A.P.A.? A. Yes, I did. 1012 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 Q. Did you see the language which is pertaining to an exclusion of copyrights? A. Q. A. Q. A. Q. A. Yes, I did. At that time were you aware of amendment number two? No, I was not. Did you contact Novell in the fall of 2002? Yes, I did. Who did you speak with? I spoke with a handful of attorneys, but the one that I spent most the time talking to was a person by the name of Greg Jones. Q. A. Tell us about your conversation with Mr. Jones. I talked to Greg and I called him on the phone. He was somebody I had known when I was working at Novell years earlier. I talked to him about how I was now the C.E.O. of SCO and that we had our UNIX business that we had bought from Novell back in the nineties. We were putting together this licensing division and we were going to go out and license and enforce and protect our intellectual property, but in the process of doing that my research and diligence had shown that there was an oddity, if you will, in the asset purchase agreement that didn't make any sense to me, which was this excluded asset saying that copyrights were excluded from the asset purchase agreement. 1013 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 Q. If you had been aware of amendment number two, would you have called Mr. Jones? A. Q. A. No, I would not have. What did Mr. Jones say to you? Mr. Jones was as stumped as I well. He said, well, that does not make any sense. We talked about it and he ultimately agreed to go try and find some documentation that would clear up the problem. Q. A. Did that happen? I don't know what he did on his side exactly. He represented to me that he was going to go off and look and then report back to me. Q. A. Q. A. Did he report back? Yes, he did. What did he say? We talked a number of times, several times over the The first thing that he came back with was coming months. that they had looked around the office and they didn't see anything, and realized that their UNIX files were in archives off site and they didn't have access to them, and that they didn't want to take the time or energy to go look in their archives. Q. A. Did you discuss any alternative to doing that? Yes. Then at Mr. Jones' request, his idea was why don't you guys put together a clarification letter, and we 1014 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 all know what happened here, and rather than us going and chasing down this language, why don't we just -- if you could just draft a clarification letter and send it over and I'll try and get somebody to sign it indicating that the copyrights did in fact transfer in 1995. Q. A. Did that happen? The first part of it happened in that we did send him over the proposed or requested clarification letter. Q. A. that. Q. Did Mr. Jones ever state that SCO did not own the UNIX Was it ever signed and returned? The second part did not happen. They did not sign copyrights? A. Q. No, not at all. Did Mr. Jones ever state that Novell continued to own the UNIX copyrights? A. Q. No. Did you at any time ask Novell to transfer the copyrights? A. Q. A. Q. No, not at all. To your knowledge did anyone else at SCO do so? No. Now, going back to the issue of Linux and UNIX, did there come a time when your concern expanded from the libraries that were used with Linux to other parts of the 1015 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 UNIX system? A. Q. A. Yes. Explain that. Well, over time we engaged a team of technology experts to come in and evaluate what was going on inside of the Linux code base and the UNIX code base. As those evaluations progressed, there were additional concerns coming back that there was more infringement going on than just the libraries. Q. A. Q. A. What did you discover concerning that issue? What did I discover? Yes. What we discovered ultimately is that UNIX and its technology was showing up in material ways inside of Linux. Q. A. Q. A. Q. A. Did SCO bring a lawsuit against IBM in March of 2003? Yes, we did. Why did you do so? We brought that for breach of contract. Why did you do so? IBM had taken material amounts of technology that was under license to our UNIX group and our UNIX System Five technology, and had donated and had moved it over to Linux and had given it to Linux to help it grow up to be this more mature operating system. That was against the contract rights that they had with us. 1016 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 Q. Did you put IBM on notice that you would terminate their license? A. Q. Yes, we did. Did that begin a period of discussions with IBM about the resolution of those issues? A. Q. Yes. That is correct. Is that the notice that we talked about yesterday afternoon that Novell acted to waive SCO's rights to on June 12, 2003? A. Q. Correct. Did there come a time, Mr. McBride, when SCO decided to expand the SCOsource licensing program? A. Q. Yes. Was there more than one type of SCOsource license that you developed? A. Q. A. Yes. Can you explain what the vendor license was? Yes. The vendor license was the idea of taking our valuable UNIX technology, UNIX the UnixWare, and going to other large companies and selling them a source code license where they could take UNIX and they could go develop and do things like we had been doing with it. Q. Was there another type of license called a right to use license? A. Yes. That is correct. 1017 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 Q. A. Can you explain what that is? The right to use license was a little different than The vendor license was where you would the vendor license. go to a large company and say here is all of our technology, develop your own products around that. The right to use license, on the other hand, was taking the same technology but putting it in the form of an end user agreement, and allowing end users of Linux to run Linux to their heart's content, and any of the intellectual property there that mapped over to UNIX would be covered with this right to use license. Q. Did you send out a lot of letters to major corporations? A. Q. Yes, we did. I would like you to look at SCO Exhibit 241. Is this a letter which you sent on May 12, 2003? A. Yes. MR. SINGER: MR. ACKER: THE COURT: I move the admission of Exhibit 241. No objection. It will be admitted. (Plaintiff's Exhibit 241 was received into evidence.) BY MR. SINGER Q. Mr. McBride, is this a letter which SCO sent on May 12, 2003 or about that date to a lot of different companies? 1018 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 A. Q. Yes. That is correct. Well, let's walk through the What was the purpose? letter first. A. Q. Okay. Well, let's talk about the first paragraph. MR. SINGER: BY MR. SINGER Q. Why were you telling these companies about your rights If we could blow that up, Mr. Calvin. in the UNIX operating system? A. We wanted to establish a foundation that we were the owner of this operating system before we started talking about the licensing plan. At this point we were not talking licensing, we were putting them on notice that we had concerns about the misuse of our intellectual property inside of Linux. Q. A. Q. Was it important to you to put them on notice? Yes. Can you go to the next paragraph of the letter, or the next couple of paragraphs actually. MR. SINGER: of those up? BY MR. SINGER Q. Can you explain what you meant by the statement that Mr. Calvin, can you put the balance the development process for Linux is different substantially from the development process for other enterprise operating 1019 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 systems? A. Yes. The Linux development environment was one where anybody around the world could go and take things and contribute them into this pool of code, if you will. When people contributed into this pool of code there was not a process to guarantee that the code going in was protected and free of copyright material. MR. SINGER: Mr. Calvin, can you blow up the last two paragraphs of this page so that the jury can see those. BY MR. SINGER Q. Can you explain what you were seeking to tell people about in the last couple paragraphs on page 1? A. What we're talking about here is with this Linux system, which was really trying to replicate what UNIX did, it was trying to copy SCO, and there were cases we were finding where our code was showing up inside of Linux. In some of these cases people who were contributing this code worked for companies that had licenses to SCO UNIX technology. There was a big concern about someone having access to our code, and then going out and donating it to Linux, and the authoring process here not being supervised and not having the legal integrity whether that code was clear or not was something that was going to create a liability for the end user of Linux when it was all said and done. 1020 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 Q. Is that different than the way most software was distributed? A. Q. A. Yes. Can you explain? Most software or proprietary software is usually developed inside of a company, and it is basically one company that is putting it together and then they go to market with it, and then they stand behind it and they warrant that this is our material. Q. A. Was that true of Linux? No, it was actually the opposite. There was an end user license agreement that goes with Linux that says because you got this operating system for free, if there are any problems with it, then it is your problem, is basically what the license says, to paraphrase. Q. What was the reaction to this letter from companies that received it? A. Q. It was mixed. What was the different type of reaction that formed that mix? A. Of the people who received this, hundreds of people Some were called in and wanted to talk about the situation. interested in getting a license, which at the time we didn't even have a license. to the issue. We were just putting them on notice as Some people were interested in a license. 1021 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 Some people called and said why did you send this letter? We don't even do Linux. Then others, you know, were not excited about the prospect of having to have a license or having to face the prospect of going into a battle over this. Q. Did any corporations ask for a way to become compliant with your intellectual property? A. Q. Yes, they did. Now, was there an adverse reaction from other parts of the technology community? A. There was an extremely adverse reaction from the Linux Not all of them. There were some part of the community. that were saying, yes, I understand what you're saying, but the hard core loyalists, if you will, had a severe negative reaction to what we were doing. Q. Did you enter -- let me rephrase that. Was the quarter that ended April 30th a good quarter for SCO? A. Q. A. Q. Yes, it was. We're talking about April 30, 2003? Correct. Turn to Exhibit 254. That is a press release May 28, 2003. Is that what this document is, a press release on May 28, 2003? A. Yes. 1022 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 paragraph? MR. SINGER: THE COURT: BY MR. SINGER Q. I move the admission of Exhibit 254. It is already admitted. Mr. McBride, can you take a look at Exhibit 254, and tell us whether that accurately reflects your understanding of the financial performance of SCO during the quarter that ended on April 30, 2003? A. Yes, it does. MR. SINGER: Again, can you blow up that first BY MR. SINGER Q. Now, Mr. McBride, we talked yesterday about what happened in May and June with respect to you and your conversations with Mr. Messman. I would like to ask you about the financial performance at the end of June of 2003 and ask you to take a look at Exhibit 229. Is this a presentation to the board of directors of SCO on June 26, 2003? A. Q. A. Q. Yes, it is. Was this a financial presentation? Yes. That is correct. Do you know whether the financial information contained here were taken from the books and records of SCO? A. Q. Yes. Does that include both the historical and forecasted 1023 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 financial information? A. Q. Yes. Was it a regular part of SCO's business to create such documents and maintain such records? A. Q. Yes. Are you knowledgeable about these issues and able to address them? A. Yes, I am. MR. SINGER: 229. MR. ACKER: Honor. I object on a couple of grounds, Your I move the admission of SCO Exhibit One, it appears that there are two documents stapled The second document at the back is a review draft I don't It is together. and it appears to be unrelated to the power point. think this power point is a proper business record. not a financial record of the company, it is simply a power point and it is hearsay on those grounds. It does appear to be two documents, and the back document appears to be a draft of something. MR. SINGER: back document. I have no problem with removing the The first part of the document constitutes a series of financial charts, and I can go through them one by one, if necessary, to show that those come from the financial records prepared in the ordinary course of SCO's business. 1024 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 A. THE COURT: The Court will overrule the objection and allow you to proceed, but I do want the back part taken out. MR. SINGER: BY MR. SINGER Q. Can we turn to the first page of the document? Yes. Actually, if we look at the first document, the first page, is that a breakdown of the revenue by product line? A. Q. Yes. Where it says E next to a particular bar on the graph, does that mean estimated? A. Q. A. Q. Yes. And in June of 2003? That is correct. Can we turn to page -- look at the Bates stamp number -- it is page 921. Can you explain what this page is? Yes. This is a breakdown of our revenue by business line and product. Q. And certain periods are listed as actual and others are forecasted? A. Q. Yes. Can you explain and tell the jury what the numbers are on the line which says SCOsource on the left-hand side? A. Sure. SCOsource, again, relates to -- as you can see, 1025 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 up until January 31 there was no revenue coming from that. When I joined the company and we had this revenue problem and we came up with the SCOsource division, but the first quarter of having any revenue in the SCOsource division shows up in our second fiscal quarter of 2003 ending April 30th. The first quarter then you see with revenue is the actual revenue, and that is the revenue that we reported in our earnings report that quarter that we mentioned just a moment ago. Q. A. Q. A. Q. Are these figures in millions? These figures are in millions as it mentions up above. What was the forecast for 2003, for the year? The forecast for the year was 27.25 million. Did you also have a forecasted number for the SCOsource division for 2004? A. Q. A. Q. Yes, we did. What number was that? 40 million. Did this represent your best estimates at the time of this report? A. Q. Yes, it did. Did you proceed with SCOsource licensing in the summer of 2003? A. Q. Yes, we did. I would like you to take a look at SCO Exhibit 748. 1026 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 This has your name on the front page. A. Q. Yes, it does. Can you explain what this document is without talking about the contents of it? A. Q. A. I need to see the second page to see what the -It is also in your book. This is an overview. This was a power point presentation overview of the company at the time. Q. A. Q. Take a look in your book at Exhibit 748. Okay. Was this presentation used with companies that were interested in SCOsource products? A. Yes, it was. MR. SINGER: MR. ACKER: MR. SINGER: I move the admission of 748. Objection. It is hearsay, Your Honor. I am not seeking to admit it for the truth of the matter, but rather as part of the presentation that was made to customers showing the operation of the program. MR. ACKER: I don't know how it is relevant. He wants the truth of the matter asserted in here, Your Honor. There are allegations and assertions in here that he can't prove and he wants to do it with this document and it is hearsay. THE COURT: I am going to sustain the objection. 1027 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 I think it is clearly being offered for what it says. BY MR. SINGER Q. Did you provide customers with information in the summer of 2003 regarding the SCOsource program? A. Q. 2003? A. Q. A. Yes, I believe it was June of 2003. Can you explain what the code room was? The code room had a couple of things in it. As was Yes, we did. Did you create a code room at SCO in the summer of mentioned in one of our earlier documents, we had thousands and thousands of agreements with various companies, so we had all of these UNIX agreements in different binders. Those were in the code room. licensees were. The second thing we had in the code room was sample code of the infringement that we had found to that point between UNIX and Linux. The code room was set up because Once these letters went out a They indicated who all of our there was a lot of demand. lot of companies responded and said we want to see some code. We don't need to see the whole thing, we just need to see a sample so that we understand what you're saying has some legitimacy to it. The code room was set up to let people come in and see the examples of here is the Linux code and here is the UNIX code and here is how we are 1028 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 showing that they are infringing. Q. A. Q. Did you register copyrights in July of 2003? Yes, we did. Did these include copyrights that you had obtained from Novell? A. Q. Yes. Can you explain why it was important to you to register copyrights at that point in 2003? A. In order to enforce your copyrights, you actually have to have them registered with the copyright office. Q. Can you identify Exhibit 532? Is this a press release that you issued on July 21, 2003? A. Yes. That is right. MR. SINGER: MR. BRENNAN: THE COURT: I move the admission of Exhibit 532. No objection. It will be admitted. (Plaintiff's Exhibit 532 was received into evidence.) BY MR. SINGER Q. Tell us what the purpose of this press release was, Mr. McBride. A. It was to let the world know that we had actually registered our copyrights with UNIX and UnixWare. Q. Can you turn to the fourth paragraph? Well, let's turn first to the first paragraph. 1029 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 Can you read this paragraph out loud for the jury, please. A. Sure. The SCO Group today announced that it has received U.S. copyright registrations for the UNIX System Five source code, a jurisdictional prerequisite to enforcement of its UNIX copyrights. The company also announced that it will offer UnixWare licenses tailored to support run time binary use of Linux for all commercial users of Linux based on kernel version 2.4X and later. S-C-O will hold harmless commericial Linux customers that purchase a UnixWare license against any past copyright violations, and for any future use of Linux in a run only binary format. Q. If we go down to the fourth paragraph, can you read that paragraph, please. A. Yes. Hundreds of files of misappropriated UNIX source code and derivative UNIX code have been contributed to Linux in a variety of areas, including multi processing capabilities. The Linux 2.2X kernel was able to scale to two to four processors. With Linux 2.4X and the 2.5X development kernel, Linux now scales to 32 and 64 processors through the addition of advanced symmetrical multi processing capabilities taken from UNIX System Five and derivative works in violation of S-C-O's contract agreements and 1030 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 copyrights. Q. Did you publicly announce a SCOsource I.P license for users in Linux? A. Q. Yes. Would you turn to SCO Exhibit 533. Is this a press release dated August 5, 2003 by SCO? A. Yes. That is correct. MR. SINGER: MR. ACKER: THE COURT: I move the admission of 533. No objection. It will be admitted. (Plaintiff's Exhibit 533 was received into evidence.) BY MR. SINGER Q. 2003? A. It was to announce that we had now formally put What was the purpose of this press release on August 5, together the SCOsource licensing program, and to let them know that there was this binary license to run SCO's intellectual property in Linux. MR. SINGER: Can you expand the first paragraph of the press release, please. BY MR. SINGER Q. Now, earlier you had said that there were two different types of licenses, a vendor license and a right to use license. 1031 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 A. Q. A. Q. Right. Which one was being referred to here? This was the right to use license. Did you also have deals with vendors for vendor licenses going on during this time period? A. Q. Yes, we did. I would like to ask you whether or not Hewlett-Packard was one of those companies? A. Q. Yes, they were. Take a look at Exhibit H-18. Is this a letter which you wrote to Ms. Fiorina, the chief executive officer of Hewlett-Packard on August 4th of 2003? A. Yes. MR. SINGER: MR. ACKER: THE COURT: I move the admission of H-18? No objection. It will be admitted. (Defendant's Exhibit H-18 was received into evidence.) BY MR. SINGER Q. Can you explain at this point in time what the status was of the discussions with H.P. regarding a SCOsource vendor license? A. Yes. We were in discussions with them about a vendor license, and while those discussion were going on H.P had 1032 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 asked us to give them an okay letter for the marketplace, to indicate that their use of UNIX, which was a different product that we had had with them for a long time, and they had a UNIX license like IBM did, and they wanted a comfort letter to go to their customers to show that they were not suffering from the same kind of infringement -- not infringement, but rather breach of contract problems that IBM was. that. Q. A. Q. They asked us for a comfort letter to indicate That is what this letter was. Did you provide that comfort letter? Yes. Can you turn to the last paragraph of the letter. Can you read that? A. Yes. We wish to clarify that in our code review of the referenced Linux kernels today, SCO has not identified any infringing Linux code attr

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?