SCO Grp v. Novell Inc

Filing 862

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of March 17, 2010-Jury Trial before Judge Ted Stewart, re 567 Notice of Appeal,. Court Reporter/Transcriber Laura W. Robinson Rebecca Janke 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 Three)(jmr) Modified by removing restricted text on 7/19/2010 (rks).

SCO Grp v. Novell Inc

Doc. 862 Att. 2

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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 please. evidence.) jury in?

THE COURT:

Anything, counsel, before we bring the

MR. ACKER: MR. SINGER:

No, Your Honor. Not from us, Your Honor.

(Jury present) THE COURT: BY MR. ACKER: Q Let me show you one more letter, Dr. Pisano. Sir, you see this is a letter from Morgan Stanley to SCO on March 24th, 2004, again, regarding the SCOsource licensing program? A Yes. MR. ACKER: MR. SINGER: THE COURT: I move for admission M-27, Your Honor. No objection. It will be admitted. Do you see that? Go ahead, Mr. Acker.

(Defendant's Exhibit M-27 was received into

MR. ACKER:

Mr. Lee, go to the second paragraph,

BY MR. ACKER: Q Morgan Stanley wrote to SCO in March of 2004, in our

December 19th, 2003 and January 22nd, 2004 letters to you, we requested information to enable us to assess the intellectual property and other rights referred to in SCO's letters. To date, we have not received the information we

Dockets.Justia.com

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requested.

Although your earlier correspondence referenced

ABI code that had allegedly been copied into Lunix, you did not respond to our request, contained in our January 22nd letter, for more details relating to that allegation. Moreover, the AutoZone complaint does not provide us with the information we requested; it simply lists copyright registrations for items allegedly owned by SCO, the complaint does not identify any of the specific instances of SCO's code allegedly contained within Linux. Do you see that? A Q A Q Yes, sir. Have you ever seen this letter before? No. Let me show you one more document, what has been It is a large document, sir, but I'll be Feel free to look at

admitted as Q-22.

pointing you to a specific portion. any portion you like.

You are familiar with what a form 10-K is, correct, sir? A Q A Yes. What is your understanding of what that document is? This is a detailed annual disclosure of financial

information a company makes to the SEC every year. Q What is the purpose for such disclosures to the

Securities and Exchange Commission?

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A

It's for -- really for investors to make sure that the

material information about the company is out there in public hands. Q When you say the material information about the

company, what is material information? A Information about the company's business, how it's

doing, its financial state, so income statements and pending litigation, other things that could affect the fortunes of the company. Q Do you believe that Novell's allegedly slanderous

statements regarding ownership of the UNIX copyrights would have been material statements to SCO in 2003? A In 2003. You know, again, depends on the timing You stood up. That's okay. I don't have an

because -- sorry.

MR. SINGER: objection. MR. ACKER: Singer? THE WITNESS: objection. THE COURT: THE WITNESS:

Do you want to say something to Mr.

He stood up.

I thought there was an

You did the right thing. I slowed down for once.

You know, it's potentially material at that point. Again, it's tricky because there are statements on May 28th and then there are retractions. This document is for the

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fiscal year ended October 31st, 2003, so unclear at that point. BY MR. ACKER: Q Well, you are aware of a letter written August 4th,

2003 by general counsel, Mr. Joseph LaSala, of Novell to Mr. McBride saying that Novell owns the UNIX copyrights? were provided that document, weren't you? A Q Yes. Do you believe that that is a material fact to SCO? MR. SINGER: irrelevant. THE COURT: THE WITNESS: Overruled. Again, I am not so -- again, my I don't do accounting. That's Way outside the scope, and You

background is an economist.

a whole separate area about what goes into the SEC, what's appropriate. There's a whole body of regulation. But what

is considered material, I gave you kind of a general, in some sense, layman's term of material. There is a whole

series of rules and regulations around that about what goes in, et cetera. that. BY MR. ACKER: Q Let me ask you as an economist. In your expert opinion So I really don't feel comfortable answering

that you've offered here today, do you believe the fact that Mr. LaSala had told Mr. McBride on August the 4th, 2003 that

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Novell still owned the copyrights, do you believe that's material, from an economic standpoint? A Q A I think it's -- material to what? To SCO's business. I think at that point it's hard to say. You know,

again, use of the term material as it's used for statements is how the business is going to be from a very specific regulatory point of view. Was that important? I'm sure it

was something important for them.

But when they got the

letter, I'm sure it raised potentially to certainly important. Q As an economist offering an opinion about the effect of

allegedly slanderous statements by Novell, do you believe that Mr. LaSala's August 4th, 2003 letter to Mr. McBride saying Novell still owns the copyrights, do you believe that was a material fact? MR. SINGER: Your Honor, I object. This has

nothing to do with his testimony. THE COURT: Well, I allowed the first question

because I thought that perhaps you might be able to lay a foundation that he had unique qualifications to testify as to this. But you have not laid that foundation, so I'm

going to sustain this objection. MR. ACKER: // Okay.

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BY MR. ACKER: Q Sir, if you could take a look at what you have in front The numbers I'm referring to are on

of you, page 36 of 87.

bottom left of the document. A Yes, I see them. MR. ACKER: And if we could highlight the last

sentence of the paragraph, Mr. Lee, that is headed our future SCOsource licensing revenue is uncertain. sentence begins with additionally. THE WITNESS: paragraph, if I may? MR. ACKER: THE WITNESS: Sure. Again, you wanted me to focus on the I'm going to take a sec to read the The

sentence additionally, the success, that sentence, sir? BY MR. ACKER: Q I'm going to ask you a question, and I want you to be

fully prepared for it. A Q Okay. Now in the phone survey that you -- let's first start You see the sentence -- the last

with the sentence.

sentence reads, additionally, the success of this initiative may depend on the strength of our intellectual property rights and contractual claims regarding UNIX, including the strength of our claim that unauthorized UNIX source code and derivative works are prevalent in Linux. Do you see that?

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A Q

Yes. So this is SCO telling the federal government that the

success of SCOsource may depend on whether or not we can prove there actually is protected UNIX source code that is prevalent in Linux? A Q Yes. Absolutely.

During the phone survey that you relied on, were any of

the respondents told, in deciding whether or not they would take a license or request indemnification, that the person offering the indemnification didn't know whether or not they could prove any infringement? A Sir, I just want to clarify, it was not a phone survey. But within the follow-up,

It was a Web-based survey.

they -- again, if a party is looking -- thinking about -somebody is thinking about do I want indemnification, they are thinking about the risk. If they think there is a low

chance of infringement ever being claimed, they are not going to be interested in indemnification. or they are just willing to take the risk. willing to take the risk. If they think -They are just It may They are

Let's see what happens.

be possibly later, but let's just take the risk. not going to be interested. Q

My question was were any of the respondents, either by

phone or by electronic methods, told that the person offering indemnification or the person that poses the threat

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of which you would want indemnification doesn't think they can prove infringement? A Q Were they told that?

No, they didn't need to be. Let me ask about that. How much would it cost to do a

survey on your own that you believe would be something that you could rely upon? A Q A Q What would be the dollar amount?

If I were to do the survey? You or somebody you hired. Ten to $20,000, depending on the size and method. And so you think a survey could be completed for ten to

$20,000 that you would find acceptable? A Q Yes. So that's about one-twentieth of what you have been

paid to offer your opinion in this case, correct? A Q Yes. And so SCO and its lawyers could have had you for

$20,000 actually conduct a phone survey and ask -- or online survey, and ask respondents are you interested, what is your interest in taking the SCOsource license? been done? A That would have been absolutely flawed methodology. To try to go back and ask That could have

I'm doing this study in 2007.

people about their demands during a previous time frame would be -- you would get all sorts of what we call retrospective bias. You're asking people what would you

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have done then. methodology.

It would have been a very, very flawed

That would not have passed scrutiny in peer

review journals. Q A Q This lawsuit was filed in 2004, wasn't it, sir? That's true, but I was doing my study in 2007. So you weren't asked to do it in 2007, but this lawsuit

has been pending since 2004, correct? A Q Yes, that's true. So a survey could have been conducted by SCO and its

lawyers at the same time as these Yankee studies that you've relied on, correct? A Then they would presumably -- I mean, ethically Now you

disclose who they are, what they are representing.

have the first -- remember the first criteria I cited for trusting a survey, does the party have an incentive to be unbiased. If you have a survey sponsored by SCO or SCO's

lawyers asking them questions that pertain to this case, personally, if I were just looking at that survey from the outside, that does not meet my first criteria. think they were in a good position to do that. Q They certainly could have obtained somebody that they So I don't

considered to be unbiased, somebody like yourself, correct? A Actually, if you look at the Yankee and Forrester, they

make a big deal about the fact they are unsponsored surveys. Q Do you think you are biased here today being paid by

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SCO? A Q Nope. Do you think you could have conducted an unbiased

survey if you had been asked to that in 2004 and actually told people on the phone or via e-mail I want to know your interest in taking a SCOsource license? A But then you have to disclose to those people the

purpose you are doing it, and they may have their own biases about SCO and opinions about SCO, et cetera. You could get

very biased answers because actually respondents are affected by the outcome of the case. If somebody is

planning on, you know, not taking the license and they are taking the risk of infringing, gosh, they have a real incentive to see things come out in a different direction. I think that methodology would be very problematic. Q So is it your opinion that it would have been

impossible for a survey to be conducted to actually ask the question how interested you are in taking a SCOsource license in 2004? A At that point, remember, that's post slander. So

that's post the fact that people knew the product was worthless because the ownership claims are not there. There's too much -- you can do that survey, but I don't know what you would get out of it. Q You're saying the survey would be worthless because

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it's post slander? A It would be problematic because the product, post And,

slander -- the product was ruined by the slander.

therefore, if you were to ask people what is your interest in taking a SCO RTU post slander, they are going to tell you exactly what the market is, I don't want this, it's worthless. These guys, I don't know if they own the That's what you would

copyrights, so why would I pay them. learn.

You would learn exactly what the market told you,

not much interest. MR. ACKER: BY MR. ACKER: Q A Q You've seen this document before, correct? Yes. You realize that on December 22nd, because Mr. McBride Let's put up X-23.

was still in the marketplace saying that SCO owned the UNIX copyrights, Novell decided to put onto its Web site the correspondence that had been going back and forth between the companies as well as the actual contractual documents, the APA, Amendment 1 and Amendment 2. that? THE COURT: MR. SINGER: Mr. Singer. I object. This is counsel testifying Are you aware of

about why Novell did it. objectionable.

The form of the question is

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THE COURT: BY MR. ACKER: Q

I will sustain the objection.

You are aware that placed onto Novell's Web site was

all of the correspondence back and forth between the parties as well as the contracts that were at issue, right? A Q Yes. And you would agree with me that once that material was

out in the marketplace, those in the market could make up their own mind regarding the contract dispute, correct? A Well, yes. I mean, they could make up their own mind.

Again, as I mentioned earlier, Novell's statement are pretty powerful and quite credible. And if there is uncertainty

over ownership, it's just -- the license is a non-starter. Q And the reason that you would have trouble with that is

because, as you just said, Novell's statements are very powerful and quite credible, correct? A Yeah. Because, as I mentioned before, they were first That's what makes them powerful.

party to the transaction.

They weren't some third party saying, hey, wait a minute here, it's looks like the one who sold the assets in the first place. Q The surveys that you relied on, did they, in any way,

tell the respondents in the surveys, here is the contract at issue, here's the APA, here's Amendment 1, here's Amendment 2, here are the different arguments, and then ask them how

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likely or how interested they would be in asking for indemnification? A No, certainly didn't ask that specifically. MR. ACKER: THE COURT: Nothing else, Your Honor. Mr. Singer. REDIRECT EXAMINATION BY MR. SINGER: Q Mr. Pisano -- Professor Pisano, are surveys generally

more reliable if conducted specifically for litigation or if they are designed and conducted for a non-litigation purpose? A Q For a non-litigation purpose. Were the surveys that you relied on here conducted for

a litigation purpose? A Q No. If Novell thought that a survey was the right way to

measure the effect of the slander at issue in this case, could they have conducted their own survey? A Q Sure. Now you have been shown a lot of letters -- a number of

letters, and are they taking into account people who might write those letters, in your methodology? A Q Sure, absolutely. Would those be in the 55 percent who if in fact they

weren't interested in the product?

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A

Yeah.

The residual group, the 55 to 81 percent, they

would be in that group. Q Now you mentioned at one point in your testimony that

you looked at a series of letters that Novell's expert, Mr. Musika, had identified? A Q That's correct. Were you shown all of those letters here in

cross-examination? A Q No. Did you determine whether a certain amount of those 32

letters, in fact, referenced Novell's copyright allegations as a reason for not buying the license? A it. Q That would be almost 25 percent of a group of letters Yes. As I mentioned before, eight out of 32 referenced

that Novell's expert identified? A Q That's correct. Now, in addition, in your rebuttal report, did you

identify letters from a variety of customers which Novell has not shown you here today? A I believe so, yes. MR. SINGER: Could we put on the screen SCO Let Professor Pisano see

Exhibit 227, a letter from Ford. the next page of that.

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BY MR. SINGER: Q A Are you aware of this letter from Ford? Yes. MR. SINGER: Exhibit 187. THE COURT: of any of these? MR. SINGER: I was going to ask for them after the Are you going to ask for the admission Can we look at Sherwin Williams, SCO

witness was seeing all four of them. THE COURT: BY MR. SINGER: Q Could we look at SCO Exhibit 187, the letter from All right.

Sherwin Williams; is that correct? A Q Yes. And can we look at Exhibit 188, and this is a letter

from Morgan Stanley? A Yes. MR. SINGER: Exhibit 188. MR. ACKER: THE COURT: MR. ACKER: MR. SINGER: No objection, Your Honor. 188 -May already be in. If you go, Mr. Calvin, to the third I would like to move into evidence

paragraph of the letter. //

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BY MR. SINGER: Q And in this, is this a situation where, in addition to

other information, Morgan Stanley was asking, in January of 2004, for documents or information that disproved press reports that questioned SCO's claim of ownership of relevant UNIX code? A Yes. THE COURT: MR. SINGER: THE COURT: MR. ACKER: THE COURT: Do you move for 188? Yes. There is no objection, correct? No objection, Your Honor. It will be admitted.

(Plaintiff's Exhibit 188 was received into evidence.) MR. SINGER: as well. MR. ACKER: THE COURT: That's fine. They will both be admitted. I would like to move for 227 and 187

(Plaintiff's Exhibits 187 and 227 were received into evidence.) BY MR. SINGER: Q Now in connection with these letters that you were

shown in cross-examination, is it surprising that companies who are asked to buy a license for something which they thought they were getting for free might push back?

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A

Absolutely.

It's no different than my office coffee

used to be free and now you have to start paying 25 cents. Wait a minute, it used to be free. So there is a little bit It's like this was And I

of psychology here that comes into play.

ours, we assumed it was ours to use, how dare you. think there is a little bit of that. Q

Did it surprise you that IT directors and lawyers at

some of these companies would push back an allegation that they owe a license fee rather than just write a check? A Q It's not surprising at all. And in your "but for world", Professor Pisano, where no

slander has occurred, you wouldn't have statements then made by Novell calling into the question of copyrights; is that right? A That's correct. MR. ACKER: THE COURT: BY MR. SINGER: Q In your but for world of no slander, would there have Objection, leading, Your Honor. Sustained.

been any statements by Novell questioning copyrights? A Q No. And do you think when the prior seller of UNIX, Novell,

says SCO doesn't even own the copyrights, do you think that may have an effect on the substance and the tone of the letters which are then being written back to SCO that you've

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seen here? A Yes. MR. ACKER: Honor. THE COURT: THE WITNESS: BY MR. SINGER: Q Now do any of those letters matter in your analysis of Overruled. Yes, it would have a big impact. Objection, calls for speculation, Your

the "but for world" which occurs if the slander hadn't taken place at all? A No, because the letters I think would look very

different. Q Has anything that you've seen here today in the

cross-examination changed any of your conclusions as to the effect of the slander on SCO's business? A No, not at all. MR. SINGER: THE COURT: MR. ACKER: THE COURT: MR. ACKER: MR. SINGER: THE COURT: if you want to. Thank you very much. Mr. Acker. Nothing further for Dr. Pisano. May this witness, then, be excused? Yes, Your Honor. Yes. That means you may return to Harvard,

After this experience, you may want to

charge more next time, at least what you have to do in the

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courtroom, all right. Thank you, Dr. Pisano. MR. HATCH: Botosan. CHRISTINE A. BOTOSAN, Having been duly sworn, was examined and testified as follows: THE CLERK: If you would please state and spell We do appreciate it.

Your Honor, we call Dr. Christine

your name for the Court. THE WITNESS: Christine A. Botosan, spelled

C-h-r-i-s-t-i-n-e, Botosan is B-o-t-o-s-a-n. DIRECT EXAMINATION BY MR. HATCH: Q A Q Good afternoon, Dr. Botosan. Good afternoon. I was hoping we would say good morning. Where do you work presently? A Q A I work at the University of Utah. How did you come to be at the University of Utah? I started my career in public accounting. And after a

few years in public accounting decided to pursue my dream of becoming a professor. So I went to the University of Then I took my

Michigan and I earned a Ph.D. in accounting.

first job as a faculty member at Washington University in St. Louis. I was there for five years.

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Then the opportunity came along to move to the University of Utah. At the time I thought it looked like a

great opportunity, rewarding career, but also the opportunity to have some balance in my life and have a happy family life. At that point in my life I had been married 17

years, I wanted to make 18, and also had two children, so we decided to come to the University of Utah. I have been here

11 years and happy to report I will soon be celebrating my 29th wedding anniversary, so that worked out okay. Q A Q A Let me give you what we've marked as SCO Exhibit 749. Thank you. Is this a copy of your current resume? It is. MR. HATCH: admitted. MR. BRENNAN: THE COURT: I have no objection, Your Honor. It will be admitted. Your Honor, I move that Exhibit 749 be

(Plaintiff's Exhibit 749 was received into evidence.) BY MR. HATCH: Q On top of the resume it gives -- is that your current

position at the university? A Q It is. It says the George S. and Dolores Dore Eccles

presidential endowed chair in ethical financial reporting,

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correct? A Q A That's correct. How did you get that position? So that is a chaired position. I think, as Dr. Pisano

mentioned earlier, that's the highest rank of a faculty member, so you have to move up through the ranks from assistant professor to associate professor with tenure to full professor, finally to chair professor. you know, your accomplishments. Q A Great. I do. Do you have an area of particular specialty? My areas of specialty are in financial It's based on,

accounting and financial statement analysis. Q How much of your professional life is devoted to giving

expert testimony in litigation? A Very little really. As I said before, I'm employed

full-time as an accounting professor, and I have a demanding family life. I've got three boys to take care of. I

include my husband in that.

And so the time that I do have

to devote to work is really committed to service to my institution, research, and I'm teaching my students how to read and analyze financial statements. So I spend more time

teaching others to apply the skills and techniques that I've learned to bear when I do chose to do an expert witness engagement than actually doing them. MR. HATCH: Mr. Calvin, if you would show us pages

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2 and 3.

Start with page 2.

At the top it says

publications and accepted papers. BY MR. HATCH: Q So I take it you have written extensively in your area

of expertise? A I have. MR. HATCH: Calvin. BY MR. HATCH: Q It looks like -- I have 23 articles or papers that If you go through the second page, Mr.

you're written? A Q That's correct. Then the next page you have working papers. How are

those different from the other papers we saw? A Those are projects that I'm currently working on. So

they have not yet been published, but hopefully some day will be published. Q Have you received any awards or honors other than, of

course, your chair? A I have. So I've received teaching awards. I have also

received research awards.

So one of my papers won what's

referred to as competitive manuscript award, which is a competitive award from my national -- from the American Academy Association, which is an organization of academics, accounting academics. We have about 8,000 members. That

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paper also won the notable contributions to accounting literature award because it was deemed to open up an entire area of research. Q Do you have any experience in evaluating and analyzing

corporate profits? A I do. Quite a bit. As I said before, I started my

career in public accounting, so it was a regular part of my job to prepare corporate financial statements, including income statements that report corporate profits. And since

then, for the last 20 plus years, I've been teaching financial accounting courses that focus on the measurement and assessment and analysis of corporate profits. Q Have you served as a financial expert in any other

matters? A I have served on probably about seven expert witness

cases over the last ten years. Q Do you do any consulting work outside of serving as an

expert witness in litigation? A I do. I also will sometimes work with financial So these are individuals that work for investment

analysts.

banks that are going to be forecasting future profits for the firm or perhaps providing a buy, sell or hold recommendation on the stock, and they want to make their recommendations or their forecasts based on the maximum amount of information that they can gather.

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So sometimes they will come to someone such as myself and they will say, can you go through and do an in-depth analysis of the financial statements of this company that I'm interested in and flag -- hence, the name red flag report -- any of the issues that I need to be aware of that I might need to ask management about or that I should take into consideration in preparing my forecast of corporate profits and assess what the effect of that issue would be. So I write that up in a report and then that goes back to the analysts and they use it in their assessments. Q In addition to your teaching and your research and

consulting work, are you involved in any other academic pursuits? A So another big part of an academic's job is service,

service to the academic community at large as well as service to their home institution. And so as part of my

service commitments to the academic community, I am currently the associate editor of Accounting Horizons, which is one of our premier practitioner oriented journals in my field. I'm an incoming associate editor of Contemporary

Accounting Research, which is one of our top academic journals. And then I was just recently elected the vice

president of publications for the American Accounting Association. ago. Again, that organization I mentioned a moment

And my primary role as the vice president of

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publications for that organization will be to chair the committee that will choose the editors for several of our top academic journals. Also for the American Accounting Association, I, in the past, served as the chair of the Financial Accounting Standards Committee, and that was a committee that I really enjoyed working on because it had potentially a lot of impact. That is the committee that would respond to So

standard setters when they want to change the standards. what we did is we wrote a response to the standard setters

to say, well, based on the research, we think this is a good or a not so good proposal. While I chaired and worked on

that committee, I co-authored -- I think it was eight responses to the Securities and Exchange Commission, the Financial Accounting Standards Board, and also the International Accounting Standards Board. From a more sort of local perspective, my service to the University of Utah, I have served on a large number of different committees over the years. But currently the two

things that are taking up most of my time are chairing the Strategic Planning Committee for the business school, and I'm also the director of our Ph.D. program for the school of accounting. Q A So I work very close with my Ph.D. students.

When did you first begin to work on this case? January of 2007.

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Q A

What were you asked to do? I was asked to compute the amount of damages, if any,

that SCO sustained as a result of Novell's harmful acts. Q A Were you asked to make any assumptions? I was asked to assume that SCO did, in deed, own the But I was also asked to assume that we were in

copyrights.

a "but for world" where Novell did not claim ownership of those copyrights. Q In your work, were you able to determine damages to a

reasonable degree of certainty? A Q A Yes, I was. What did you consider in doing your work? I considered -- I considered external analyst forecasts I considered internal forecasts as well.

of sales revenues.

I also considered evidence that was available of what Novell's actions had been. Q What is your estimate of the damages SCO suffered as a

result of Novell? A I have a range. So at the low end, the number that I

computed was $114 million, and at the high end it's $215 million. Q A Q A Now how did you arrive at your damages estimate? I did what is referred to as a lost profits analysis. What does that involve? It involves, first of all, determining the amount of

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sales that the plaintiff, in this case SCO, suffered as a result of the defendant Novell's harmful acts. And then

deducting from those lost revenues or lost sales, the costs that they would have incurred in generating those sales to arrive at lost profits or the amount of profit that the company lost as a result of the bad behavior. Q You said the first prong of that is to determine the What types of revenues did you consider that

lost revenues.

SCO lost as a result of Novell's actions? A The revenues that I considered were all under the

SCOsource division and there were two streams of revenue within that division, the vendor license revenues and also the right to use, or RTU, license revenues. Q The jury has been here for a week and a half. Let's

make sure we are on the same page. understand vendor licenses to be? A Certainly.

Can you tell us what you

So vendor license revenues were revenues

that were derived from licenses that were signed with large -- the UNIX vendors. And in return for an up-front

fee, what SCO provided to the vendor was the right to use their UNIX and UnixWare intellectual property in the development of their own products. And at the time that all of this was being discussed, SCO's management and external analysts projected that there would be up to 15 -- potentially 15 of these types of deals,

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and that they would generate $10 million per deal on average. The other type of revenue I think was -Q A There were two. Right. What was the second one?

The second one was the right to use licenses.

And the right to use licenses were licenses that would be signed with Linux end users. So, in that case, the up-front

fee was being received in return for SCO's giving a right to use their intellectual property embedded in Linux to the end user. And at the time that all of this was being discussed, external analysts predicted there would be hundreds of thousands of those sorts of licenses and that they would sell for between $100 and $300. Q Now did you consider how successful SCO had been in the

vendor license program before Novell's acts complained of here? A Q A I did, yes. What did you find? I found that the program was announced in January of

2003, and by February of 2003 they had negotiated an agreement with Sun which ultimately generated about $9 million in revenue for SCO. And then several months later,

in April of 2003, they negotiated another agreement with Microsoft, and that agreement generated about $16 million in

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revenue. Q Your understanding was that was from the SCOsource

division? A Q Yes. How did you determine, going forward, the amount of

losses to SCO from vendor license revenues? A So I had to try to re-create how much revenue SCO would

have earned if Novell had not claimed ownership of the copyrights. And so a well accepted methodology for doing

that is to look at pre-litigation forecasts of what the revenues were expected to be. And so that's what I did in

the case of the vendor license revenues. Q A Are you able to show those calculations? I am. MR. HATCH: some boards. Your Honor, I would like to put up

I promised the jury in the opening that we If you would give us a

would calculate this for them. second? THE COURT: MR. HATCH: BY MR. HATCH: Q you. Go ahead. Thanks.

Dr. Botosan, I'm going to put up a couple boards for I provided some erase dry markers here for you to use. THE COURT: Mr. Brennan, if you need to move,

don't hesitate.

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MR. BRENNAN:

Thank you.

I appreciate that, Your

With the Court's permission, I think I will go to

the other side of the courtroom? THE COURT: Yes.

Mr. Brennan, we can move a chair up here for you if that's better for you. MR. BRENNAN: I think I'm fine here, if it's Thank you.

acceptable to Your Honor. BY MR. HATCH: Q

Dr. Botosan, I think right now we're talking about

vendor licenses, right? A Q Uh-huh. (Affirmative)

If you could show us how you came to do your

calculations for us. A Sure. So for the vendor license revenues -- what I'll

do first is I'll just write down the numbers by year that I determined and then I will explain where the numbers are coming from. So for 2003, the amount of revenue that I determined that SCO would have earned but for Novell's harmful acts was 27,250,000. 30 million. million. And for 2004 -- this is in millions -- was For 2005, was ten million. And 2006, ten

And 2007, was ten million.

For a total of

87,250,000. Now, as I said a moment ago, to come up with these

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numbers, I relied on pre-litigation forecasts. two sources of forecasts.

And I had

Internal SCO forecasts, so these

would be forecasts that management generated themselves, and then also external forecasts that were prepared by financial analysts that worked for investment banks. Now given the opportunity to use both of those, if I had forecasts from both sources, my preference would be to use an external analyst forecast because they are going to be more objective. things. Management tends to be optimistic about

And if you think about an analyst who's external to They

the company, they don't have any dog in the fight.

want to try to do the best job they can to forecast because they are providing information to their clients that are making investment decisions. The way an analyst is going to

build their own reputation in the market is to do a good job of forecasting. So my preference would be to use a pre-litigation forecast from an external source when it's available. The

only year that I didn't have an external forecast available was for 2003. So, in 2003, this number came from an But it just so

internal forecast from SCO's management.

happens that in 2003, almost all of these revenues were actually realized. So as we'll see in a moment, 2003

ultimately contributes very little to my lost profits analysis. It only contributes about one percent of the

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total because most of these sales were, in fact, not lost. Most of these were, in fact, earned by SCO. Q A Q So you are just estimating the revenues? I'm estimating the revenues. Do you consider -- you used the word optimistic in a Are these optimistic or are these

certain circumstance. conservative estimates? A

These are conservative estimates of what the

revenues -- what the revenues would be. Q A Well, tell the jury why you view them as conservative. Okay. So I said a little while ago that at the time

that they were discussing the program, SCO had projected that they thought there were going to do 15 of these $10 million deals that would be available. So, in total, they

were anticipating 15 deals at $10 million a piece. And those beliefs were confirmed in an external forecast that I had available from Deutsche Bank. The

Deutsche Bank analyst also said in his analysis that he agreed that there were 15 potential deals and that the amount of revenue that would be generated by each of these deals might range between five million and $20 million. he gave quite a broad range between five and 20 million. at the end of the day, in doing his own forecasts, he also said I think $10 million is the most likely amount. Q Tell us for a second, if you would -- you say you So So

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relied on Deutsche Bank. A

What is Deutsche Bank? They

Deutsche Bank is a very large investment bank.

have an excellent reputation.

They've been around since They have So

1870, so they are a very well established firm. over 80,000 employees.

They operate in 70 countries.

they are well known for providing this sort of information to their clients. Q way? A Totally independent. So they also confirmed that they Were they independent or are they related to SCO in any

felt these numbers were reasonable. So if you take 15 contracts at $10 million a piece, that would imply there was a potential for up to $180 million in vendor license revenues if I had taken into consideration all 15 of the deals at $10 million a piece. So it's on that basis that I would say 87,250,000 is not conservative. It was close to half. It's a little more

than half, or it could have been if I used the 15. Q So when the jury is considering the damages to SCO is

87,250,000, the number they should use for the losses is vendor licenses? A No. No. That is a measure of how much revenue in

total I would have expected SCO to be able to generate in the "but for world". So that number represents -- I'm going From

to have to squeeze it in here -- expected revenue.

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that number, I have to subtract off the actual revenue because, obviously, if they sold it, they didn't lose it. So from that 87,250,000, I deducted their actual revenue that they didn't lose, which was 25,846,000. And that

brought me down to a lost revenue on the vendor license revenue side of 61 million for '04. for that stream. Q So that's the lost revenues. Before we go any further That's the lost revenue

with that, did you determine what the lost revenues would be for the RTU, the right to use license stream? A Q A I did. Can you show us how you calculated that? I can. I'm going to go over to that board. It's going

to get too crowded. There were two different ways that I went about calculating the lost revenues for the RTU stream. One of

the approaches that I took was the same as what I did for the vendor license revenue. Once again, I went and looked

at pre-litigation forecasts to see what people believed SCO was going to do in that market before the litigation, and that is my best estimate of what their revenues would have been in the "but for world". So that was one approach.

The second approach that I used was relying on the analysis that Dr. Pisano described to you earlier today, the size of the market and the market penetration to come up

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with numbers of licenses that they would have been able to sell. So I did the analysis for right to use using both

approaches, and then said, well, you know, I do get kind of the same answer using those approaches. Q So could you show us how you did that for the first

approach you did? A Sure. So for the right to use licenses, this is based Again, I'll just put down the numbers and So for

on the forecasts.

then I will explain where they are coming from.

2003, there was no amount of RTU revenues really expected for 2003 because the program was announced so late in the year that nobody really anticipated there were going to be substantial amounts of RTU licenses sold in 2003. The

program was expected to really get off the ground and substantial revenues start to be generated in 2004. So for

2004, the revenues were 23 million; 2005, 42 million; 2006, 42 million; 2007, 42,000,000. Q For a total of 149 million.

I notice that you have the exact same numbers for 2005 Why is that?

and 2007. A

So in this case, I have access to forecasts for 2004

and 2005, and those are the only years that anybody forecasted RTU license revenues for. So I had those two

numbers from an external source, but I didn't have any forecasts for 2006 and 2007. So, instead, what I did was

make the assumption that there was going to be zero-percent

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growth in the sales over those two time periods, which I considered to be a conservative assumption, so I was comfortable. Q A Why is that? For a couple of reasons. First of all, if you can just

look at these two numbers, the analysts that did the forecasts for '04 and '05 assumed that there was going to be 83-percent growth in sales between those two years. So one

of the ways that we sort of try to project forward is to look at the past. And it would be atypical -- it would be

possible, but it would be atypical for a company to generate 83-percent growth in one year and zero percent for the next. Normally you might expect some stepping down in the growth rate. The other reason why I could have supported a positive growth rate here instead of zero percent was based on Dr. Pisano's analysis of what was going on with Linux. And what

he found in his analysis was that more and more people were using Linux. And so over this time period, SCO's market,

the size of the market to SCO was getting bigger each year. So on the basis of the fact that more people are using Linux, you could make the argument that they are going to sell more SCOsource licenses as the market grows. Q So over here you indicated you relied on an independent Is that who you relied upon here?

analyst, Deutsche Bank.

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A

So here I relied on Deutsche Bank for those two

numbers, and then my growth assumption of zero percent. Q All right. So the ultimate number you got there was

how much? A Q

What was that?

149 million. Did you consider that, like on the vendor licenses, to

be a conservative or an aggressive, optimistic number? A So I considered that number to be conservative as well.

I've already indicated that I felt that the growth rate that I was assuming was conservative. But I had other evidence

that provided me with comfort that this was -- this was a reasonable number as well. In the Deutsche Bank forecast, what sort of underlies these two numbers, because these two numbers came from the Deutsche Bank forecast, is an assumption that what SCO was going to be able to do was sell 650,000 licenses at $100 a piece. So that is where -- that is where this $65 million

worth of revenues is coming from. In that same forecast, what the analysts did was they said, you know -- and they state in their report -- we think this is conservative. We think there are some scenarios in And so they described You know, if

which SCO would do better than that.

what they refer to as a best case scenario.

they are firing on all cylinders, how well could they do. So they said if under the best case scenario, we think they

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could sell two million of these licenses at $200 a piece, that would have generated $400 million worth of revenues in those two years. Q A Q A Q A So that was the best case scenario.

You say that's just for two years? That would be for those two years. Which two years? 2004 and 2005. So that would be -- all right. Okay. Go ahead.

Then in between sort of this best case scenario

and the scenario that they described as reasonable but conservative was another scenario where they said, well, you know, it's also possible in between there that they would sell 900,000 licenses at $100 a piece, in which case we would end up with $90 million worth of revenues in 2004 and 2005. So while those numbers were out there, I felt that it was more appropriate for me to be prudent and use the number that the analyst described as conservative and also the number that the analyst himself placed the most reliance upon. And so I used the 650,000 times 100, relying on this

here, to get the $65 million worth of revenue there. And then by virtue of applying a zero-percent growth rate, what is really happening, I'm sort of building conservatism on top of conservatism. low base and I'm not letting it grow. I'm starting with a So there are two

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levels of conservatism kind of buried in those numbers. at the end of the day I felt quite comfortable with that number. Q I'm trying to ask what would happen if you had used,

So

you know, kind of the best case scenario where the percentage of growth would have been increased each year? A So if I used a positive rate of growth, then this If I had used, let's say,

number would be bigger obviously.

a $200 price, which the analyst actually described as the most likely price -- they thought out of the range of one to $300, $200 was the most likely price, so I could have said, well, the analyst says that's the most likely price, so I'm going to do the calculations using 200. If I had done that,

that alone would double that number, right, because embedded in that is an assumption $100, which would have gotten us to close to $300 million. Q Dr. Botosan, do you recall I asked you if the

87 million was the final number you took out of actual sales. A Did you do a similar analysis with the 149 million? So in this case, the actual sales -- so this is

I did.

the amount that I would expect them to be able to generate over this time period, and then from that I took the actual sales, which was $1,214,000, which gave me lost revenues, then, of 147,786,000. Q So that was my loss, 147,786,000.

It's thousand or millions?

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A Q

147,786,000. My apologies. Now you said you used a two-prong

approach.

Did you look at it from using different

information? A I did. So the other analysis that I did was based on

the market analysis approach, and both of these are well accepted methods, the forecast approach and using a market analysis. So in this case, since I am not an expert in the

same field that Dr. Pisano is an expert in, I'm an accountant, so I'm good at accounting, I'm not going to be the type of person that would go out and analyze the market. But, luckily, I had access to Dr. Pisano's analysis. And so

he used his expertise and, as you've heard earlier, came to the conclusion that at a lower bound -- so he had a range, lower number, and at a lower bound, Dr. Pisano estimated that SCO lost -- so these were lost RTU licenses, so this is in units, at a lower bound, one million -Q Dr. Botosan, when you say units, I want to make it

clear, this is dollars up here? A Q Yeah, this is in dollars. Put dollars on that. Then when you say the analysis you are now doing is units, tell the jury what that means. A That these are actual licenses. This is the number of

licenses that Dr. Pisano estimated SCO lost as a result of

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Novell's conduct. So at the lower bound, it was 1,478,000 licenses, where at the upper bound it was 3,325,000 licenses. So I took his estimate of how many licenses they lost and then I multiplied that. So, again, to be conservative,

I looked at the range that the analysts were talking about, $100 to $300, and said, okay, I'm going to choose the bottom of that range, $100. I took that price of $100 per license,

multiplied it by the number of licenses that Dr. Pisano estimated SCO lost, and came up with another way of estimating the lost RTU revenues. And that gave me

147,800,000 at the lower bound, and 332,500,000 at the upper bound. Q So using Dr. Pisano's numbers, that would be the range

of damages using a market analysis study? A Q A Q That would be the range of lost revenues. Lost revenues. For damages we still need to take off cost. So when you compare the two forecasts, the forecast way

of coming at the lost revenues and market analysis, what are the differences? A So I took a lot of comfort from this analysis because

his lower bound number gave a lot of support to the number that I had come to using entirely different methodology. Remember, I'm using the analysts' forecasts where they are

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projecting what the revenues are going to be.

Dr. Pisano is

looking at surveys of, you know, how many people are willing to buy indemnification and how many Linux deployments there were. So he's doing an entirely different analysis. Yet,

we came back to very similar numbers at the lower bound. So I felt a lot of comfort in that because it told me that what I would expect the analysts to be doing up here when they were projecting things out repeated exactly the kind of analysis that Dr. Pisano ultimately did except they should do it in real time. They should also be asking the

question how big is the market and how much do we think SCO could sell. Q That provided me with a lot of comfort.

When you talked about the range of prices, 100 to $300,

you picked 100 because that was very conservative, right? A Yes. MR. BRENNAN: Honor. THE COURT: BY MR. HATCH: Q A Why did you pick $100? I picked it because it was the lower bound of the range Sustained. Objection, leading the witness, Your

100 to 300, because I wanted to be conservative. Q When the independent analysts were talking about the

price per unit, what did they say the best number to use was?

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A

They said that the range would be 100 to 300, but they

felt 200 would be the most likely price. Q So you picked a more conservative. If you use the

number the independent analysts would have used, what would the numbers be on both of those -- what would the numbers be? A The answer to that question, I want to be a little

careful, because they said 200 was the most likely price, but in forming their forecasts up here, remember, they themselves used 100, so they also were being conservative. And so if I had, instead of using 100 like the analysts did and been conservative like the analysts did, instead said I'm going to go with what the most likely price is, then I would have used 200, and that would have doubled both of those numbers. So roughly 300 million to 600 million

would have been the numbers if I used 200. Q Now we've identified two different streams of revenue,

correct? A Q A Q A Correct. Can you combine those two for us? So what I did on my next step -Do I need a third chart? No. I think I'm going to be able to squeeze it in

here, depending on how many more questions you have. So what I did next is I took the lost revenue for the

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vendor license -- I'm going to say VL for now, short for vendor license, lost revenue, so that number was 61,404,000. And then I took the RTU lost revenue, based on my forecast analysis was 147,786,000. And I added those together, and

it came up to $209,190,000 as total lost SCOsource revenues because, you remember, SCOsource has both components comprising it. Q A Q So is that the damages then? No. What do we have to do -- what do you have to do to -- I

mean, what's next? A Q Okay. So that is revenue --

I guess I should ask, why wouldn't that be your

damages? A Because they are going to incur costs. So, you know,

like any business, it takes -- you incur costs in generating revenue. So if you think about the kind of product that SCO

was selling here, marketing costs are going to be probably one of the biggest components of costs they are going to incur. costs. Q A Why did you pick those types of costs? Well, actually, I ended up going with three different So I had to deduct from this number an estimate of

big categories of costs, cost of goods sold, marketing costs, and selling general administrative costs. I picked

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those categories because those are the three categories of costs that SCO traditionally incurred in selling their products. So I used -- I just looked at, you know, what

types of costs do they have, and I stuck with kind of what costs they had incurred traditionally in their business. Q So you took these there types of costs, how did you

work that into your calculations? A So what I needed to do next was I needed to figure out

for every dollar of revenue that SCO generated, how much cost would they have incurred in the "but for world" again. And so I used a very standard technique. It's a technique It's also a

that we see used in expert witness engagements.

technique that a company might use internal to their own operations if they are trying to figure out, you know, how much cost am I going to incur for an incremental dollar of revenue that I'm going to generate. For every dollar of

revenue, how much cost am I going to have. So the technique that I used was a regression analysis. I won't go into the boring details of that. it does is it just relates costs to sales. Basically what And based on

that analysis, I determined that SCO would incur 46 cents in costs for every dollar of sales. Q A And is that a conservative number? Again, I felt that was a very conservative -- a very

conservative estimate of their costs.

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Q A

Can you explain to us why? One reason why is because if you think about the nature

of the product that SCO was selling, there wasn't development that was going to be associated with this product, which is kind of different from, you know, their typical cost structure where they might have had some development. I came to that number by virtue of looking at

SCO's kind of existing cost structure development costs. And then there is not going to be delivery costs associated with this product because you are just providing them with the right to use. So that is one reason why I

feel this is a conservative number. I also went back working with those independent analysts reports because they talked a lot about the SCOsource business and how they -- you know, how it was going to work. And the analysts inferred frequently in

their discussions that one of the great things about this SCOsource product for SCO was that it was going to generate revenues at a very low cost. In fact, some of them even

implied in their discussion there might be close to no cost associated with generating SCOsource revenues. One of the

analyst's quotes was to the effect of and the revenue will go directly to the bottom line. So I've got 46 cents, which is basically taking 46 percent of this number away, which was pretty generous.

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Q

So did you use that number in the calculation to

determine the actual cost that you needed to reduce the revenues by? A So I took 209,190,000 times 46 cents to get the costs,

which was 95,211,000, and I subtracted those off to arrive at the lost profits number of 113,979,000, which was that lower bound number that I referenced at the beginning of our discussion when I said at a lower bound their damages were 114 million. Q That's where that number is coming from. So is that the number or do we have to go

All right.

another step? A Q No. We're done.

Well, I'm not going to let you down yet -- or up yet. I think you indicated -- at the beginning of the

testimony you indicated an upper bound of your estimates. think you said that was the lower bound. bound was 215 million. A You said an upper

I

Where does that number come from?

Where that number came from was using Dr. Pisano's --

the number implied by Dr. Pisano's upper bound of the lost units. So if I take the $332,500,000 of lost revenues on

the RTUs, so instead of using 147,786,000, using that upper bound number of 332, and then adding in these vendor license revenues -- of course they are not incorporated into Dr. Pisano's numbers. Q He was just focused on RTU.

Is there room you can write this down?

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A

I don't think I can squeeze it all in.

But, basically,

if I take those two numbers, add them together, subtract off the costs, which is going to be a higher amount of costs obviously, then I came down to -- I will just write this number down here in red, 214,000 -- well, actually closer to 215 million. Q Okay. Sorry. So that was my upper bound number.

Just so we're clear, you have taken that revenue

number, you reduced it by costs, and what did we get? MR. BRENNAN: Your Honor, I'm not sure we have a

question here at this juncture. THE COURT: MR. HATCH: We don't. You don't have a problem if she writes

it down, do you, Your Honor? THE COURT: MR. HATCH: What? I wanted her to write down so she had

this here, so they could see how the numbers came out. MR. BRENNAN: have a question. THE COURT: BY MR. HATCH: Q Do you have the ability to make the same calculation I'm not sure of the question. Your Honor, again, I'm not sure we

for the upper bound as you did the lower bound? A Q A I do. Could you do that for us? 61,404,000, and then adding in the 332,500,000, which

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will give me the total lost revenues.

And off the top of my

head, I actually can't remember what that number was. Subtract off the cost, then that comes to $215 million. Q A Q All right. Thank you. I think we've run out of board. THE COURT: MR. HATCH: THE COURT: BY MR. HATCH: Q All right. So are your numbers -- your numbers are all Mr. Hatch, how much more do you have? I'm just about done, Your Honor. All right. Go ahead. I think you can go back to your seat.

based on conservative numbers? MR. BRENNAN: witness. MR. HATCH: happy to ask it again. BY MR. HATCH: Q Tell us the level of confidence you have in these It is leading, Your Honor. I will be Objection, that's leading the

numbers after having done your study? A I'm extremely confident in the numbers, the

conservative nature of the numbers. MR. HATCH: THE COURT: afternoon. That's all I have, Your Honor. All right. We'll recess for the

When we start tomorrow, we'll go to the

cross-examination of Dr. Botosan.

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(Jury excused) THE COURT: MR. SINGER: Mr. Singer, what do we have tomorrow? Your Honor, this is the lineup which

will take us through the conclusion of our case except for the witnesses who will be appearing the following week. We

have the continuation of Ms. Botosan, cross-examination and redirect. THE COURT: Dr. Botosan, you don't need to wait This may take a minute. That sounds great. Thank you.

here unless you want to. THE WITNESS: MR. SINGER:

We would then put on the deposition

of the salespeople whose depositions the Court has ruled can be used. Those are very short. I think collectively about

15 to 20 minutes, not long. THE COURT: designation? MR. SINGER: on that issue. MR. NORMAND: THE COURT: I missed the question, Your Honor. Are there any issues over the I would have to defer to Mr. Normand Are there any issues with the

designation of the deposition testimony of the three -MR. NORMAND: Nothing comes to mind. We'll speak

about that and we'll get them to the Court in the next few hours. limited. If there are issues, I think they will be very

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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 Mr. Nagle.

MR. SINGER:

We did plan to call Mr. Maciaszek and They

Those should not be lengthy testimonies. We would then call Mr. Stone,

cover certain points. adverse, as a witness. either.

I don't expect that to be too long

We would then play Ms. O'Gara's deposition

testimony, and then we wind up with Mr. Tibbitts. I am hopeful we can get that all in. lot on the cross-examination. MR. ACKER: If I just might inquire, Mr. Stone has It depends a

some scheduling issues in the morning, it's a board meeting he would like to attend. If there is a time certain we

could have his testimony, that would be helpful. MR. SINGER: Is there an estimate on how long Mr.

Brennan's cross-examination of Ms. Botosan might take? MR. BRENNAN: MR. SINGER: good estimate. THE COURT: Counsel, let me make you aware that Longer than the direct. I would say probably 11:30 might be a

tomorrow I have a meeting I have to attend during the lunch hour. So we'll recess about five minutes to 12:00 and it

will be at least a half hour lunch tomorrow. MR. ACKER: THE COURT: MR. SINGER: Same schedule, to 1:30, Your Honor? Yes. I believe 11:30 is an estimate. We

could take him after the -- I take it we would be resuming

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at 12:30 to 1:30? THE COURT: MR. ACKER: MR. SINGER: THE COURT: Yes. Have him come at 12:30? I think that would probably work out. Let's plan on that, even if we have to

interrupt the middle of another witness at that time. MR. ACKER: THE COURT: recess? MR. BRENNAN: Just a housekeeping measure. I I appreciate that, Your Honor. Anything else, counsel, before we

assume that the demonstratives will be maintained without disturbance? THE COURT: Yes. We do not have hearings this

afternoon, so you don't have to move everything. MR. BRENNAN: THE COURT: recess. (Whereupon, the trial was continued to Thursday, March 18, 2010 at 8:30 a.m.) Thank you, Your Honor. If there is nothing else, we'll be in