SCO Grp v. Novell Inc

Filing 868

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of March 25, 2010-Jury Trial before Judge Ted Stewart, re 567 Notice of Appeal,. Court Reporter/Transcriber Patti Walker, CSR, RPR, CP, 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. 868 Att. 1

2455

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 him.

(Recess) THE COURT: MR. SINGER: here, but -THE COURT: MR. SINGER: Let's wait. Here he is. Okay. What did you determine? Well, I think Mr. Brennan should be

Perhaps we should do it outside the

presence of the witness, Your Honor. MR. BRENNAN: I thought you asked me to go get

MR. SINGER:

My apologies.

Just a moment.

My understanding is that Mr. Brennan agrees with what we indicated about Mr. Mattingly's testimony. MR. BRENNAN: MR. SINGER: I concede the point, Your Honor. Just so the record is clear, I would

like to take one moment just to indicate -THE COURT: MR. SINGER: Go ahead. -- that at page 678 of the trial

transcript Mr. Mattingly was shown Exhibit 570, and he identified Exhibit 570 as a memorandum sent to the Novell board of directors from Mr. Bradford on September 15, 1995. He said he received a copy of it himself. On page 679, line

18, he was asked, now, was this provided to the board on Friday, September 15th? His answer was yes.

On page 680 he was asked, do you see the reference on the first page to a term sheet for the proposed

Dockets.Justia.com

2456

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

transaction? 83.

Answer, yes.

I would like to show you Exhibit His answer was yes, this

Can you identify Exhibit 83?

is a Novell-SCO term sheet that is referenced as letter E under the memo form Dave Bradford. On page 681, was this

term sheet -- did you receive this term sheet along with the memorandum to the board that is marked as Exhibit 570? Answer, I did. that time? Question, these documents were together at

Answer, correct. Exhibit 570 is the memo to the board and Exhibit

83 is the term sheet, which together form the original document which we have separately marked as SCO Exhibit 754 in evidence. THE COURT: The record has been made, Mr. Singer,

but I do want to caution you, however, that you can ask the witness questions about the term sheet, but I want you to avoid an implication that somehow or other there was ill-will on the part of Novell in supplying Mr. Bradford the documents, because I don't think that is relevant to anything in this case. All right? MR. SINGER: THE COURT: MR. BRENNAN: Yes. All right. Your Honor, thank you, and just so

that we are clear, when I say that I concede the point, I do concede that that is what the testimony says. I stand

2457

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

corrected in that regard. I do not make the concession that that particular term sheet was in fact E, the reference to E in Exhibit 754. I don't know the answer to that, frankly. I have made

inquiry and there is no indication that it was, but that is for a witness to testify to. THE COURT: again. MR. BRENNAN: THE COURT: Mr. Bradford in. Mr. Bradford, if you would retake the witness chair. Ms. Malley, if you would please get the jury. MR. BRENNAN: Your Honor, while we are waiting for Thank you. All right. Can someone please bring And you'll be able to examine him

the jury, our text witness is Terry Musika, our expert, and we're going to need to set up a couple of easels. I was

hoping to do, so that I don't look like I am intruding, would the Court mind if I stood at one side and asked the questions? heard. THE COURT: be fine. MR. BRENNAN: Thank you. As long as you can be heard, that will I think I have a loud enough voice that I can be

(WHEREUPON, the jury enters the proceedings.)

2458

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: MR. SINGER: BY MR. SINGER Q.

Go ahead, Mr. Singer. Thank you, Your Honor.

I think, Mr. Bradford, we were looking at Exhibit 754.

I would like you to turn again to the term sheet as part of Exhibit 754. A. Q. All right. Now, what I would like to do is basically compare this

for a moment to the minutes of the board meeting which I believe are Exhibit Z-3. A. Q. Yes. If you turn to the first page on the proposed sale of

UnixWare business and equity investment in SCO, this says Mr. Bradford and Mr. Frankenberg first confirmed that the directors were present, and Mr. Frankenberg then provided an overview of several business transactions. Do you see any reference to copyrights on that first page of the minutes? A. Q. Well, if you will give me a minute -- no. Turn to the second page at the very top. There is then

a discussion and it says the directors next discussed various competitive alternatives and concluded that the transaction as structured was justifiable. Mr. Bradford and

Mr. Sonsini then reviewed the terms of the asset purchase agreement between SCO and Novell.

2459

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.

In that summary you don't see any reference to copyrights being mentioned there, correct? A. Q. No. That is correct.

The only reference, if we go down further in the

resolution, and then if we compare the resolution to the term sheet we have been looking at, on the term sheet the first item was that Novell transfers UNIX technology assets and UnixWare technology assets. Can you see in the resolution it says that pursuant to the asset purchase agreement Novell will transfer to SCO its UNIX and UnixWare technology assets? A. Q. A. Q. Yes. Do you see that? Uh-huh. On the term sheet then it talked about certain

employees being transferred and equipment being transferred and the employee base and the equipment is referenced next. Do you see that? Correct. Then on the next paragraph it says Novell will retain

all of its patents, and patents are mentioned in the term sheet, and then you have copyrights, which is not mentioned on the term sheet. A. Q. Right. And then there is a reference to a royalty free

2460

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

perpetual worldwide license back to UNIX and UnixWare. Do you see that? A. Q. Yes. That is what is referenced on your term sheet as item

2-B, the license back to UNIX and UnixWare for internal use and resale in bundled products, correct? A. Q. A. Q. I would have to go back and look at the term sheet. Please do so for a moment. Okay. Yes, I see that.

In connection with your review of the documents, did Do you

you ever review the technology licensing agreement? recall that? A. Q.

Are you referring to the asset purchase agreement? I'm referring to the documents that you reviewed in

either the preparation of your declaration or for your testimony here today. licensing agreement? A. If it is part and parcel to the asset purchase Did you review the technology

agreement, I did. Q. It is a separate document, although it is referenced in

the asset purchase agreement. A. Q. A. I didn't review that in preparation for today's -I didn't hear you. I did not review that technology licensing agreement, I

think you referred to it as for today, right.

2461

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 understand that as part of the asset purchase

agreement that Novell through the technology licensing agreement was getting a license back from Santa Cruz for the assets and the technology that was being transferred through the A.P.A.? A. Q. To some degree I'm sure that was true, yes. And if Novell had retained the copyrights they wouldn't

need a license back to that technology, correct? A. If we had licensed, or if we had given the copyrights

to the UNIX operating system to Santa Cruz Operation -- what is your question? Q. Well, in fact, if you had transferred the copyrights

that is when you would want a license back to make use of that technology for internal use and resale in bundled products? A. I have not looked at the license back, the technology

licence back, et cetera, so I can't say exactly what was in that document. Q. Did you review amendment two to the asset purchase

agreement? A. Q. Not for today. And that was not part of what you reviewed for your

declaration? A. Q. I don't believe it was. Now, just a few more things on Exhibit 754, if we

2462

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

could. Part of 754 deals with the financial circumstances of Santa Cruz, correct? A. Q. 15th. A. Q. A. Q. Okay. Project Sleigh Ride. Can they bring that up? Yes. MR. SINGER: Mr. Calvin, I think that is the page Let's see. Document 754 is what document again?

It is the board memo that you sent on September the

that has the historical financial performance analysis. BY MR. SINGER Q. If we look at this, would you agree with me that Santa

Cruz is a company which had in the last year before this, 1994, $184 million in revenue? A. Boy, I would have to go back and look at it. It is a

very small document and I have not looked at this document for years. MR. SINGER: document, Mr. Calvin? MR. BRENNAN: Your Honor, if the exercise here is Well, can you expand that part of the

to ask the witness whether the document says something, the document speaks for itself, and particularly a spreadsheet. THE COURT: I would agree. Let's keep this

2463

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

simple. BY MR. SINGER Q. While Santa Cruz was not perhaps the size of Novell,

you did understand Santa Cruz had a several million dollar business at the time of the transaction? A. I don't recall the size of the revenues at this point

in time -Q. A. Do you recall --- 15 years ago. I remember it was an ongoing business You know, the size and their scope, I

based in California. don't recall exactly. Q. A. Q.

You don't remember any of that? It is hard to recall. Fair enough. If we do turn to the third part of the term sheet,

though, which is I think the next page, what Novell receives from SCO, did you recall that what Novell was receiving from SCO in the transaction consisted of these four different revenue streams? A. Again, in a very general recollection I recall that we

were receiving a portion of the UNIX licensing revenues to Novell. Q. Do you have any reason to quarrel with the accuracy of

what appears on the term sheet attached to your memorandum of September 15th, 1995 as to what Novell would receive from

2464

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

Santa Cruz in the transaction? MR. BRENNAN: Objection, Your Honor. The best

evidence of what Novell received is under the terms of the asset purchase agreement. The witness is being asked to

confirm whether or not this term sheet coincides with the asset purchase agreement, and that is the best evidence, the asset purchase agreement. MR. SINGER: THE COURT: BY MR. SINGER Q. A. Mr. Bradford, do you recall my question? Well, if you want to restate it, that is fine, but, This quantifies what -I will overrule the objection.

again, just to be clear, this being attached to the board of directors -- a memorandum that went to them -- term sheets are a fluid thing. They change on a day-to-day basis and So an initial term

over time as negotiations move forward.

sheet you might sign two months before the transaction is done. Q. Are you aware of any change from these terms that were

presented to the board on September 15th, 1995 and the terms that were ultimately signed on September 19th, 1995? A. Well, again, absolutely the best evidence of that is I would have

actually what was contained in the agreement.

to go through that point by point to kind of understand and refresh my recollection as to whether or not this

2465

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

coincided -- I certainly see that one thing in this term sheet already does not coincide with the actual agreement. Q. Mr. Bradford, are you aware as you sit here today of

whether or not Novell received through the asset purchase agreement the four revenue streams which are identified on item three here of your memorandum of September 15th? A. Q. I have no specific recollection of that, right. Let's talk about some of what you said regarding the

people who were involved in the transaction. A. Q. A. Q. Sure. You said that Duff Thompson was involved peripherally. Right. Do you know whether Mr. Frankenberg, in fact, ever told

Duff Thompson that he was in charge of the transaction? A. Q. No, I don't know that. You don't know. Mr. Chatlos you said you didn't see a lot. Do you know

whether that was because Mr. Chatlos was out in Santa Cruz negotiating the transaction on a daily basis with the parties on the other side? A. Q. him? A. No. MR. SINGER: Nothing further. I don't know that. Do you know whether Mr. Mattingly was out there with

2466

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: MR. BRENNAN:

Mr. Brennan. Just a few questions.

Thank you, Your Honor. REDIRECT EXAMINATION BY MR. BRENNAN Q. Mr. Bradford, you were asked a question about term

sheets and I sensed you wanted to explain what a term sheet. I am going to give you that chance now. A. Well, when the parties begin to contemplate a

transaction, the first written documentation is typically a draft term sheet that the parties kind of bounce back and forth one to another, this is what we would like to see, this is what they would like to see, et cetera, et cetera. So during the course of any negotiation the term sheet gets updated, you know, frequently, you know, as much as on a daily basis as you drive toward finalizing the agreement. The final document that was actually signed and negotiated and executed by both parties is the final document. So while term sheets are interesting and helpful

to understand what led up to the transaction, it is not the definitive document. Q. Also in response or in attempting to respond to a

question by Mr. Singer you mentioned the rhythm of the deal. A. Q. Yes. Could you explain what you were starting to explain

2467

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

regarding what the rhythm of the deal was in connection with this transaction and working with Wilson Sonsini? A. Sure. In very general terms, you know, whenever we

would do a transaction such as this I would associate outside counsel to assist in the effort. In this particular

case it was Wilson Sonsini, Tor Braham, and so I would give a very general overview of what we wanted to see and the protections that we would like to have in a given document, and then the legal team would go out and negotiate with the legal term at the other end. weekly updates, et cetera. Q. With the asset purchase agreement that is at issue in We would get daily updates,

this case, did you review it and recommend that it be approved by Mr. Frankenberg? A. Yes. As I look back at my memorandum to the board, and

e-mails to Bob, et cetera, yeah, I recommended that the asset purchase agreement be signed and executed. Q. Just a couple more questions. This has to do with decisions by the board of directors. A. Q. Uh-huh. If we could pull back up Exhibit Z-3, and I would like Again, as we are looking at page 2

you to look at page 2.

of Exhibit Z-3, the minutes that were prepared of the September 18th, 1995 board of directors meeting. There are

2468

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

sections that are called resolved or resolved further. A. Q. Uh-huh. These sections are called, what, the resolutions of the

board? A. Q. A. That is correct. What in essence is a resolution of the board? Well, you can have all sorts of preparatory language or

language that precedes the actual resolution, but the core of any document, the core of any set of board minutes are the specific resolutions associated with that. I might add that at the time Novell was a highly visible publicly traded company, and as secretary to the board of directors it was really important for me to get it right, and to really explain and express in the meeting precisely the transaction that was entered into. Q. So the resolutions themselves, is that the most

important thing that the board does, that is because the resolutions capture the decision of the board? A. Sure. MR. BRENNAN: Thank you.

No further questions. THE COURT: Mr. Singer. RECROSS-EXAMINATION MR. SINGER: BY MR. SINGER I have a couple of questions.

2469

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.

You're talking about term sheets in general when you're

saying that you could have term sheets at the outset of the transaction, correct? A. Q. Sure. But the term sheet that is attached to your September

15th board memo is not a term sheet at the beginning of the transaction, this is after the transaction has been negotiated and the asset purchase agreement has been drafted and it is ready for board approval, correct? THE COURT: MR. BRENNAN: Mr. Brennan. I have an objection that that

question assumes facts not in evidence, that the term sheet that was part of Exhibit 754 is a term sheet that this witness agreed is part of what was sent to the board. know we have had contrary testimony, but the question presupposes that and thus lacks foundation. MR. SINGER: THE COURT: Go ahead. BY MR. SINGER Q. Yes. The term sheet that we have been looking at as We have already covered -I will overrule the objection. Restate the question. I

part of your September 15th memorandum to the board, that is not something at the beginning of the transaction, that is after the transaction has been negotiated and the asset purchase agreement exists, and it is being summarized for

2470

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 board of directors for their upcoming meeting? A. Well, let's be clear. I don't know that this term

sheet was the exact term sheet that I attached to the board of directors minutes at that meeting or was sent in advance of the meeting. It may have been a term sheet that Ty

Mattingly or that some of the other people that were involved in the transaction said here are some of the data points associated with where we are at on the deal. not the definitive document. Q. Well, sir, I think we covered earlier in your It is

cross-examination that you're not aware of any reason that this was not the term sheet that was attached to your memo, and you're not aware of any other term sheet; is that correct? A. I am not aware of any other term sheet and I have no

reason to believe that it wasn't -- other than it is not accurately reflective of what was contained in the actual board minutes, neither in the asset purchase agreement. Q. So if one of those is wrong, but in terms of what the

board would have reviewed prior to their meeting, this is something that they would have seen prior to their meeting? A. I don't know that they saw this term sheet. I keep

explaining that. Q. And you don't have any specific recollection one way or

the other?

2471

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.

That is correct. You do identify this as a memo that you sent to the This is your memo?

board, correct? A.

Well, the cover memo certainly references a term sheet.

Whether this term sheet that you're referring to is the actual term sheet that was referenced in the cover memo, that is a different question. Q. A. Q. You're not aware of any other term sheet, correct? I have nothing in my possession. It is reasonable for the board members to instead of

reading through the schedules to a long asset purchase agreement, to rely on a memo that they would receive from you in accurately summarizing the transaction, correct? A. Q. Sure. Just as it would have been reasonable for Mr.

Frankenberg, who received a copy of the A.P.A. that you said accurately reflected the business terms of the deal, to rely on that being the case, correct? A. Q. Right. That is what I said.

With respect to that, you have never, as I just

clarified, you have never looked at amendment number two, correct? MR. BRENNAN: Your Honor, that has both been asked

and answered and beyond the scope of my redirect. THE COURT: Sustained.

2472

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. care of?

MR. SINGER: THE COURT: MR. BRENNAN: THE COURT: MR. SINGER: THE COURT:

Nothing further.

Thank you.

May this witness be excused, counsel? Yes. Thank you, Your Honor.

Mr. Singer? Yes. That means that you do not need to I need to instruct you that to

worry about being re-called.

please not discuss your testimony with any other witness or potential witness in this case or in the presence of any other witness, nor communicate the content of your testimony to any other witness. THE WITNESS: THE COURT: I will not, Your Honor. Thank you.

Mr. Brennan, you have some things you need to take

MR. BRENNAN: agreeable to Your Honor. THE COURT:

We are ready to go, if it is

I thought you had to set some things

MR. BRENNAN:

I do.

As I do that, we do wish to indicate to the Court that our next witness will be Mr. Terry Musika. THE COURT: MR. BRENNAN: Yes. With the Court's permission, and to

aid in Mr. Musika's testimony, he is going to use a couple

2473

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

of boards.

Our hope was that we could position them in such

a way that the jury could see them and hopefully Your Honor could as well. I hope we succeed in that endeavor.

May I ask of the witness whether we are putting them where he wants them? THE COURT: MR. BRENNAN: Certainly. Mr. Musika, just step to where you

need to be sworn, and we want to make sure that we can do this in a way that is convenient for you. I am going to

fulfil my highest and best use and move the boards. TERRY MUSIKA Having been duly sworn, was examined and testified as follows: THE WITNESS: MR. HATCH: THE COURT: MR. BRENNAN: It is Terry Musika, M-u-s-i-k-a. Your Honor, may I? Yes, you may. With the Court's permission I will

try to raise my voice, but if I could step to the side? THE COURT: MR. BRENNAN: You may. Go ahead.

Thank you.

DIRECT EXAMINATION BY MR. BRENNAN Q. Good morning, Mr. Musika. Could you please tell the jury a little bit about your background and your educational and work experience, please.

2474

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.

Yes. Good morning, first. My background -- educationally I

have an undergraduate degree and a graduate degree from Indiana University. The undergraduate degree is in history I took two

and my master's degree is in public finance.

years off in between undergraduate and graduate school to move to Los Angeles and attempt to make the U.S. olympic team. While I did that I was a school teacher. I taught I

history in the L.A. School District, junior high school. met my wife at that time, 38 years ago. Then I went directly from graduate school to work for one of the large international accounting firms. is called K.P.M.G. Today it

In those days Peat Marwick & Mitchell.

I spent 12 years in public accounting as an independent certified public accountant. I was recruited to go to work

for what is today the largest accounting firm in the world, Price Waterhouse Coopers. I became a partner at that

auditing firm, which is the highest rank that you can achieve within the accounting world. I did that and I did a

lot of research and I did it for Price Waterhouse Coopers. As I mentioned, I was an audit partner. I audited public

companies, some of the largest companies in the world. THE COURT: please slow down. Mr. Musika, I have to ask you to

The court reporter has to get everything

that you say and the jury has to understand what you're

2475

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

saying.

I would request that you just speak a little bit

slower in your testimony. THE WITNESS: BY MR. BRENNAN Q. In other words, don't rush past all these great nuggets Thank you, Your Honor, and I will.

about yourself. A. Right. After Price Waterhouse Coopers I left and I have over

started to form a series of my own companies.

the last 20, 30 years formed and operated four separate companies. company. One company was a merger and acquisition Another company was a proprietary database

company, where the company went into the bankruptcy courts around the country and loaded proprietary economic data concerning individual companies, and every company within 48 courts that was filing for bankruptcy. The purpose of that

was to try and create a picture for banks and for the court system, and the U.S. Bankruptcy Court system actually came to us and used our data at one point to determine when and where additional bankruptcy judges were needed given the volume of cases. We would predict the outcome of bankruptcy cases. We

would predict the state, the economic state of individual industries or individual regions. banks. We licensed that data to I

We licensed that data to credit bureaus.

eventually sold that company to M.I.T. for research

2476

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

purposes.

The merger and acquisition company still exists

today under a different name. I then formed a consulting, an economic consulting firm which I built up from literally the ground as a start-up company all the way through to where I sold that company to a New York stock exchange company called Navigant Consulting for $28 million. The company today I no longer own, but I One is a

formed it and it is comprised of two companies.

company I formed called Intellectual Property -- excuse me. I have to take a drink -- Intellectual Property Management and Finance. That company values intellectual property of all forms, patents, copyrights, trademarks, and it negotiates licenses for that. For example, one of our largest and best clients He have worked with the

is the University of Utah.

University of Utah and the medical school for the last four years and helped them generate over $20 million in royalty fees with the medical technology that the University of Utah has developed. Then we take a direct investment interest of our own. So my company that I now work for and previously owned, will actually invest in inventors and new technology and attempt to monetize that and commercialize that in one form or another. In addition to those items, I have got one other side

2477

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

of my 35, 40 years of business, and that is from time to time I do serve as an expert witness. It is not only in I have I have

intellectual property cases or contract disputes.

done a lot of work requested directly by the courts.

served as an examiner in certain cases where the court has asked me to come in and look at complex financial transactions and figure out what has happened and help the court understand what has gone on. I have served as an operating trustee, where there are actual businesses that have experienced financial difficulty, and the court has asked me to come in and take over and actually function as the C.E.O. of that company. I

have run multi-state grocery store chains and sold that to a Fortune 500 company. I have run a charter bus company. I have run a I

have run an educational tape company. multi-state shipyard.

Actually during the first gulf war I

completed the construction of four ships for the Army, landing vessels for the Army. I have made a lot of payrolls, both on my own accounts and for the purpose of the courts and for creditors, et cetera, over the 35 or 40 years. That is a quick summary. Q. Thank you. MR. BRENNAN: Your Honor, we have as Exhibit C-33,

if I have that right, which is the curriculum vitae of Mr.

2478

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

Musika.

I do wish to tender that into evidence, Your Honor. MR. HATCH: Your Honor, I don't have an objection,

but I am not sure it is a complete resume. THE COURT: MR. BRENNAN: THE COURT: If it is what they are offering -That is what we are offering. C-33 will be admitted.

(Defendant's Exhibit C-33 was received into evidence.) MR. BRENNAN: BY MR. BRENNAN Q. Mr. Musika, what have you been asked to do in Thank you.

connection with this litigation that brings us to court today? A. Yes. I was contacted probably three or four years ago

and asked if I would be capable and willing to serve as an objective expert witness to review the opinions and evidence that both sides put in, the Novell position that they put in and the SCO position that they put in, and evaluate both positions and assist the court in understanding that complex transaction, and reach an opinion concerning any damages that may have resulted from the claim that Novell has engaged in a slander of title. Q. In that connection and with that assignment that you

were given, what did you do first? A. At this point, if the Court would permit me, I would

2479

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

like to come down and use the easel as a basis for about the next ten or 15 minutes. THE COURT: Go ahead.

One thing, Mr. Musika, is please try to keep your voice up and speak slow, and as often as possible try to direct yourself to the court reporter and to the jury so that everyone can hear you. THE WITNESS: Yes, Your Honor. Thank you.

If I could have a marker -BY MR. BRENNAN Q. I think there are a number of highlighters, Mr. Musika,

that you might be able to use. A. That is fine. At this point I think what would be helpful -- my first approach was is I considered what SCO and, as I said, Novell has presented to the Court and has presented over the course of this entire litigation. We have heard the SCO witnesses I am in agreement with that,

talk about a but-for scenario. but -THE COURT: Mr. Hatch? MR. HATCH: MR. BRENNAN: do? THE COURT:

Just a moment.

Is there a question pending? Yes. The question is what did you

I believe that is correct, Mr. Hatch.

2480

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. HATCH: THE WITNESS:

Okay. What I did was I considered this

but-for scenario, which I agree with, but I explained it a little bit differently. Again, my role in some ways is to

explain these transactions and help the Court understand these complex transactions. I view the but-for world that

the SCO experts talk about as a scenario where on the eve of what Novell is accused of doing, slandering the title, on the eve of that, roughly May 28th, 2003, the SCO witnesses come to the Court and ask you to accept that but for that one transaction or that one event, the Novell slander, take that away, and we want you to buy our investment, our investment that we would have made, we, SCO, would have made over $200 million in revenue and we would have made over $100 million in profits. But for that single event or that single Novell act, we, SCO, would have done this. We know in the real

world that has not happened, and what SCO wants us all to understand and accept is the only reason that has not happened is because of Novell. My role that I do for banks and that I do for creditors and that I do for Fortune 100 companies, is to look at this transaction and provide to you, the buyers of this position, an explanation. Let's consider other

potential events and understandings, and that is what I have

2481

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

done.

What I have done is I have looked at this, and I am

going to present it to you, and you're going to make your own decision, do I buy or do I not buy? THE COURT: MR. HATCH: nature of this. Mr. Hatch? Your Honor, I object to the narrative

He should be answering questions. The question was broad, explain what

MR. BRENNAN:

you have done, and that is the question at this juncture. I'm asking the witness to explain what he has done. THE COURT: Mr. Brennan, I think it is going to be

more efficient if you were to ask questions and try to direct the testimony a little bit. MR. BRENNAN: BY MR. BRENNAN Q. Show the jury, in connection with trying to make a I would be happy to do that.

determination as to this decision, what your analysis is as to the decision. A. Yes. What I do is when I advise investors I explain Before we buy anything I look at The first thing I did was I wanted

the entire transaction. the entire transaction.

to have a better understanding of who Novell and SCO are and what is it that is really involved here. So the first thing I did was I looked at the industry as a whole. What I understood about the industry as a whole Excuse my drawing

was that the industry involved a server.

2482

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

as being somewhat crude. computer server.

This is intended to represent a

Connected to the computer servers are -- I

will draw two laptops here that are connected via a network, a local area network or wiring network. server. As we have heard, this half of the industry down here is a computer client operating environment involving these laptops. That is not what we're about here. It is They connect to the

connected and Microsoft, you heard from the last witness, has actually been adjudicated as a monopolist here and controls this and the operating systems that go into here. We are up here in this server operating environment at the top half of this entire market. There are two components to this. and one is the software. One is the hardware

So, again, focusing just on the Is SCO claiming that No.

top here, how is the hardware sold?

they are going to make money in selling the hardware? The hardware is sold by hardware vendors. hardware vendors?

Who are those

Just as examples, I.B.M., you have heard

about them, Hewlett-Packard, and you have heard a lot about them, and Sun. the hardware. Those are the hardware vendors and they make Remember that this operating system that goes That comes from three

in there, where does that come from? possible choices. choices.

The total market is three possible There

It is Windows, it is UNIX, or it is Linux.

2483

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 a small other component, but it is so small just as to be really not part of this overall market. How does one of the three systems that provide this software, how does it get in there? Well, Windows, which is

own and controlled by, again, Microsoft, and UNIX, get into the hardware not directly through a sale but through a paid license. vendors. They license to one or more of these hardware So the hardware vendors pay Microsoft, pay someone

like UNIX and they put it in here and they sell it to the end user. Linux you have heard is open source. computer through three different ways. G.P.L. license. It is a free license. It gets into the

One way is through a That is important. That is one way.

It is called a government public license. BY MR. BRENNAN Q.

What are other ways in addition to the general public

license, what would be the other mechanisms that users could get Linux? MR. HATCH: Your Honor, I know that standing up

elicited a question finally, but I do have another issue if we could have a sidebar. THE COURT: Yes.

(WHEREUPON, a side bar was begun.) MR. HATCH: following: Your Honor, my objections are the

One is Mr. Brennan has not laid a foundation for

2484

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 type of testimony.

Mr. Musika talked about that he is

a C.P.A. and he has worked for accounting firms and auditing firms, but he doesn't have any ability to be able to look at financial auditing and other financial things, and he has not laid a foundation other than he is the owner of companies. He has not laid the foundation that he

personally has any expertise at the time of this to be able to estimate or explain markets or businesses of this type. In fact, the type of stuff he is doing here is not in his report and it is beyond the scope of his report. don't know the basis for this. I

I bring this up also because

I don't know what the intention of Mr. Brennan is, but at some point Mr. Brennan has to lay the foundation to be able to do the type of things like we laid the foundation with Dr. Pisano, like if he has written journals and done things, the type of estimation of markets like Dr. Pisano. We have

not gotten any of that from this witness, and he is -THE COURT: You say that none of this basic

framework is contained in his expert report? MR. BRENNAN: MR. HATCH: That is certainly inaccurate. It might be addressed peripherally

certainly, but we don't have these kinds of graphs and he is explaining the, you know, all of this -MR. BRENNAN: not in her report. None of what Dr. Botosan -- that was

None of the demonstratives were in her

2485

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

report. THE COURT: MR. BRENNAN: Just a second. Let me --

None of that was in her report.

This is all a prelude to both Dr. Pisano's testimony and to Dr. Botosan's testimony regarding their market analysis. is explaining what a general public license is, and a general public license was referenced in the reports that Dr. Botosan relied on and -THE COURT: This is the only question I have for He

you, and that is whether or not this type of information is contained within his expert report. MR. BRENNAN: The description of a general public It is background.

license is not articulated in his report.

He has run a number of companies that have been identified, and this is information that is publicly gleanable by clicking on Wikipedia, and it is gleanable by looking at the expert reports, and Dr. Botosan relied on -THE COURT: That is not the question.

Mr. Brennan, the question is whether or not this witness is testifying beyond what the plaintiffs understood he would be testifying about, because it is not contained in his expert report. MR. BRENNAN: I don't think this is going to

become an issue, because he is criticizing, as he did in his report, the methodology employed by Dr. Pisano and he is

2486

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

criticizing the methodologies employed by Deutsche Bank. THE COURT: I think that is certainly appropriate, But I

especially if it is all contained in the report.

don't know that there is any foundation for him being the kind of expert to go into this very broad general area right now. In essence, if it is contained in the report and it

was not challenged by them, then I think you probably ought to have him cut to that content of his expert report. MR. BRENNAN: what the market is. I can do that. He is explaining

They never explained what the market is

and that is the basic problem. THE COURT: characterization. I don't think that is a fair

I think that testimony has been brought

out, not necessarily by their experts, but in the course of the trial and I think the jury has a pretty good idea of what he is talking about. MR. BRENNAN: Let me state that the basic

criticism of Dr. Pisano that will be tendered here today is that he did not include in his survey the vendor license market. THE COURT: MR. BRENNAN: THE COURT: MR. BRENNAN: here, the vendor market. Does he talk about that in his report? Yes. Then let's get to that. Well, that is what he is describing That is exactly what he just wrote

2487

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

on the board that gave rise to this criticism. THE COURT: MR. HATCH: objection. Yes. That goes to the second part of my

That is that he has not laid that foundation

either in his report or today, other than I own a company, and the fact you own a company does not give you that expertise, or I am a person in the company, and he has not laid that type of foundation like we did with Dr. Pisano, that he has experience in estimating the markets and understanding the markets, writing about the markets and how they react and what they do. They can't, just because this

guy has an accounting degree and is a glib guy, just have him testify about everything in the industry. MR. BRENNAN: THE COURT: You have cross-examination. I would agree, to the extent that can To the extent that this

be explored on cross-examination.

is underlying the rest of his expert testimony and it is fundamental, and it was certainly implied to in his expert report, then I will allow you to continue. You'll have to

deal with these objections by cross-examination. MR. BRENNAN: The place I will pick up will be him

explaining the vendor licenses and -MR. HATCH: I understand the Court is giving them

some leeway as far as giving narrative answers, and I understand that, and you did the same for us, but at some

2488

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

point there ought to be a question once and awhile. MR. BRENNAN: In fairness, and in reference to Dr.

Botosan's examination, there were a few -- I don't want to characterize them as gratuitous questions -THE COURT: MR. BRENNAN: We are wasting time. With your permission, I would like

to lean over and ask him to pick up the pace, but I don't want to be accused of ex parte communications. THE COURT: Go ahead.

(WHEREUPON, the bench conference was concluded.) MR. BRENNAN: BY MR. BRENNAN Q. A. You were explaining a little bit about the vendors. Yes. I was just saying that there are three ways, Thank you.

really three ways that Linux and the open source software gets into the product. other ways. One is through this. There are two

The second way is through a paid subscription,

that the owner of the server will purchase directly from a company like Red Hat, and the third way is free. a free download from the Internet. It is just

Any of us could go home Those are three key

tonight and download Linux and load it. ways.

That was the first thing that I did was to understand this industry, and that is before I would suggest to something that they make an investment in SCO.

2489

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.

Having described the industry, what did you do next? The next thing I did was I wanted to focus on SCO Did they have a business plan? Where do they

itself.

expect to go?

We know that this market is really defined by We know

these three -- we know who the competitors are.

their competitors are Windows and UNIX, but we know that this is where they are going to sell. that they generate comes from here. This $200 million I look next at the

actual participation of these three competitors. There is a slide that we can bring up. MR. BRENNAN: We have some demonstratives we would

like to display to the jury. THE COURT: Mr. Hatch? MR. HATCH: MR. BRENNAN: No, I have never seen them. I am happy to show them, Your Honor. Have these been made available to

Again, as with Dr. Botosan's examination, she was allowed to draw -- I am happy to show them to them. MR. HATCH: MR. BRENNAN: Your Honor -Your Honor, the proposed

demonstrative shows market share between Windows and UNIX and Linux during the periods of 1995 to 2005. MR. HATCH: Your Honor, these are materials that I I object to

think are beyond the Court's previous order.

them, and particularly that I have never seen them before.

2490

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 report?

THE COURT:

Were they contained in the expert

MR. BRENNAN:

This exact format was not, but the

subject matter was, Your Honor. THE COURT: If not in the exact format, was the

data in the expert report? MR. BRENNAN: This market analysis and the terms

of what the market share was not, Your Honor. THE COURT: MR. BRENNAN: BY MR. BRENNAN Q. What I would like you to do, and we are standing behind Then I can't allow it, Mr. Brennan. We'll move on.

the board, Mr. Musika, but is if you could explain to the jury in particular reference to Dr. Pisano and his analysis, what your observations or criticisms were with what Dr. Pisano presented to the jury. A. Yes. What I focussed in on then were these three

possible ways of actually selling the -MR. HATCH: Your Honor, I object to the

qualifications of this particular witness, that he does not have the same qualifications -THE COURT: You can talk about this on I will note that you have a

cross-examination, Mr. Hatch. standing objection. MR. HATCH:

That is what I wanted.

2491

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

THE COURT: THE WITNESS:

Okay. I looked at the three ways. The

first thing I looked at is I wanted to understand what the history has been certainly of SCO in actually selling these three things, the history in the marketplace. What I

understood from looking at SCO's historical financial statements is that for the years 1998 to 2002 SCO had generated something like $112 million of revenue, but that they had lost $211 million. That is million. So this

company leading up to 2002, during that five year period, had not made any money. What I looked at next in terms of Dr. Pisano, was what was Dr. Pisano's approach? How did he approach

determining and supporting that SCO was actually going to actually make sales in one, two and three. What I

determined was that Dr. Pisano's approach to this neglected certainly number one. As you will see, and you have heard from Dr. Botosan, this was a vendor license. dealt with the R.T.U. licenses. ignored totally the G.P.L. Dr. Pisano's work only

He did not look at and he

On this whole side of the

business, Dr. Pisano ignored that. BY MR. BRENNAN Q. I'm sorry to interrupt. In addition to ignoring the

vendor license market, what other defects did you observe in

2492

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

Dr. Pisano's work? A. I identified a number of defects. One, and if we could

pull up the next slide that is on the -MR. BRENNAN: Your Honor, this is a demonstrative

that is the result of trial testimony offered by Dr. Pisano, and Mr. Musika was in court to observe that. THE COURT: THE WITNESS: All right. What Dr. Pisano did, as you can see He identified that

here, is he identified the total market.

total market that is in here in one and in two and three as 7,388,000 potential servers. three. He ignored this. That is the total of two and It

He didn't look at this at all.

is still going to come into the damages, and it still comes in to want they want you to buy, but not in there. What he then did was he said, oh, this $7,388,000, what he is going to do is he says I'm going to divide that into two and three. He separates that out.

If we could have the next slide. MR. HATCH: Your Honor, I thought we had an

objection to these slides. MR. BRENNAN: Pisano's report. Your Honor, this is taken from Dr.

It is an excerpt from that very report. This is actually a slide directly He divides the market into the

THE WITNESS:

from Dr. Pisano's report. two and the three.

Basically he shows that the free market

2493

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 about 54 percent of the total, of his total 7.38, and the paid market is about 46 percent. percent. This is the total, 100 He

What he does is he lumps those two together.

ignores this and he lumps these two together, even though these are two distinct markets, a free market and a paid market. If I could draw one more board explaining what Dr. Pisano did, then I think I can probably return to my seat. What Dr. Pisano did was he didn't say that they are going to generate this $200 million in revenue and 100 million in profits from all of this 7,388,000, he said we're only going to get 19 percent of it. slide? Do you see that in that

The 1,404,000, that is the total number of servers. The question is, where did he get that 19 percent?

How did he actually get to that 19 percent? BY MR. BRENNAN Q. Where did he, to your understanding, get this 19

percent figure that he identified in his testimony? A. He got it from a separate web survey that was

performed, as you may recall, by a group called the Yankee Group. He said that I'm going to use that, and I'm not

going to do my own survey, I'm going to use it because he felt that it was a good proxy, he called it, or a good means to determine the reliability of the 19 percent. I have certain questions or issues concerning that 19

2494

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

percent. Q. What are your criticisms, not criticisms but

observations regarding the 19 percent that Dr. Pisano relied on based on the Yankee Group study? A. I think I have four basic concerns about that Yankee What the Yankee Group survey did, and it was

Group Survey.

done for a different purpose, but what it did is it took these three markets. It took the Windows market, which is

not at issue here, and this $200 million and 100 million in profits is not coming from the Windows market. It took the UNIX market, which is not at issue here and it is not in our box here, and Windows and UNIX are outside, and what SCO is going to sell to ultimately is Linux. Then

what the survey did was take the Linux market, and that is the Yankee Group survey, and he told you was about 1,000 samples, and within each of these operating system markets there are large companies and small companies. small. Large and small. Large and

What the sample did was it took

only large companies, and only a sample of large companies from each of these. Again, it took that 1,000 and asked

those 1,000 users of these three how concerned are you about the indemnification and warranty for the open source market? Q. So are you suggesting that he used the wrong

population? A. I am, because only this represents the 7,388,000

2495

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

servers, not this, and not this. It would be like if I was trying to determine in this courtroom what the average height of everyone in this courtroom was, and I selected the three tallest people in the courtroom, and I averaged their heights and then I said, well, that represents the average height in this total courtroom. It would be worse if I went across the street to the hotel and selected people. These are not the population.

When he got an answer from asking only the large companies with Windows and in UNIX and Linux that 19 percent were concerned, that is 19 percent that relates to only the large companies in Windows, and only the large companies in UNIX, and only the large companies in Linux. He took that 19

percent and multiplied it times the total number of servers in Linux to get the 1,404,000. Q. In addition then to selecting the wrong population, did

he ask the wrong question? A. He did. May I take my seat? MR. BRENNAN: seat? THE COURT: BY MR. BRENNAN Q. We have talked a little bit about the wrong population Yes. Your Honor, may he return to his

2496

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

being sampled in the survey, what was wrong with the question that was asked? A. The question, if I could have the next slide, the That is

question -- well, actually we have gone over this. the 54 percent. Let's go to the next slide.

The question that was asked -- here we can see at the top, and this is directly from the Yankee Group report that he used, so this is not my document, but I have highlighted it and put these boxes out to the side, but this is the actual group. We can see there the Yankee Group, 2004, Well, SCO is not

Windows, UNIX and Linux comparison survey. selling UNIX and Windows.

There is that point.

The second point is if your firm is a mid size large organization with 5,000 employees, rate the importance. Well, that survey then only tells us what large companies with 5,000 employees, what their feeling is about the importance of indemnification. It does not tell us about This

this 7,388,000, it only applies to a subset of that. is an unrepresentative sample. Last, it asks about indemnification and product warranty.

They are concerned about indemnification and Even Dr. Pisano told us that The SCO

product warranty.

indemnification is different than the SCO product.

product, he said, was superior in his mind, but it certainly was different. I would agree, again, not necessarily that

2497

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 SCO product was superior, but I'll agree with Dr. Pisano that it is different. Because if you get indemnification What SCO

you're covered for whatever events might occur.

was saying was this is a specific event and you're using my UNIX and you need to pay me. things. Q. You have told us that there was an incorrect population They are two very different

and the wrong question, was there another important factor that was left out of the survey? A. Yes, another very key factor. If we can go to the next

slide we see that this is a question and answer to Dr. Pisano during his deposition. trial. He was asked this again in

What prices did the survey respondents base their His answer was there was no specific price that Well, this is fundamental.

answers on?

the were asked to consider.

Even his Dr. Botosan, his co-expert agrees, that this is basic economics. Everything we buy in this life is relative to price. The best example of that is the turmoil or confusion or controversy that exits today in America over health care. If I were to ask everyone in this courtroom are you concerned about health care? Do you want good health care?

Of course, and we would all raise our hands and say, well, sure, I am concerned about health care. division comes is how much. Then where the

How much are you willing to pay

2498

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

for it?

We all have different views and we all have

different abilities. What happened here in this survey is this survey was not conducted for the purposes of determining price. It

asked, as Dr. Pisano states, no question concerning price. So these respondents and this 19 percent, not only is it the wrong question, not only is it the wrong sample, but we have no idea if their concern is relative to price. goes up, we all buy less. As price

As price goes down, we buy more.

That is the fundamental law of demand. Q. In addition to the failure to take into account the

proper population and the right question and this basic tenant of economics, that is price sensitivity, can you briefly tell us whether you think there are any other reasons that SCO through Dr. Pisano or others has failed to show that Novell was the sole cause of the inability to sell these SCO licenses? A. Right. If we could have the next slide. Just as a brief introduction to this slide, again, we go back to my analogy in this but-for world and -THE COURT: MR. HATCH: seen. MR. BRENNAN: This is a simple summary, a Excuse me. Mr. Hatch.

This is another slide we have never

2499

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

demonstrative summary of each of the opinions expressed by Mr. Musika. It is a summary. It summarizes his expert report? That is right. All right.

THE COURT: MR. BRENNAN: THE COURT:

Do you have a copy of it, Mr. Hatch? MR. BRENNAN: MR. HATCH: THE COURT: BY MR. BRENNAN Q. We are doing this simply to expedite what would be Yes, they are in the binder. Yes. Go ahead.

otherwise much longer testimony. Knowing that this is a summary, go quickly through the points for the benefit of the jury. A. Yes. These are questions that I asked myself, and as a

financial adviser explaining a complex transaction I say to you, would SCO have made $200 million of revenue with only one exception, the Novell act? these. First, SCO does not know who their customers are. going to explain these in a little more detail. I'm Let's look at each one of

I'm just

going to mention them now, and we'll come back to them. There is no established demand for the SCO product. no profitable business structure. target customer. SCO has

SCO has alienated their

Again, these are things that you would

2500

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

want to see before you put your money in a business. lacks support of the industry experts. was poorly conceived and implemented.

SCO

SCO's marketing plan SCO failed to

consider the significance of product pricing, and that the infringing code could be removed from Linux. SCO

contributed to Linux under the G.P.L., and identifications are available to consumers, and there are acceptable alternatives to SCOsource licenses. Q. So with the limited time that we have, if you could

briefly touch upon each of those factors as you have identified them. A. Yes. We will go through it slide by slide.

Go to the next slide, if you could, please. I would say to you that getting this 200 million, and I don't want to repeat this each time, and I will say it now and then I won't repeat it for each slide, they didn't receive the 200 million in revenue and the 100 million in profits, irrespective of Novell's act, because, and that is the premise to each one of these slides, because they have an inability to identify their customers. People are

downloading from the Internet, they can't even identify who they are. they are? Here is an example. SCO's own statement, the second How do you sell to someone if you don't know who

one, is how does one track the payers from the non-payers

2501

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

that they don't know? Let's go to the next slide. Well, again, in the interest of being brief, these three points are the actual customers that are coming back and saying, look, you sent us a blind mailing -- SCO sent out 1,000 letters and sent it to customers and here is Ace Hardware, Burger King and Dream Works, three well known companies that came back and said we don't even use Linux. It is a fishing mission. part. It is a blind mailing on SCO's

Is that a basis in which they're going to make $200

million of revenue? Next slide. SCO's failure or inability to show that UNIX was in Linux. This has been an ongoing point of contention. The

users or the alleged users, the customers that they are going to sell to, those servers over there, it has never been proven that it is actually in the Linux software. is a proof that is still waiting. That

That is the whole other

set of law suits, the primary one being the I.B.M. lawsuit. Prove to me that UNIX is actually in Linux. know that today. SCO does not know that today. We don't They are

asking you to put your money up to buy their position without knowing whether it is actually in the Linux product. Q. A. The next factor? We can go to the next slide.

2502

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

SCO's inability to reach that 200 million in revenue and 100 million in profit is expressed in their own 10-K filing. While they are here in court asking you to buy into

the 200 million in revenue, what they have said to the real investing public is the following. I want to focus on

these, because these are very important. These come right from SCO's own 10-K. history of a profitable operation. We do not have a

They are asking you to

buy into their 200 million even though they have never made a profit in the last -- I will say five years leading up to this. Secondly, our future SCOsource licensing revenue is uncertain. They are telling you, the buyer, that we are Our experts have

uncertain as to whether we can do this. told you we can, but we are uncertain.

Three, due to the lack of historical experience and the uncertainties related to the SCOsource licensing revenue, we are unable to estimate the amount and the timing of future licensing revenue. So SCO themselves are saying we don't

know how much we can generate. Fourth, SCOsource licensing revenue is unlikely to produce stable predictable revenue for the foreseeable future. Q. A. Okay.

Then what about public image, did that have an impact? Yes.

2503

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

Next slide. The customers, once they find them, and we don't know who they are yet, and they don't know if they can actually project them, but the customers we do know are -MR. HATCH: Your Honor, he is now showing things

that are not in evidence. MR. BRENNAN: Your Honor, he is an expert witness

and is entitled to rely on hearsay, which he did in his report, and these are references that were included -MR. HATCH: MR. BRENNAN: But he is not allowed to publish them. This is a demonstrative. If you

want him to read the reference and not use the demonstrative -THE COURT: THE WITNESS: THE COURT: THE WITNESS: I'm going to allow him to use them. I didn't hear you, Your Honor? You may go ahead. This focus group, these customers They are

that they are looking for we know are open source.

the people who download it for free, they are the people who purchase through a third party like Red Hat. is that the public has reacted adversely. So what we see

This as a

litigation scenario, a business plan that is founded on litigation, and it is founded on the ability to go in and identify a Linux user and sue them or threaten to sue them to receive a payment in the form of a royalty payment.

2504

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

What Business Week says is this is the most hated company in tech. These other remarks are SCO's own remarks,

can SCO afford bad press and legal costs that may become associated with this program? SCO knew that they were going

to alienate and that they were going to have difficulty with this open source community, the very customers that they hope to bring in. BY MR. BRENNAN Q. Then were there also industry analysts who commented on In fact, it did happen.

this poor image that SCO held? A. Yes. As stated here, customers with large future Linux

commitments should avoid paying SCO's server license fees since they appear arbitrarily high or represent a concession to SCO's claims and will expose them to even larger fees. So the Gartner group that was mentioned by Dr. Pisano and Dr. Botosan, are telling the focus customers again that you shouldn't pay this. He is saying certainly not pay it now,

because it is a claim that is unfounded at this point and it is arbitrary. Q. Then was there also a factor regarding a lack of a

marketing plan by SCO? A. Yes. These are two SCO remarks that talk about the weakness on SCO's part of actually pursuing or developing a well thought out plan. I have not seen, nor did I see during the

2505

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

weeks of trial, where if we were investors and we were going to put our money into a company that said we're going to have 200 million in revenue and 100 million of profits, we would expect to see a business plan. We would expect to see

a discussion of the size of the market, and how it is they are going to attract these customers, and what price they are going to sell at, et cetera. I didn't see that.

What I have seen that SCO is concerned about are marketing plans. SCO is not aggressively marketing or

selling the license proactively. Then this remark is by a SCO employee, that I thought this idea was a bad idea when we discussed it in the days when we ran SCO, and I think it is a bad idea. New SCO has This

few enough friends anyway without pulling this stunt.

is their own remark concerning the proposed business plan. Q. Let's turn to the issue of this general public license What is the factor there, the risk factor, if you

issue. will? A.

Without getting -THE COURT: MR. HATCH: Mr. Hatch? Your Honor, we would request a

sidebar. (WHEREUPON, a side bar was begun.) MR. SINGER: This I was a party to. It was our

understanding and agreement that demonstrative exhibits that

2506

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

would be used during trial would be shared the day before. This book was not. used. Secondly, a lot of the material in this book is not evidence in the case. Certainly a Business Week article As I look at the slides that That is one problem. This should not be

is not evidence in the case.

are to come in they are filled with things that are not evidence in the case. Now, he can rely on this in rendering

his opinions and what he tells the jury, but he cannot show these statements from those reports and quotes from people, like e-mails that may not be in evidence, anymore than any other document not in evidence can be shown to the jury. Just because he is an expert, he can't show that to the jury and this is highly improper. MR. BRENNAN: Your Honor, these are demonstratives I don't

and they are based largely on SCO documents. purport that these will go to the jury.

They are being

shown like their expert, Dr. Botosan, where she wrote figures and numbers and calculations on the board. simply illustrating and the basis for his opinion. This is It is

premised both on his report and the documents that are marked. THE COURT: The question is whether or not all of

this information is contained in his expert report? MR. BRENNAN: I believe that they are

2507

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

representative of -THE COURT: If it was included then you could have

brought this up in a motion before trial, because if they are in his expert report, and i