SCO Grp v. Novell Inc

Filing 869

NOTICE OF FILING OF OFFICIAL TRANSCRIPT for dates of March 26, 2010-Jury Trial before Judge Ted Stewart, re 567 Notice of Appeal. Court Reporter/Transcriber Patti Walker, CSR, RPR, CP, Telephone number 801-364-5440. 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)(jmr) Modified by removing restricted text on 7/19/2010 (rks).

SCO Grp v. Novell Inc

Doc. 869 Att. 1

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(Recess) (WHEREUPON, a sidebar conference was begun.) MR. BRENNAN: Your Honor, just two items. We

observed during the opening closing argument that there were a number of sounds coming from the gallery, and we could hear a specific individual laughing and making certain comments. I wonder if it is appropriate to perhaps

encourage the gallery not -THE COURT: Absolutely. I did not hear that or I Thank you for bringing that

probably would have stopped it. up. MR. BRENNAN:

The second is, and we probably

should have brought this up before, but particularly with the fact that we're near the end and we will have the alternate excused, what are the rules of engagement that ought to be observed by the parties in terms of contact with jurors? THE COURT: I always tell the jury that they are

permitted to discuss the case with counsel, but they are not required to. I leave it up to them. We just wanted to make sure that we

MR. BRENNAN:

were both operating on the same -THE COURT: MR. BRENNAN: THE COURT: That is what I will tell them. That is agreeable. Thank you.

Dockets.Justia.com

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(WHEREUPON, the sidebar was concluded.) THE COURT: Ladies and gentlemen, and this is

addressed to those of you in the courtroom, not counsel, it was just brought to my attention that during the closing argument thus far that there has been some response, audible and otherwise, to the arguments that have been made. to tell you that that is very inappropriate. I need

If I had heard

that I probably would have stopped the argument and I would have instructed the court security officer to remove you from the courtroom. So just by way of a caution, do not react in any way to especially anything that might be observed or heard by the jury. That is totally inappropriate. Okay.

Ms. Malley, if you would please bring the jury in. (WHEREUPON, the jury enters the proceedings.) THE COURT: MR. BRENNAN: Go ahead, Mr. Brennan. Thank you, Your Honor.

Ladies and gentlemen, I also wish to thank you for your attention during this three-week period. No doubt

there has been sacrifice and difficulty in arranging your schedules to be here. On behalf of Novell we appreciate it,

and we comment that this system of justice that we have in this great land is entirely dependent upon people like you who are willing to make the sacrifice, to endorse an inconvenience, to hear a dispute and hear it fully and then

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to make a decision. It is true at the outset that I asked you to wait for the rest of the story, and I do hope to sum up today what the rest of that story is. I should also indicate, that as the judge has shared with you, because the burden of proof falls squarely and heavily on the plaintiffs, SCO in this case, I will not have a chance to address you a second time, and so I'll have to simply ask you if there is any further argument that is made by SCO's counsel, at least to anticipate what you think Novell might say in response, since I won't have that opportunity. I am the first and I may be the last lawyer in my family. We'll see how that turns out. But when I grew up

there was often a statement that was used, and sometimes I used it myself, something like don't make a federal case out of it. The suggestion was was that if there was a minor or

trivial disturbance, that that paled in comparison to a federal case. Well, here we are in federal court, this is a federal case, and unlike some of those minor annoyances or disturbances that I saw as a child, this really is a big deal. It is a big deal for a couple of reasons. I would

like to suggest a few of those to you. First of all, what you have heard during the

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course of this trial is that was something known as the SCOsource license program. What that program was intended

to do was to reach out to users of the Linux operating system and extract from them a payment. And that SCOsource

program has threatened many, many, many Linux users across the world, and because of that a huge uproar has resulted. It has been highly publicized. many comments made about it. followed. Novell. There have been

This case has been closely

This is of great significance to people beyond The threat to the open source community is And for that reason Novell, as I

presented by this case.

will share with you, has felt compelled to respond in the public marketplace with its view and opinion and position regarding this case. Now, secondly, this case is frankly a gateway to other litigation. You heard and saw in the presentation of

some of the evidence that there are other cases out there awaiting to be heard. If SCO is successful in this case,

and there is some determination of ownership of copyrights, contrary to what we believe the evidence is, then there will be other suits filed. At least of threat of suit hangs over So this

all Linux users, particularly in the marketplace.

is the entree to many, many other cases if there is an adverse determination made here in this one. The third point is this case presents a very

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important fundamental question regarding the meaning and sanctity and reliability of contracts. When I mentioned it

the first day I held up for you the contract at issue in this case, carefully drafted, meticulously written, lawyers on both sides representing their clients to the best of their ability. But if we're going to disregard the words of

the contract, and we're going to look to some other source other than that which the parties wrote, and, in particular, if we're going to try to devine what people might have thought or hoped or wished in hindsight that they had put in the agreement but didn't, to gain an advantage now 15 years later, then the whole reliability of contracts it threatened. It does not a take a broad imagination to consider the chaos that would result if two parties, ably represented, were to reach an agreement and express their agreement in writing and then later, much later, have that written agreement challenged by outside thoughts or improvications. This case represents the fundamental

question as to whether a party can rely upon the written contract. Now, there is also a fourth issue here. This

case, and it is a unique one, and in some ways it is a thrill to be a lawyer in this case, because although this case has come to you in a commercial transaction it involves

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a fundamental constitutional right, and that is the right of free speech guaranteed to all citizens, including corporations, to speak freely their position on a matter of public interest. The First Amendment guarantees the right that individuals and businesses and, of course, as the instruction suggests, that businesses are comprised of individuals, and a corporation is a collection of many who work for it, and its shareholders, and so these really are individuals, and whether or not an individual, whether through a corporation or acting on his or her own, has the freedom in the marketplace when there is a matter of public controversy to stand and state their position without fear of reprisal or monumental damage claims because of speaking what one believes. This case presents that question.

Now, with that in mind, and in the limited time that I have, I am going to try to walk through and distill three weeks of evidence as briskly as I can and highlight some of the important points that I think will help and guide and assist you in making these very important weighty decisions. I recognize I cannot compress three weeks of I'll do my best. I'll

evidence into the hour that I have.

rely upon your ability to recall some of the evidence that you have heard and witnesses that I am not able to touch upon.

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At the conclusion I too will turn to the verdict form that you will receive, and suggest to you what I would recommend on behalf of Novell would be the appropriate result for you to consider and make as you deliberate. Now, the first question that is presented is this fundamental point of whether or not the amended asset purchase agreement, this contract, transferred the UNIX and UnixWare copyrights as of the date of the asset purchase agreement from Novell to SCO. How do we know that? The answer is it did not.

Well, first of all, we do need to look There are two parties to this

at the parties' intent. contract.

You saw time and time again, and I apologize for the repetition, but you saw the minutes of the board of director meeting where Novell, governed by its board of directors, met and considered the asset purchase agreement before it was signed, and very clearly presentations were made to the board, and there is a resolution which states without equivocation that Novell will retain all of its patents and copyrights and trademarks. That very language,

and you'll see it in Exhibit Z-3 when you have a chance to retire to the jury room and look at it, that very language is what actually appears in the contract. I hold this book up again, and you'll have a chance to look at Schedule 1.1-A which sets forth in four

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short pages the list of assets that were sold.

The contract

speaks very clearly that only the assets listed in that schedule were the ones being sold. This was not the sale of

an entire business, it was the sale of specified assets, and that is what the contract tells us. You'll also have a chance to then turn to Schedule 1.1-B, which is the express list of excluded assets. Over

and again you have heard that all copyrights and trademarks except for the trademarks UNIX and UnixWare were excluded. Now, one of the things that was passed by us quickly in the early presentation, but I trust it didn't get past you, is that this asset purchase agreement signed on September 19, 1995 did not go without review. There was

almost three months from the time it was signed until the time that the deal closed on December 6, 1995 where everyone involved had a chance to review it. If somebody somehow

thought the wool had been pulled over their eyes, or they didn't understand or there was a mistake or a misrepresentation or an omission, both sides had full opportunity to review it. In fact, they did. You'll see when you retire to

the jury room and you can look at Exhibit T-5 which is the amendment number one to the asset purchase agreement. It

covers in a span of some ten or 12 pages modifications made to the initial asset purchase agreement. Importantly,

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Schedule 1.1-A which identified the assets was not modified to include copyrights, and significantly Schedule 1.1-B, which expressly excluded copyrights, was not changed either. There can be no suggestion, no credible suggestion that somehow the wool was pulled over somebody's eyes. Both

sides had a full chance to review it and both sides had a chance to make suggested revisions, and there was not even a suggestion, let alone an agreement, that the excluded copyrights ought to be modified. Now, in addition, on December 6, 1995 there was a document that was entered into that actually transferred the assets. nothing. The asset purchase agreement itself transfers Instead, it is a promise that Novell would

transfer assets, but the actual document that accomplishes that was the bill of sale. The bill of sale that you saw,

Exhibit W-5, references the transfer only of the assets. The assets are, again, described in the asset purchase agreement, so to really understand what was sold one would have to look to the bill of sale and say what does the bill of sale say? The bill of sale tells us that to understand

what was sold we look to the asset purchase agreement, the assets, Schedule 1.1-A. clear. Now, there is also something that was passed by, and you'll recall that Novell acquired the entire UNIX So that is straightforward and

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business from AT&T, not an asset purchase agreement, but a full merger, and Novell held those assets for about two years and then there was a limited transfer of some of the assets in 1995. Then a couple years after Novell sold some

of the assets to the Santa Cruz Operation, and Santa Cruz Operation turned around and decided to sell whatever it acquired from Novell to a company called Caldera, now known as SCO. Well, if we were to look at the agreement that Santa Cruz Operation entered into with Caldera or SCO, we would see in Exhibit 010 that the seller, Santa Cruz Operation, could not represent to SCO that it had a chain of title with respect to all of the intellectual property. That includes the copyrights. So when Santa Cruz Operation

sold what it had to its buyer, SCO, Santa Cruz Operation realized it could not make an entire sale. Now, was this a mystery? unknown to SCO? Absolutely not. Was this something Let's fast forward to Mr. McBride, who

January 4th, 2003.

You may recall this.

was not involved in any way with the asset purchase agreement or either of the amendments, does join SCO in 2002. One of the first things that he does is he wants to The business that

see whether he can change the business.

SCO had been engaged in up to that date was it was selling UNIX and UnixWare in particular, and it was even servicing

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the Linux world and helping Linux users and customers. The business was not going well, and so Mr. McBride said is there something different that we can do? Is there another business we can pursue contrary to the one we have been engaged in? The idea came to him, well, maybe

we can try to turn on our customers, our Linux users, and we'll go after them and try to extract payments. We'll go So he

after the open source community rather than aid them.

employed consultants, and one of them was Mike Anderer, who advised Mr. McBride in no uncertain terms in January of 2003, that there was far less that had been transferred to SCO than Mr. McBride would have hoped. In fact, it is an

asset purchase that excludes all patents, copyrights and just about everything else. what we can license. We need to be really clear on

It may be a lot less than we think. Let's

Well, SCO relies on the wrong documents. take a quick look at some of the things that SCO has suggested to you.

First of all, what was presented was the First of all, where did that term

so-called term sheet. sheet come from?

It was presented first in court when

Mr. Ty Mattingly came, and you'll recall that he found some documents in his garage, not previously presented during the course of the trial, and one of the documents in his garage was this term sheet. agreement. The term sheet wasn't the final

The term sheet didn't represent what the parties

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signed off on.

If anything, it was a preliminary sketch of

a possible agreement, but it has been suggested to you that the term sheet was the final agreement. Not so. The final

agreement was what the parties agreement to and signed. Well, also suggested to you as evidence that the parties, contrary to what they said in their agreement signed, was that there was a press release, a joint press release. Well, of course, it was not a joint press release,

it was one issued by SCO and it has its logo and Novell is not even a party to it. And then it was suggested to you that, well, maybe what indicates a transfer of the copyrights is the technology license agreement, which is one of the exhibits to the asset purchase agreement. performed. This slight of hand was

The suggestion was that, well, maybe what Novell

was doing was it was taking a license back of the assets that it sold, and that means certainly the copyrights might have transferred because otherwise why would Novell take back that which it retained? That was the argument. The

fact of the matter is that when you look at the technology license agreement, which you'll have a chance to do in the jury room, the license back provision related to assets that had been transferred. Clearly Novell and SCO agreed that

when Novell transferred assets, Novell would have a license back to those assets. But the assets that were transferred

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didn't include the copyrights. clearly said.

That is what Schedule 1.1-B I think you'll

So that was a slight of hand.

see past that quickly. Now, in terms of the witnesses that were presented, there was a board put up in front of you about various witnesses, but if one looks carefully and listens carefully one will quickly devine as well that the witnesses that were presented to you either were not involved in the final negotiations, had not even read the asset purchase agreement, or were misinformed. Well, let's look at who the actual witnesses were who were involved in the asset purchase agreement. heard no mention of Jim Tolonen. You He

He came here in court.

supervised the preparation of the asset purchase agreement as the chief financial officer of Novell. He testified that

Novell had purposefully excluded the copyrights from the transfer. It wasn't a mistake. It wasn't a slight of hand.

It wasn't an omission.

He was present at the two board

meetings held after the asset purchase agreement was entered into and at those board meetings reported on it. He is

actually the one who signed amendment number two to the agreement, and he has no financial interest in the outcome of this case. He left Novell in 2000. Mr.

Well, should we rely upon Mr. Tolonen? Frankenberg said he did.

In his testimony he indicated that

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he relied upon Mr. Tolonen's recommendation and advice.

Mr.

Frankenberg even said that he would expect that Mr. Tolonen would be in a position to accurately state what the position of Novell was relative to the asset purchase agreement. Well, you heard from David Bradford, the general counsel of Novell. He came to court and he testified, and

he is no longer with Novell, he has no financial interest in this case, but he told you that he had supervised the drafting of the asset purchase agreement, that he gave specific instruction to Novell's outside counsel to preserve the copyrights, and that he prepared the board meeting minutes and was at the board meeting when that very presentation was made, and that the board minutes were accurate. as well. happened. You had the benefit of hearing from the lawyer who actually wrote the asset purchase agreement. to court and testified extensively. He came here Mr. Frankenberg, of course, confirmed all of that Mr. Bradford was deeply involved and he knew what

If anyone would have

known the language that was used and whether it was done perfectly, Mr. Braham would have been the one to do that. He testified that there was a specific strategy employed by Novell to protect its interests in this license stream, these SVRX license streams, and so the asset purchase agreement was carefully crafted in a particular way to

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protect that. outcome.

Mr. Braham has no financial interest in the

Less there be any question as to whether Mr. Braham actually was involved, you saw the drafts. Now, it

is hard to read the writing, and I feel badly for my own secretary who has to read some of my writing, but Mr. Braham wrote from start to finish and commented on the very specific terms of the asset purchase agreement. This is important. Mr. Braham made it clear who

his client was, not a single individual at Novell, but the client was the board of directors. The board of directors

of the company makes the decisions and is the ultimate governing body. Mr. Braham shared with us that the board is And

the one that approved the asset purchase agreement.

then in terms of others who came that were not directly involved, you heard him identify the fact that Mr. Thompson was more involved in looking after the interests of SCO than Novell, and that others who had been involved certainly in the process, Ed Chatlos and Ty Mattingly, that they had not been as deeply involved when the agreement came to the final negotiations, and whatever views they had were not relevant to the board's decision. Mr. Chatlos wasn't even at the board meeting. Mattingly was present, but as you have heard and we will highlight in a moment, does not remember things that were Mr.

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said. happen.

The board minutes speaks as to what really did

Now, we also had a chance to hear from Allison Amadia. She is the one who drafted amendment number two.

She is the one who commented on the initial language suggested by SCO's attorney. She is the one who knew best

what the intent of Novell is along with Mr. Tolonen, and she has no financial interest in the outcome of the case. Now, let's compare that to the witnesses that were presented to you on SCO's behalf. reference to. Duff Thompson was made

You'll recall that Mr. Thompson had not been He had been previously at Word

with Novell for very long.

Perfect and when he came over there wasn't a place for him as general counsel at the company, because Mr. Bradford was the general counsel while this deal was being negotiated. He had already, as he testified, decided to leave the company. You heard the testimony that he had checked out.

In fact, he was already planning to go to SCO and to be on its board of directors. You heard the testimony that Mr.

Thompson was on SCO's litigation committee which approved the filing of this lawsuit against Novell. owns at least 110,000 shares of SCO stock. We did get some good entertainment out of Mr. Michaels. say? The important thing is what did he actually Mr. Thompson

Here is a portion of what Mr. Michaels actually

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testified to. agreement. was.

He had no specific memory as to any specific

He didn't even know what amendment number two

He had not read the asset purchase agreement when it He had never read it. And he had no comment

was prepared.

on the asset purchase agreement.

What we're going to do is

look to the parties' agreement here, and we need to look to witnesses who actually read it and knew it and understood it and negotiated it. Whatever wishes or hopes or dreams

Mr. Michaels may have had, he was not involved in the preparation of the asset purchase agreement. We did hear from Mr. Mattingly formerly with Novell. You heard that he owns SCO stock. You heard that

he was not involved by his own testimony in the details or the crafting of the asset purchase agreement. You heard

that he had no involvement in the preparation of either amendment number one or amendment number two. You heard

that he has no memory of what even happened at the September 18th, 1995 board meeting. Well, let's look at some of the other witnesses. Steve Sabbath did not appear in court but you did have a chance to hear a portion of his testimony through videotape deposition. Now, it is very critical that we look at what I would like to share with you a

Mr. Sabbath actually said. couple of snippets.

As you recall his testimony, Mr.

Sabbath had signed a declaration under penalty of perjury

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regarding what his views were.

He had signed that in

connection with the previously filed litigation involving I.B.M. When asked about this he said, question, do you recall executing this declaration? Answer, I do, yes.

Question, referring to that sworn declaration, you say in paragraph 11 of the declaration, quote, under the asset purchase agreement Novell retains significant UNIX related assets following the sale. For example, Schedule 1.1-B of

the asset purchase agreement provided that much of the UNIX System V intellectual property would not be transferred. That was his sworn statement. It didn't end with that.

In that same declaration that was referred to in his videotaped testimony the following quote was elicited from his sworn statement. Quote, as described above in

relation to the related agreements and amendment number two, Novell retained certain rights under the UNIX System V licensing agreements as well as certain UNIX System V intellectual property. This is the very lawyer at SCO who

prepared the initial draft of amendment number two and signed it. So when he was first asked to make a statement

under penalty of perjury, he confirmed, just as Novell has presented it to you in this courtroom, that Novell retained its intellectual property rights relative to UNIX. Let's go back to Mr. Frankenberg. We were told by

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SCO's counsel that in their view he is the most important witness in the case. Well, if they believe that let's look You'll recall both the

at bit at what Mr. Frankenberg said.

first day he appeared and even here yesterday that I had the chance repeatedly to ask him about what the board had done and what it had approved. I asked him straight on whether

the language in the asset purchase agreement signed by the parties, signed by him, was consistent with what the board of directors had approved. He said yes. And then there was

some suggestion maybe that, bizarrely, even somehow that the board of directors of Novell was acting beyond its authority. To make sure that that was not the claim, I

asked him and he said, no, of course not, they were not acting beyond their authority. This is the testimony that you heard just yesterday. I apologize for the length of the question. I asked him in this courtroom 24

Here is what he said. hours ago this. you're saying.

So let me just see if I understand what Is it your contention that although what was

discussed with the board was an express exclusion of copyrights, and although the words that were in the asset purchase agreement expressly excluded the transfer of copyrights, and the minutes of the board of directors meeting excluded all copyrights, somehow in your mind you either saw or thought you heard something different than the

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express provisions? us? Yes, it is.

Is that essentially what you're telling

Here is the problem.

Imagine the difficulty any

one of us would face if we were to make some sort of purchase or enter into some transaction, and we wrote it down and both parties signed it, and we thought we could rely on it, and then later someone were to suggest, well, I know that is what it says, and I heard the words telling me that that is what was agreed to, but I had something else in mind, and now I want to step away from it and not honor it. That is what is going on. That is the mischief in this

case, from the most important witness, according to the plaintiff. Now, Mr. Chatlos, and we don't want to place this out of proportion, but it must be known, as was elicited in testimony, that Mr. Chatlos's wife does work for SCO. and his wife will make money if they win this case. Importantly, when we look to what was actually agreed to, and we look to the intent of Novell, he was not present at the board of directors meeting. level. He was not involved at that He

So his view or belief or suggestion has to be

wondered a bit about. We also did hear from Kim Madsen, who was an assistant to Mr. Sabbath at SCO. She had no specific memory She

or intent of the negotiation of amendment number two.

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did not remember what was felt or believed or thought by that, and she testified that she had no specific recollection of discussing with Mr. Sabbath what he might have thought about amendment number two. Now, there are others who came to court and testified. We heard from SCO's former chief executive

officer, the one who we were told was in essence the sponsor of this SCOsource license program, what his interest is, and he told you how many millions of dollars he would make if SCO were to prevail. He acknowledged that he had a Unlike

financial interest in the outcome of this case. other witnesses, it is not ending with that.

Mr. McBride, by his own admission, had no involvement in the preparation of the asset purchase agreement or any of the two amendments to it. not a party to it. He simply was

He can't be looked to to understand what

the intent of the parties was at any time. Now, we also had a chance to hear from Mr. Tibbitts, who is the general counsel of SCO. He too has a He

financial interest in the outcome of this litigation.

too stands to gain if SCO prevails, but he too, like Mr. McBride, having joined SCO not until 2003, had no involvement whatsoever in the preparation of this agreement. So, again, who we heard from was a parade of witnesses who either weren't there, far removed from the

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activities, not directly involved, not present at the board of directors meeting, or have a personal financial interest in the outcome of the case. Now, you may ask the question, why would Novell have decided to exclude the transfer of copyrights when it entered into this agreement? sounds one sided. this transaction. Even posing the question

Keep in mind there were two parties to The question might as easily be asked why Because they

did SCO agree not to transfer the copyrights? did agree to that.

Well, I think you'll find and you'll

recall that there are significant, valid business reasons. Let's first turn to Mike DeFazio. He was not on

the list of witnesses that SCO's attorneys put up, but he was a critically important witness. You'll recall that he Mr. DeFazio, as

appeared by videotape deposition as well.

he testified, was the general manager of the UNIX business unit at Novell at the time that this transfer took place. He previously had worked for AT&T and he then came to Novell with that acquisition and he was asked, was it your understanding that the A.P.A. at the time was intended to transfer the copyrights for UNIX to Santa Cruz? was no. His answer

The A.P.A. as it was written retained it and it was

my understanding that the retention was the way that the team crafted the words to implement the goal of bulletproofing this financial asset stream, to protect it.

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Now, that is exactly what Mr. Braham told you. What was the rationale for excluding the copyrights? He

testified that it was to protect Novell's interests, it was a concern that SCO might move into bankruptcy, and if it did there would be real entanglement and difficulty for Novell to protect its interests in those SVRX licenses, and there was also concerns about Microsoft. One of the other things that was passed by is this important fact. The suggestion has somehow been made that Well, that is

Novell must have sold the entire business. contrary to what the words say. practical economic realities.

It is also contrary to the Novell paid over $300 million

to acquire the business and what it got in return was about $50 million in stock. It retained what it already held, and

that was rights to license fees, and then the other portion of possible consideration was if SCO actually succeeded in what it bought, and that was the right to develop the UnixWare, and if SCO had succeeded and it developed this merged product, as you'll see reference to in the asset purchase agreement, and made a profit, then Novell would have at a certain level been able to participate in that. SCO did not succeed and Novell did not receive any of those funds. Well, back to Mr. Frankenberg, apparently the most important witness in the case. He was asked, despite

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his testimony, whether it was possible that in fact the asset purchase agreement purposefully had excluded the copyrights and he finally was able to acknowledge, yes, that is a possibility. We asked him several times about the

asset purchase agreement exclusion and whether that is what the board had agreed to. the board had agreed to. Now, there were some people that you did not hear from in this trial. them. I wonder if you were curious about He acknowledged, yes, that is what

You heard that Novell's in-house counsel, David

Bradford, working with Jim Tolonen, the chief financial officer, worked with outside counsel of Novell to prepare this asset purchase agreement. without its representatives. Santa Cruz Operation was not In fact, they hired a very

talented set of lawyers from a very large law firm, a prominent law firm at the time, the Brobeck Phleger firm. You heard about Ed Leonard, this very experienced senior partner, Jeff Higgins and Scott Lester who worked with them, and none of them appeared in this case. appeared by deposition testimony. None of them

Those are empty chairs.

That must tell you something about it if SCO was not able or willing to present any witnesses to suggest anything contrary to Novell's presentation. There was a

complete failure or lack of evidence by SCO with respect to the actual negotiations on the asset purchase agreement.

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They have the burden of proof. required to present witnesses.

They should have been They should have come

forward with those who are on the other side of the table if they actually were going to try to substantiate this rumor or innuendo that there was a mistake or that Novell slid something passed them. here. Those very talented lawyers were not

Nor did they go and ask the questions so that they

could present it to you. We do agree that amendment number two is of critical importance. Let's look at what amendment number You may recall that the

two says and what it does not say.

very first draft of this agreement resulted when Steve Sabbath, Santa Cruz's in-house counsel, contacted Ms. Amadia and said words to the effect, according to her testimony, there has been some clerical error. We need to fix that

now, more than almost a year after the agreement was signed, and he sent over some language. Well, what was the language that he proposed? This compares the language that he proposed with what actually was agreed to. You'll see in red the language that

Novell struck out and which it rejected, and the language that was struck out was this very broad terminology about this amendment number two which pertained to the UNIX and UnixWare technologies. Mr. Sabbath also suggested and which

SCO has acquired hereunder.

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Mr. Sabbath by the words he used wanted to have a document signed to suggest that in fact there had been a transfer of copyrights, but that was not the case and the language we have rejected that. So the final language of

the asset purchase agreement very clearly contradicts the claim that SCO has been making in this case that there was a transfer of the UNIX and UnixWare copyrights. Instead, the language is all copyrights and trademarks except for the copyrights and trademarks owned by Novell as of the date of the agreement required for SCO to exercise its rights with respect to the UNIX and UnixWare technologies. Well, what was required? First of all, what was If we were to compare

We turn again to Mr. Tolonen.

the people involved, Mr. Tolonen, the business representative, the chief financial officer who signed the asset purchase agreement, and Novell's legal representative, Ms. Amadia. Sabbath. On the other side of the transaction, Mr.

What testimony did you hear on either side? Very clearly Mr. Tolonen said we did not intend to

transfer ownership of the copyrights to Santa Cruz.

He made

reference to the fact that when the suggestion was made by Santa Cruz that such a transaction be entered into that it was rejected. Then he testified that amendment number two

so clearly was not intended to transfer ownership of the

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copyrights, that he did not go back to the board of directors to get approval for it, and he testified that to change the asset purchase agreement, to undo that which the parties had agreed to, to actually include the transfer of copyrights would have been such a material change, a big deal, that Novell's board of directors would have had to have been involved and they were not. Let's go back to Ms. Amadia, the one who wrote the agreement. In your mind are you positive that Novell did I am. How can you

not intend to transfer the copyrights? be so sure?

Because I negotiated it, I drafted it, and that I didn't have the authority to do

was not my intent. otherwise.

Well, so we have looked at the two people at Novell involved, the senior executive, Mr. Tolonen, the lawyer, Ms. Amadia, and who is on the other side? Mr. Sabbath. Back to

What did he tell you about the intent and Question, and to the best

meaning of the second amendment?

of your recollection who at Santa Cruz would have been involved in negotiating the language of paragraph A of amendment number two? I don't know. Question, can you

recall prior to signing amendment number two focusing on paragraph A to any extent? I don't.

A complete absence of anyone from Santa Cruz or SCO coming into this courtroom and suggesting what the

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intent or meaning was of amendment number two. we have a clear contrast.

Once, again,

You heard the evidence from

Novell's representatives, and they testified without equivocation that there was no intent to transfer the copyrights, and then we have a complete absence by SCO. Now, that then prompts this question. Were

copyrights required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies? Well, we need to get an answer to that

question, and so the first place we ought to look to is SCO itself. We heard this testimony from Mr. McBride. You may recall this. He was

asked this very question.

Question,

didn't you tell them that you could run that part of your business without ownership of the UNIX copyrights? Answer,

we could run our business without the copyrights just like H.P., I.B.M., and all of the other licensees of UNIX can run their businesses as well. Let me pause right there. finish this. What is the significance of his open admission in this courtroom on this point? First of all, you'll recall I will come back and

that companies like Hewlett-Packard and I.B.M. and others, Sun Micro Systems, a number of other companies, they have a license to use the UNIX software. They then would take the

license that they had to UNIX and build on top of it their

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own flavor, their own amendments and derivatives and additions. None of those companies owns the UNIX

copyrights, but are perfectly capable of running their business by working on their derivatives and marketing and selling and profiting in some respects handsomely. That was

the business that SCO said it was going to be in when this asset purchase agreement was entered into. The SCO business was to take the UNIX operating system and then to build on to it, to amend it, to create derivative works, their own flavor, and they were left free to sell that and to derive royalties and payments for that additional work. They did not need ownership of the UNIX That is precisely what Mr. McBride

copyrights to do that.

acknowledged was the case. Here is part two. The business that was involved

in this sale of assets wasn't the business that Mr. McBride wanted to get into in 2003. He wanted to start a new and

different business, a business that is not the subject of this agreement. He wanted to turn on his customers, and

instead of helping them with UNIX or with Linux, he wanted to claim on SCO's behalf that these many customers who have been using this free open source software now were infringing UNIX. That is a new and different business. It

is not the business that was the subject of the asset purchase agreement.

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This is why Mr. McBride says the part that we differ on here is we were unable to run our business for the licensing side without the copyrights, and the licensing side was really the future of the company. What he was

talking about was the litigation shop that he wanted to turn SCO into. So there will be no question, and you may recall this, Mr. Acker asked so let me get it straight so the jury understands. You could operate as a software company You couldn't run your Do I have

without the UNIX copyrights?

SCOsource campaign without the UNIX copyrights? that correct? Mostly.

Now we need to understand precisely what it is that SCO is doing. You'll recall that in May of 2003 it

sent out letters to some 1,000 or more companies claiming that it owned the UNIX copyrights and licenses and it wanted to extract payments out of these various companies. was it supposed to be doing? doing? What

What was it prohibited from

If we look at the asset purchase agreement, Section

4.16-B as amended, you'll see in the highlighted portion that SCO shall not and shall have no right to enter into new SVRX licenses except in the situation specified in small i of the preceding sentence or as otherwise approved in writing in advance by seller. What SCO was doing was

directly violating its contractual obligation by turning on

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people that it previously was designed to service and help. Now, the suggestion has been, oh, it would be ludicrous and impossible and how could a software company possibly operate without holding the copyrights? And then

you heard in open court from the general counsel, Mr. Tibbitts, and I asked him this question. You're aware of a

proposed transaction just in the last year whereby SCO would have sold its business and retained solely the UNIX copyrights, correct? Correct. So although you have been

told it would be ludicrous, that is precisely what SCO has given contemplation to. I didn't want there to be any What SCO has

confusion so I asked him to clear it up.

proposed to do is sell the UNIX business, product business, but retain the UNIX copyrights? enforce those copyrights. litigation shop. Now, others were asked about whether or not copyrights were required. Mr. Messman told you that in his Yes, and the rights to

SCO is interested in being a

view as of 2003 that SCO didn't need the ownership of copyrights to run its legitimate UNIX and UnixWare technologies. Let's make sure that we have a very clear understand again of what is at issue. These are Legos.

Maybe some of you have seen these in your home and stepped on them and tripped on them. A Lego represents a building

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block.

What initially Novell had and owned, and that the

part it had acquired from AT&T, is represented by the small block on the left, the UNIX and the UnixWare copyrights that pertain to Versions 1.0 and 2.0. Under the asset purchase

agreement certainly SCO had the right to use that intellectual property without ownership to develop its building block on top, the UnixWare copyrights. Whatever

SCO has developed on its own, its derivative work, it owns the copyrights to. that. There has never been a challenge to SCO has every right

Novell does not dispute that.

and has and did for eight years before this litigation was commenced operate that business. It was not until Mr.

McBride and SCO came up with its new litigation strategy, that the suggestion has been made that copyrights were needed. Again, you heard the suggestion that somehow Mr. Braham or Mr. Bradford snuck the copyright exclusion into the A.P.A., that it was done in a corner, no one saw it, and no one had time to think about it. actual evidence. That is belied by the

Mr. Levine, he is the one who was an AT&T

lawyer who came over to Novell, and he is the one who actually then moved on to SCO after the transaction. He is You

the one who provided comments on Schedules 1.1-A and B. heard and saw what he said. This is his very draft that

supposedly was snuck by or snuck in.

You will see that in

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his draft of Schedule 1.1-B, the excluded assets, very clearly all copyrights and trademarks except for the trademarks UNIX and UnixWare. invention. That wasn't a last second

Mr. Levine, who, again, SCO purports as its

witness, actually wrote that language. Now, was Mr. Frankenberg duped? question. Here is the

Now, do you recall whether or not you ever

reviewed this excluded asset schedule in connection with the transaction? I am sure that I did, yes. Sir, to

Mr. Mattingly, he also came to court.

your knowledge did the lawyers and business people at Santa Cruz have the opportunity to read the included and excluded asset schedule before they agreed to the A.P.A.? Yes. No

question that those people had a chance to do that. Here is an interesting document. seen it from two sources. You may have

The first time you saw it was

when Mr. Mattingly came into court and had that folder that none of us had seen before, said that he had it in his garage, he had given the documents or showed them to SCO's lawyers without ever notifying Novell, and I hadn't seem them before and I asked him for them. This is one of them.

On it is a draft, a handwritten notation of September 16th, 1995, before the transaction closed, and it includes the exclusion of all copyrights and trademarks. secret. People knew about it. It was not a

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Now, the suggestion has been made that somehow if we disregard the language of the agreement, if we forget that it is there, or we want to act and believe contrary to it, let's see how people behaved and that should inform us as to whether or not Novell transferred the copyrights. were told about three individuals that SCO brought forth, all SCO employees that suggested that somehow Novell acted inconsistently with the retention of copyrights. The first You

example was that somehow on the copyright notices, the marks that are put on the physical, tangible medium, that there was a copyright notice suggesting that SCO held the copyrights. In his testimony he indicated that we didn't go back and change prior versions. We only put the SCO Of

copyright notice on current or go-forward versions. course, that makes perfect sense.

I showed you before that

if you in essence inherent or have rights to use a product and you build your own on top of it, you can claim copyright protection and rights for the new work that you have performed. That doesn't mean the previous work you own Mr. Broderick acknowledged that. The suggestion was

copyright protection to.

Then you heard from Mr. Nagle.

that, well, maybe there is a copyright notice on the box in which the SCO C.D. is sold. He acknowledged that what is

written on the box does not tell you what the ownership

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resolution is, you have to look to the legal agreements to establish copyright ownership. legal agreements. Then we had Mr. Maciaszek. The suggestion was Fortunately, we have the

made that Novell sent these letters out to customers after it entered into the asset purchase agreement, and somehow there was some concession by Novell in those letters that it had transferred ownership of the copyrights. chance to look at examples of those letters. You'll have a You'll see

that they do not say that Novell transferred ownership of the copyrights. Mr. Masiaszek was good enough to confirm is

that these letters were simplifications, and that what customers actually were being told is after the transition that if they had questions they should contact Santa Cruz. Why? Because Santa Cruz was acting as the administrative

agent and was being paid five percent to administer the collection of royalties, that they should do something for the work they were asked to do and that is one of the items. Now we get the important question. Did Novell This is

have a First Amendment right to state its position? probably something you are familiar with. The First

Amendment is incorporated and is the very first and is the most preeminent of the Bill of Rights. of things. It protects a number Congress

I'll take you back to a civics class.

shall make no law respecting an establishment of religion or

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prohibiting the free exercise thereof or abridging the freedom of speech or of the press or the right of the people peaceably to assemble and to petition the government for the redress of grievances. This is the fundamental foundation

of our union and is the fundamental protection for our individual liberties. Novell does have a constitutionally

protected right to comment on matters of public interest. The Court has given you an instruction, and some of this was covered in part, but not in its entirety with you with Mr. Singer, and it bears some repetition. instruction that you received states the following: The The

third element requires the party claiming slander of title to prove by clear and convincing evidence, not a preponderance, just a little bit more than a tip of the scales, but clear and convincing evidence, that the statement disparaging the ownership of the UNIX and UnixWare copyrights existed as of the date of the asset purchase agreement was made with constitutional malice. Let's pause. burden placed on SCO? Why is this very high and heavy To protect constitutional rights, to

avoid the chilling of speak, to avoid reprisal for those who choose to speak out on a matter of controversy. Imagine the

difficulty that would occur to any one of us, to any citizens, individual or corporate, if they could not speak their mind because of a fear that they would be hailed into

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Court and held accountable for monumental damages. why this heavy burden exists.

That is

It is a constitutional right. That is, the party

The instruction continues.

claiming slander of title must prove that the statement was published with knowledge that it was false or reckless disregard of whether it was true or false. mean? The instruction is clear. What does that

Which means that the party

making the statement acted with a high degree of awareness of the probable falsity of the statement, or that at the time the statement was transmitted, the party making the statement had serious doubts that the statement was true. So as we examine the statements that are at issue in this case, that is the standard that has to apply. order to hold Novell liable for slander, you must be convinced to the heightened degree of clear and convincing evidence that at the time the statement was made it was known to be false, or that it was made with reckless disregard that all of these other factors are satisfied. What is clear and convincing evidence? has instructed us. The Court In

Clear and convincing evidence leaves no

substantial doubt in your mind that the constitutional malice is highly probable. It protects all of us. That is a very high standard.

Spite, ill will, hatred, bad faith,

evil purpose or intent to harm does not alone support a finding of constitutional malice.

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So with that in mind, let's make sure that we understand what was going on in the marketplace and what Novell was facing when it made its alleged and accused statements. First of all, and you'll have a chance to look Not long prior to the announcement

at this, Exhibit I-11.

of the SCOsource licensing program SCO itself was in the business of licensing Linux and selling Linux to users, encouraging Linux users to use that open source product. reached out and developed a clientele of Linux users. It

Those

are among the very type of customers that SCO then turned on when it figured it wanted to make a bit more money. What was the motivation for that dramatic turn, a new and different business? Well, Mr. McBride told us that

it was because of the financial condition of the company. Things were not in good shape. Asked about this same

licensing extraction program, Mr. Thompson was asked about whether it was a hail mary and he said, well, like every other company there are good times and bad times and we were looking for ways to improve our business. What did Santa Cruz Operation think of what SCO was Keep in mind Santa Cruz Operation ran the UnixWare When they themselves were

business and sold it to SCO.

asked what they felt about SCO's license extraction and litigation shop we got this answer. Guys who run protection

rackets occasionally make a short-term profit, but never

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build a long-term business.

That is what Santa Cruz There was an uproar There was a

Operation itself thought SCO was doing. in the market.

There was tremendous publicity.

backlash of significance among Linux users and those who serviced Linux. Well, what is it that SCO sought to do? recall this, that in February of 2003, recognizing apparently that it did not own the copyrights, and that its licensing program would be dependent on actually owning the copyrights, SCO came to Novell through various means, one of which was senior executives to in-house counsel. One of the You'll

things that SCO sent over to Novell was a proposed agreement to clarify that, in fact, SCO owned the copyrights. If,

indeed, SCO owned the copyrights as it claimed, so it could carry out its licensing extraction program, why on earth in 2003 was SCO asking for written confirmation? It is a

little hard to see, but you'll have a chance to look at Exhibit I-31, and there was even a signature block put on that. What did Novell do in response? It rejected and did

not sign that agreement. Well, there were threats that went out. a threat that went everywhere. This is The

It even went to Novell.

claim was made that Linux infringes our UNIX intellectual property and other rights. That is the claim that was made. It was made broadly and

It was not made in isolation.

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throughout the marketplace.

You have heard that this demand Novell was faced not

was made to at least the Fortune 1000.

only with a public uproar, but it itself was challenged, it itself was the recipient of one of these letters. This is only a small sample, and time does not permit more, but what was in fact the response? Linux

advocates doubt the validity of the SCO licensing scheme. Advocates claim scheme violates the general public license or G.P.L. software license. There are other examples. everyone in tech except Microsoft. SCO irks about Time does not permit,

but if one were to think about the implications, Linux was a challenge to Microsoft. The Linux market was growing and

developing, and it presented a market challenge to Microsoft's operating system. Who would be a chief Microsoft. In the

beneficiary of the failure of Linux?

Well, ultimately Novell had to respond.

midst of this adverse publicity, these claims and threats to Linux users, yes, on May 28, 2003 Novell did respond. And

Novell did at that time report to Mr. McBride that Novell owned the UNIX copyrights. Well, you heard this testimony. We need to put Where is It

ourselves in the time and place of May 28th. Novell? What is it thinking?

What is available to it? Mr. Messman, as you

has the asset purchase agreement.

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recall, testified that he was present at the board meeting in which it was approved, and despite efforts to embarrass him because at one point he said in the 1980s instead of the 1990s, but you saw the board meeting minutes and you saw that he was present, and he recalled that the asset purchase agreement did not convey copyrights. Mr. McBride was asked whether he thought that it would be reasonable for a person reading the asset purchase agreement, without the benefit of amendment number two, to conclude that there was no transfer of copyrights. Mr.

McBride acknowledged that that would be a reasonable reading of this document. 2003. Now, the suggestion has been made somehow that Novell must have known about amendment number two or it was creating or fabricating. did on May 28th? Well, why did Novell respond as it That is where Mr. Messman was in May of

We heard from Mr. LaSala, the then general

counsel of Novell, and he indicated that it was imperative to Novell's business interest to respond formally and publicly, although he did not know anything about SCO's earnings announcement. was of wide interest. about that. Mr. Stone testified that the issue I don't think there is any dispute Mr.

He had no idea of the earnings timing.

Messman told us that Novell had to put out its side of the story, and he wanted the world to know what Novell's

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position was. Now, the suggestion has been made that there was some sort of malice. I think the sole witness actually that

was presented to you was a journalist, this Maureen O'Gara. You heard her testimony by videotape. the argument by SCO's counsel. It was skimmed by in

In fact, she confirmed to

the public relations director of SCO that she wanted war pay for the articles and promotion that she was making for SCO. Excuse me. She was asked by SCO to send a jab P.J.'s way. P.J. is a woman who writes and

You heard the testimony.

comments on interests of the open source community, and SCO wanted Maureen O'Gara to write something negative about her. That hardly is evidence of a detached, objective journalist. The other thing if you listened carefully, and you had a chance to see it again today, was the attempt by Ms. O'Gara to create words of Mr. Stone that he never said. you listen carefully to the testimony, she was pressed several times, tell me what were the words that Mr. Stone used. She never answered that question squarely. Instead, If

she talked about, well, maybe he was laughing. impressions.

These are my

Pressed repeatedly, it is important to know

what he said, she could not do that. I would like to take a pause right now and have us focus on what was going on and why Novell responded the way it did. There are a number of things that are

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represented on this time line.

I'm going to run across them

and I hope they will be of help to you in summarizing and understanding. The first event that we have here is the May 12th, 2003 threat letter sent by SCO to Fortune 1000 companies and others. SCO's gone public with its SCOsource

licensing program and has made demands on many companies including Novell. Here is an interesting thing. Two days

later on May 14th, SCO pre-announces publicly its earnings for that quarter. Now, you have heard a big deal made about

Novell must have conspired and planned to release its response on the earnings date. announced two weeks before. Those earnings were

Anyone knew that the earnings What

had been out there if they did careful research.

Novell did do on May 28th is respond and you have seen that response. What happened a few days later on June 5th is Mr. McBride, having discovered himself a signed copy of amendment number two, sends if over to Mr. Messman. pause just for a minute on this. I will

You heard in Mr. Singer's

argument that what Novell should have done is reached out to its law firm, Wilson Sonsini, to get a copy of amendment number two. But you also know, if you had a chance to

carefully listen, Wilson Sonsini was not involved in amendment number two. That was done by Ms. Amadia in-house.

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Then the suggestion was made that, oh, Novell should have reached out to its former chief executive officer, Bob Frankenberg, and got a signed copy of amendment number two. Well, that is an interesting proposition. Mr.

Frankenberg had left the company well before amendment number two had been signed and had nothing to do with it. Novell did not discover amendment number two, the signed copy, until Mr. Messman received it, and then Novell, trying to act responsibly, did release the statement that you have seen suggesting that amendment number two appears to support the position articulated by SCO. However, Novell then with some time undertook to review matters more carefully. way it did on June 6th? Why did Novell respond the

You heard that it was because SCO

was claiming that it was going to go public with an announcement, it was going to call a press conference on June 6th and go public, and Novell wanted to be responsible in its response and thus gave the muted response that it did on June 6th, because of the public pressure being exerted on it by SCO. On June 6th, 2003, Novell did send a private letter to SCO indicating that now that it had a chance to look more closely at amendment number two, that it did not agree with the position that amendment number two effected a transfer of ownership. So as of June 6th, 2003, in a

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private non-published communication, Mr. McBride and SCO knew that there was no claim or concession of ownership. Let's take just a quick look at then what SCO does on July 21st, if we could highlight that. In the face of Novell's private letter that it did not agree that ownership transferred, Mr. McBride in an interview, a public interview said if you go talk to Novell today I'll guarantee you what they will say, which is they don't have a claim on those copyrights. contradiction of a private communication. That was a direct In the face of

what Novell said privately, Mr. McBride and SCO went public suggesting something directly to the contrary. Let's go back to the time line, please. The next development is Novell again on August 4th sent another letter and said we dispute SCO's claimed ownership of these copyrights. So now here are two letters

by Novell, private ones, not published, disputing the claim. What does SCO do in the face of those private communications? Mr. McBride in a public address said this. In a

If we could look at the development on August 18th.

keynote address, a public address, Mr. McBride said in regard to Novell's recent claim that it still owns the copyright to UNIX, McBride said it took SCO just four days to press the eject button on that claim. What Mr. McBride

is doing, having received private letters from Novell where

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Novell said we did not transfer ownership, Mr. McBride is going public and claiming that Novell has conceded the point. Back to the time line, please. On October 14th Novell registers the copyrights and this happens on November 18th, if we could highlight the development on November the 18th. This was a transcript of an interview with SCO's C.F.O., Mr. Bench. In that transcript, publicly made

available, SCO said once we have the copyright issue resolved, where we fully had clarity around the copyright ownership on UNIX. So what is happening, one more time back to the time line, is Novell is acting privately and Novell is not going public, but is repeatedly telling SCO we retain ownership of the copyrights, and what Mr. McBride and others at SCO are doing publicly is saying, no, you don't, and suggesting that Novell was conceded the point. With all of that brewing Novell then on December 22nd, if we could highlight December 22nd, did make a public release. What was the form of the public release? Copies

of our correspondence and SCO's reply are available here. Contrary to SCO's public statements, as demonstrated by this correspondence, SCO has been well aware that Novell continues to assert ownership of the UNIX copyrights. So

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