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News from Eyewitnesses to the Hearing on SCO v. Novell Motions

Tuesday, May 11 2004 @ 08:51 PM EDT

Here you go: two reports from the courtroom. First, Frank's. He reports that Brent Hatch argued for SCO. Mark Clements and Ryan Tibbitts were also counsel for that side. John Mullen and Michael Jacobs were counsel for Novell, and Michael Jacobs argued for Novell. It sounds like both sides reiterated arguments we've read in the motion papers.

Now it's up to the judge to decide. First, he has to decide where the case belongs, in federal court or in state court. That's the motion to remand, involving the arguments about copyright law or contract law applying. He heard both motions today, though, saying that if he denies the motion to remand, they don't all have to come back to court for the motion to dismiss. That's a little hint, maybe, as to what he thought might happen. Either that or the judge is methodical and likes to save time by planning for all conceivable contingencies. If he keeps the case in federal court, then he will decide the motion to dismiss. The arguments about special damages apply to that motion.

Frank's notes are not a literal transcript, but are his rough notes. Portions in quotation marks are word for word, according to his notes. We'll try to get a transcript later:

The courtroom was significantly larger than Judge Wells' courtroom, and was well attended by about 30 people, but was not packed like the January SCO v. IBM hearing.
Judge Kimball said he would hear arguments on both motions, starting with SCO's Motion to Remand.
Brent Hatch: We brought this case in state court on state issues. We didn't bring up any federal issues or ask for federal remedies. The Copyright Act, Section 204(a) doesn't give the freedom to interpret the contract, it just says that there has to be a writing. We have alleged the contract is a writing transferring the copyrights.
(He quoted the Harms decision.) We "can't put form over substance." Novell brings up the Jasper Case from the 2nd Circuit. The fact that a case concerns a copyright does not necessarily make it a federal case. This case only presents state law on contract interpretation.
Judge Kimball: How is your case different from Jasper?
Brent Hatch: In Jasper, the Plaintiff brought the copyright claims. It's a question of subject matter jurisdiction. In our case, it's pretty clear that there is a writing. This is only a matter of contract interpretation. Section 204(a) doesn't apply a standard. It just says there has to be a writing. Novell claims ... isn't a writing. We don't want to get to the end and have one of the parties claim subject matter jurisdiction. That ought to happen now.
Michael Jacobs: SCO's arguments understate 204(a). The Copyright Act supplants state law regarding transfer of copyrights. Going to go into more detail about the Copyright Act, Section 201 states that ownership of any rights may be transferred, even certain portions of those rights (right to reproduce the work, etc.). Transferring ownership of a particular right doesn't transfer ownership of all the rights.
Section 202 says if I give you a physical object, that doesn't necessarily transfer any rights to that object. Section 204 says you can transfer ownership rights, but it must be done through a written instrument of conveyance. It must be in writing. Having a contract does not mean conveyance of rights.
SCO alleges conveyance through the APA, but there is no written instrument of conveyance. They haven't mentioned 204(a), but they can't plead around it. The question is whether the 204(a) bridge has been crossed. (cited Arachnid Case). 204(a) sets a federal standard. Pamelov case 794 F. 7933. 204(a) displaces equitable estoppel. The Jasper 204(a) issue was trivial compared to this case. We're well inside Jasper.
Brent Hatch: Novell claims the APA is not an instrument of conveyance. They're asking for you to look at this in a vacuum. APA was a scrivner's error, corrected by Amendment 2. (Quotes from the Novell letter) "Appears to transfer some..." Other cases don't quote Jasper. (Quotes from December 6, 1995 press release that Novell completes the sale of UnixWare.)
Judge Kimball: I'll take the motion under advisement. Because I haven't decided on the Motion to Remand yet, we'll proceed to hear the Motion to Dismiss. If I deny the Motion to Remand, we won't have to come back.
Michael Jacobs: Mentions SCO v. IBM case.
Judge Kimball: "Yes. I am the lucky judge who has the SCO v. IBM case."
Michael Jacobs: Walk the court through the APA. We wouldn't be here if SCO had produced a writing transferring the copyrights. The APA contains recitals of the terms of the business. (Describes the difference between Unix SVRx and UnixWare.) Under the APA, Novell sold "certain assets of the business." The APA listed Included Assets and Excluded Assets. Refers to Schedules 1.1a and 1.1b.
Schedule 1.1a - Included Assets - Intellectual property included just trademarks.
Schedule 1.1b - Excluded Assets - All copyrights and trademarks except Unix and UnixWare.
The question is "what does SCO get out of this deal?" 4.16a says they get a right to administer the legacy SVRx licenses, with 95% of the money going to Novell. 4.16c - Novell doesn't promote their SVRx business, buyer (SCO) doesn't either, without Novell's permission. Section 4.18 - SCO gets Merged product (UnixWare).
What ownership of copyrights does SCO get? According to the Copyright Act, SCO gets copyright rights to whatever they write. The code they wrote in evolving UnixWare.
Amendment 2 adjusts the Excluded Assets slightly. Includes copyrights, but very narrow. Not an instrument of conveyance, not close enough to guess. Refers to 1338 issue - jurisdiction. Points out that Judge Kimball is the expert on Special Damages.
Brent Hatch: Mr. Jacobs reads the contract now without the benefit of a knowledge of the contract. He leaves out large portions of the contract and we haven't been through discovery to see what is said by those who were there. Refers to the TLA (December 6, 1995) - grant-back of rights to Novell. Why need the TLA if the rights weren't transferred? This is a state law claim - they slandered our title.
Judge Kimball: What is your response to Novell's claim that special damages have not been pled? Does it meet that brilliant standard? [PJ: I asked Frank to explain, after spending time trying to find a case called Brilliant and failing to find one. He says they were referring to a decision that Kimball wrote in another case, which Kimball here was referring to as "brilliant", as a joke, and there was some laughter in the courtroom. That tells you some nice things about this judge, I think. Frank explained it like this: "He was referring to a previous decision of his (upheld by an appeals court) that defined 'Special Damages.' He made the comment with a slight twinkle in his eye. I think he knew that he defined it, and that they couldn't argue it. There was some laughter at that." Here is a decision that Judge Kimball wrote, if you'd like to see him in action. In this matter, he was sitting on the appeal with two other judges, but he was asked to write up the decision.]
Hatch: Could we be more specific? - probably. A case could always be pled better. Here, it's pretty obvious. They're interpreting the contract. (Quotes from a decision): "It needs to be in writing, but it doesn't need to be the Magna Carta." It doesn't take a lot of language to say "All Unix and UnixWare." The excluded copyrights refer to Netware.
Michael Jacobs: Section 204(a) requires clarity, and we wouldn't be here if SCO could point to an instrument of conveyance. 204(a) is set up so that buyers negotiate directly with the sellers, and requires clarity.
Judge Kimball: (Takes both motions under advisement.) If he rules for the Motion to Remand, the Motion to Dismiss will be moot, otherwise he'll rule on both. (no time frame given)

A second eyewitness, Mark Belnap, says rather than take notes, he decided to pay attention to the overview, and here are his impressions:

--Judge Kimball's courtroom is beautifully decorated in dark wood, with sculptured ceilings and wall carvings. It wasn't standing-room only, but there were a good number of people present.
--At one point during Brent Hatch's remarks on the motion to remand, he outright admitted that there was a dispute over the ownership of the copyrights. (If I understand correctly, that blows a big hole in the slander aspect of the case)
--Judge Kimball was very animated in asking probing questions (at least at first--this tapered off over time). He also exhibited a bit of dry wit and attempted to make the atmosphere more comfortable. This is the first time I had seen him and he definitely made a good impression on me.
--The second row was filled with folks from IBM's team observing the proceedings.
--Novell's attorney went through the main points of the APA and Amendment 2 and discussed what it was that SCO actually bought and what they didn't. He said (multiple times) that if there was a writing that described transfer of copyright that they wouldn't be there.
--In discussing the second motion, the Judge directly came out and asked SCO (Hatch) about specific damages. He (Hatch) waffled a bit and then mentioned that there were definitely people who had not chosen to license, people who were not investing in the business and other lawsuits that were being delayed because of Novell's actions. I thought the last point was ironic seeing as how SCO is up to their armpits in trying to tie up all the other legal cases and achieve maximum delay.
--One of my old college roommates is an attorney in SLC and he came in part-way through the hearing and listened. I asked him whether Novell made a big mistake in bringing this to the federal court rather than just seeking a dismissal from state court on the (lack of) merits. He said that the state court judges were not nearly as good, and they did the right thing in bringing it here.

If you wish to review, Novell's Memorandum in Support of its Motion to Dismiss is here. They brought up the Arachnid case in that memorandum. Novell argued like this, with regard to the slander of title action:

In order to prevail in a slander of title action, SCO must establish:
(1) there was a publication of a slanderous statement disparaging claimant's title,
(2) the statement was false,
(3) the statement was made with malice, and
(4) the statement caused actual or special damages.
First Sec. Bank of Utah v. Banberry Crossing, 780 P.2d 1253, 1256-67 (Utah 1989). SCO's Complaint fails on two grounds.
First, SCO has not pled sufficient facts demonstrating falsity. Indeed, the very documents SCO relies upon fail to meet the requirements of the Copyright Act for a valid transfer of copyright ownership. In the absence of such a transfer, SCO cannot show that it is the owner of the copyrights at issue and cannot show Novell's statements to be false.
Second, SCO has not adequetely pled special damages. SCO is required to plead with specificity its alleged realized or liquidated pecuniary damages, and instead has pled speculative damages of a general nature. SCO's alleged damages, as pled, cannot sustain its slander of title action.

The issue of special damages not being adequately pled seems like a biggie. The other case mentioned, Jovina, came up in Novell's footnote 1:

1. The question of whether a purported copyright assignment constitutes a written instrument of conveyance under the Copyright Act requires interpretation of the Copyright Act and is sufficient to render this action within the original jurisdiction of the federal courts. Jasper v. Bovina Music, Inc., 314 F.3d 42, 46-47 (2d Cir. 2002)

SCO used the same case in their Motion to Remand, trying to distinguish it:

Unlike the plaintiff in Jasper, SCO has specifically alleged its slander of title claim under state law and is not seeking a remedy under federal law. Novell's attempt to recharacterize SCO's common law claim as a claim raising substantial issues under the Copyright Act should be rejected. See Jasper, 314 F.3d at 47 (stating that "[t]he difficulty is that almost every case involving contract interpretation...could be recharacterized as a case appropriate for a federal court simply by framing the issue to be whether the disputed contract qualified as a writing...However, the line drawn in T.B. Harms cannot be obliterated by such gymnastics.").

Novell in their Reply Memorandum in Support of their Motion to Dismiss argued like this:

The fundamental problem with SCO's opposition is its failure to reckon with section 204(a)'s requirement of a written instrument "of conveyance." What SCO must do is show that there is some instrument, in writing, in which an actual transfer of ownership occurs. See Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1581 (Fed. Cir. 1991) (agreement containing only a promise to assign distinguished from case in which the contract read "seller 'hereby sells' the patent and buyer 'hereby purchases.'") (distinguishing Sims v. Mack Trucks, Inc., 407 F.Supp. 742 (E.D.Pa. 1976)). SCO has not identified that written instrument. Absent such a written instrument, ownership could not have transferred. Effects Assoc., Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990)("[S]ection 204 of the Copyright Act invalidates a purported transfer of ownership unless it is in writing.")

Reviewing the motion papers fills in the notes from the day and indicates that if you go to the Legal Docs page and read the pleadings, you have a pretty good idea of what came up. What is missing from the pleadings and which our eyewitnesses have supplied is the news that Judge Kimball has a sense of humor. Also, Frank adds that attorneys from Cravath were there as well. Honestly, don't you wish you were?

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Authored by: QTlurker on Tuesday, May 11 2004 @ 09:20 PM EDT