Remember I told you, when IBM filed their motion seeking to limit the scope of their 9th counterclaim, that eventually we'd figure out what it was about? So it is. This document gives us the clearest picture we've had yet of what this motion is all about.

I'd have to read all the sealed documents, including the October hearings transcript, to tell you who I think might prevail in this motion, but you can't avoid the distinct impression that IBM believes SCO's arguments are, well, silly. The document drips of disdain. Silly, but also annoying, if the court takes them seriously. SCO is apparently trying to squeeze through a gate blocking their entry to being able to file a 3rd amended complaint, like in New York City where I have seen guys try to squeeze behind the person ahead of them, so as to make use of the guy's token to get into the subway free. It's past the deadline for anyone to amend any further pleadings, IBM points out. So SCO is making the tortured argument that it can amend, because IBM's 9th counterclaim is about copyright infringement, and SCO's new claim, if allowed to amend, is about copyright infringement. Voila! They hope to get past the barrier piggybacking on IBM's 9th Counterclaim.

IBM, naturally, is trying to shake them off their back. First, they point out, SCO said that their copyright infringement claims had to do with IBM's continuing to market AIX post-SCO's "termination". Their 9th Counterclaim addressed that accusation and that accusation only. Now, SCO is trying to interpret IBM's counterclaim as a broad umbrella under whose shade SCO would like to plant their new claim about AIX on POWER.

"Hold on, there," IBM says, in essence. "SCO's attorneys are too cute by half. We are the masters of our own counterclaim, and so we get to say what it is and isn't about. We didn't bring any such counterclaim, and we don't intend to. Our counterclaim is strictly and narrowly about post-termination activities, and SCO's new hoped-for claim is about pre-termination activities, and they can't now try to stretch it to cover both. Anyway, if they want to bring that claim, they have to do it in New York, by contract, and it's too late anyhow. If we feel like it, we can even drop the 9th counterclaim, so there is no way SCO can force us to bring a counterclaim broadly interpreted by SCO as a backdoor into a 3rd amended counterclaim."

IBM's footnote 2 says it all:

In footnote 3 of its opposition papers, SCO effectively concedes that the only reason it opposes this motion is as a means of gaining leave to file its proposed new claim for copyright infringement. SCO states that it would not oppose a motion by IBM to "amend" the Ninth Counterclaim so long as SCO is free to amend its complaint. In fact, that is exactly why SCO fomented this dispute. But this motion is not about "amending" the pleadings. As a master of its counterclaim, IBM is free to prosecute its claim as it wishes, including by not prosecuting the claim at all. The purpose of this motion is to underscore IBM's intent as to the Ninth Counterclaim and to put an end to SCO's tactical efforts to misconstrue it.

To follow along, you may wish to refer to IBM's motion, the hearing notes from the October hearing, IBM's Ninth and Tenth Counterclaims, and SCO's Second Amended Complaint. SCO's memorandum in opposition to IBM's motion is under seal.

I know. It's getting complex. So let's review a bit.

1. SCO's 2nd Amended Complaint, in its Fifth Cause of Action, charged IBM with continuing to market AIX and Dynix post-termination notice from SCO:

175. Despite termination of such Agreements, IBM has continued to reproduce, prepare derivative works of, and distribute UNIX software, source code, object code, programming tools, and documentation related to UNIX operating system technology, and has induced others to do the same. . . .

179. IBM's breaches of the IBM Related Agreements and the Sequent Agreements and its post-termination actions have infringed, have induced infringement of, and have contributed to the infringement of, copyright registrations of SCO and its predecessors. Such actions have been willful and have been done with knowledge of the copyright rights of SCO.

2. IBM believed it was innocent of the accusation, and in direct response to SCO's Fifth Cause of Action, it asked, in its Ninth Counterclaim, that the Court declare that its continued marketing of AIX and Dynix was not copyright infringement:

164. SCO has sued IBM claiming that IBM has infringed, induced the infringement of, and contributed to the infringement of, SCO's purported UNIX copyrights by, among other things, continuing to "reproduce, prepare derivative works of, and distribute" copyrighted UNIX materials through its activities relating to AIX and Dynix.

165. IBM does not believe that its activities relating to AIX and Dynix including any reproduction, improvement and distribution of AIX and Dynix, infringe, induce the infringement of, or contribute to the infringement of valid, enforceable copyrights owned by SCO.

166. An actual controversy exists between SCO and IBM as to the noninfringement of SCO's copyrights and the validity of any purported SCO copyrights concerning UNIX.

167. IBM is entitled to a declaratory judgment pursuant to 28 U. C. Section 2201 that IBM does not infringe, induce the infringement of, or contribute to the infringement of any SCO copyright through the reproduction, improvement, and distribution of AIX and Dynix, and that some or all of SCO' s purported copyrights in UNIX are invalid and unenforceable.

3. IBM also has a Tenth Counterclaim, which asks the court to declare that its Linux-related activities do not constitute copyright infringement:

170. SCO has sued IBM claiming that IBM has infringed, induced the infringement of, and contributed to the infringement of, SCO's purported UNIX copyrights by, among other things, continuing to "reproduce, prepare derivative works of, and distribute copyrighted UNIX materials through its activities relating to Linux.

4. At the October hearing, SCO attorney Sean Eskovitz argued that SCO needed all the code and access to CMVC because of IBM's 9th counterclaim. Here's what Groklaw's eyewitnesses reported about their argument:

SCO's position was that they need the discovery in connection with their contract claims, and they seemed to be distancing themselves from Linux and talking more about IBM and whether or not they had the right to use AIX code, which SCO defines in totality as derivative of Unix System V, something IBM obviously disputes, for AIX Power platform. SCO needs the discovery because of IBM's counterclaim 9. SCO wants to show that IBM overstepped their license in their use of AIX code to AIX Power. [Marriott had already said IBM was willing to stipulate that counterclaim 9 was limited to whether or not IBM infringed SCO's copyrights in AIX and Dynix, excluding the Power platform, an issue that obviously was not being contemplated anyway when IBM wrote the counterclaim, because it was not in the case. Marriott personally wrote that counterclaim and he knows what he meant.]

SCO cleverly is saying that the language of the 9th counterclaim is broad enough to include their new claim, and if you read it, without any context, it would seem so: "164. SCO has sued IBM claiming that IBM has infringed, induced the infringement of, and contributed to the infringement of, SCO's purported UNIX copyrights by, among other things, continuing to 'reproduce, prepare derivative works of, and distribute' copyrighted UNIX materials through its activities relating to AIX and Dynix." IBM, however, argues that there was a context to those words, and nothing at the time required any distinguishing language, and it's not all right for SCO to pretend there was no limiting context. So that is the gist of their argument.

Then SCO found an email in discovery, and now they want to fit the new AIX on POWER copyright infringement claim as being what the 9th Counterclaim is about. However, as IBM points out, the 9th counterclaim asks for a declaratory judgment of noninfringement, and you can't ask for a declaratory judgment unless you are threatened with a copyright infringement lawsuit. At the time that they filed their 9th counterclaim, there was no such threat regarding AIX on POWER, so it *can't* have been what the counterclaim was addressing.

So, that's what this is all about: SCO wants to add its new claim, and because it is too late without special permission from the court, it is trying to slide under the turnstile. With this court, it just might work, since they have shown very little ability to reign SCO in, but it shouldn't, and as IBM says, they are the master of their claim, so it kind of doesn't matter what the court rules. It'd be nice if the court grants the motion, but IBM has a contingency plan, which they hint at here. It's all just a twisted SCO legal dance, the kind only an attorney could love. A certain kind of attorney.

One thing you can say for them, though. They are really good at dreaming up abstruse and far-fetched legal ways of being persistently annoying. If SCO weren't running out of money, I'd worry this could go on until my unborn great-grandchildren are writing Groklaw, but as it is, I think we're coming into the home stretch. I have never believed that a law firm would work under a legal fee cap as well as they would with visions of sugar plums dancing in their heads. I have known too many lawyers to suspend my disbelief. But, you say, they will get oodles of dough if they win. Puh-lease. I don't personally believe SCO's legal team thinks they can win this case. But they sure can drag it out.

**********************************

SNELL & WILMER L.L.P.
Alan L. Sullivan (3152)
Todd M. Shaughnessy (6651)
Amy F. Sorenson (8947)
[address, phone, fax]

CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler (admitted pro hac vice)
David R. Marriott (7572)
[address, phone, fax]

Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC., Plaintiff/Counterclaim-Defendant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant/Counterclaim-Plaintiff.

REPLY MEMORANDUM IN FURTHER SUPPORT OF MOTION FOR ORDER LIMITING SCOPE OF NINTH COUNTERCLAIM Civil No. 2:03CV-0294 DAK Honorable Dale A. Kimball Magistrate Judge Brooke C. Wells

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Preliminary Statement

IBM's motion asks only that its Ninth Counterclaim be litigated as intended: narrowly. Although SCO opposes the motion, it does not offer any reason why IBM should be required to litigate a claim it did not intend and has no reasons to pursue. IBM's motion should therefore be granted.

The parties' dispute with respect to the scope of IBM's Ninth Counterclaim arose out of SCO's efforts to amend its complaint (for a third time) to add an entirely new claim for copyright infringement. The proposed claim is untimely, because, among other things, it comes after the deadline for amending the pleadings.¹ In an effort to avoid the time bar (and the forum selection bar), SCO seeks to depict the Ninth Counterclaim as encompassing the conduct challenged by SCO's proposed new copyright claim. Based on that depiction, SCO contends that its proposed new claim is really already in the case and should therefore not be barred. ²

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Rather than explain why IBM should be required to prosecute an unintended counterclaim, SCO's opposition papers resort to irrelevant rhetorical bluster. ³ SCO states, for example, that this motion is "improper[ly] motivat[ed]" to "enlist this Court's assistance" in "damage control" and "avoid[ing]" the consequences of "improper conduct". Stripped of its bluster, SCO's opposition brief consists of only three arguments against IBM's motion. By those arguments, SCO purports to appeal to the plain language of the Ninth Counterclaim, the allegedly "parallel" form and function of IBM's Tenth Counterclaim and the supposed infirmity of IBM's "mirror-image argument". As is discussed below, all three of SCO's arguments lack merit. They not only ignore IBM's intent in asserting the Ninth Counterclaim and the context in which it was asserted, but also -- paradoxically -- they seek to expand IBM's case against SCO at a time when the litigation should be getting smaller (not bigger).

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Argument

I. THE NINTH COUNTERCLAIM DOES NOT SWEEP BROADLY, AS SCO CONTENDS.

SCO first argues that IBM's pleading is framed in broad terms and is not expressly limited to the "post-termination" distribution of AIX and Dynix. (Opp'n at 4.) While the language of the Ninth Counterclaim speaks generally of IBM's non-Linux activities and is not expressly limited to IBM's "post-termination" distribution of AIX and Dynix, it seeks a declaration of non-infringement. A case or controversy exists with respect to such a declaratory claim only where the counterclaim-plaintiff has a reasonable apprehension of suit for copyright infringement. Cardtoons L.C. v. Major League Baseball, 95 F. 3d 959, 965-966 (10th Cir. 1996) ("In an intellectual property case, an actual controversy exists when (1) the declaratory plaintiff has produced or is prepared to produce the product in question and (2) the declaratory defendant's conduct has created a reasonable apprehension on the part of the declaratory plaintiff that it will face suit if it commences or continues the activity at issue.")

As of the filing of the Ninth Counterclaim, SCO had sued IBM for copyright infringement with respect to its continued distribution of AIX and Dynix, but it had not sued IBM for copyright infringement with respect to other non-Linux activities, as evidenced (in part) by SCO's pending application to amend. SCO had not even threatened to sue IBM for copyright infringement with respect to non-Linux activities other than IBM's "post-termination" distribution of AIX and Dynix. At the time, SCO's claim was that IBM's alleged misuse of SCO's licensed code entitled SCO to terminate IBM's rights to continue to market AIX and Dynix. IBM's continued marketing of those products, according to SCO, constituted the basis for its copyright infringement claim. Thus, IBM did not have a reasonable apprehension of being sued by SCO, there was not a case or controversy, and IBM could not have properly sued

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II. THE TENTH COUNTERCLAIM IS NOT DETERMINATIVE OF THE BREADTH OF THE NINTH COUNTERCLAIM

SCO also contends that IBM's position with respect to the Ninth Counterclaim is undermined by its Tenth Counterclaim, which is not expressly limited to IBM's post-termination activities. (Opp'n 6-7) According to SCO, because the Ninth Counterclaim is "parallel" in "language and function" to the Tenth Counterclaim, the Ninth Counterclaim must be construed as coterminous with the Tenth Counterclaim and cannot be limited to IBM's post-termination activities. (Id.) Here again, SCO misses the point.

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III. SCO's MIRROR-IMAGE ASSERTIONS MISS THE MARK.

SCO offers three arguments to support the proposition that IBM could not have intended to assert the Ninth Counterclaim as the mirror image of the portion of SCO's copyright claim relating to IBM's non-Linux activities. All three lack merit.

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Second, SCO argues that if the Ninth Counterclaim were the mirror image of a claim asserted by SCO it "would be subject to dismissal as redundant and unnecessary" and "IBM would not have crafted and filed such a claim". (Opp'n at 8.) SCO made essentially the same argument in seeking to dismiss IBM's Tenth Counterclaim, and the Court rejected it in denying SCO's motion. Even if the Ninth Counterclaim were subject to dismissal, however, the remedy would be to dismiss it, not require IBM to broaden it.

Third, SCO argues that "IBM's 'mirror image' argument is implausible" because IBM described SCO's copyright claim as "broad in scope" in opposing SCO's motion to dismiss IBM's Tenth Counterclaim.(Opp'n at 8.) It is true that IBM described SCO's copyright claim as broad in scope -- but that related to SCO's attack on IBM's Linux activities (the subject of IBM's Tenth Counterclaim), not IBM's non-Linux activities. It is undisputed that with respect to IBM's non-Linux activities, SCO's copyright claim is narrow in scope and relates only to IBM's post-termination distribution of AIX and Dynix.

Conclusion

For the foregoing reasons, IBM respectfully requests that its motion with respect to the Ninth Counterclaim be granted. IBM should not be required to litigate a claim it did not intend and has no reason to pursue.

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SNELL & WILMER L.L.P.

---[signature]____
Alan L. Sullivan
Todd M. Shaughnessy
Amy F. Sorenson

CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler
David R. Marriott

Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation

Of Counsel:

INTERNATIONAL BUSINESS MACHINES CORPORATION
Donald J. Rosenberg
Alec S. Berman
[address, phone]

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¹ Untimeliness is not the only reason SCO should not be allowed again to amend its complaint. As is explained in IBM's memoranda in opposition to SCO's motion to amend, SCO's proposed claim is subject to a forum-selection clause that requires its assertion, if at all, in a New York Court.

² In footnote 3 of its opposition papers, SCO effectively concedes that the only reason it opposes this motion is as a means of gaining leave to file its proposed new claim for copyright infringement. SCO states that it would not oppose a motion by IBM to "amend" the Ninth Counterclaim so long as SCO is free to amend its complaint. In fact, that is exactly why SCO fomented this dispute. But this motion is not about "amending" the pleadings. As a master of its counterclaim, IBM is free to prosecute its claim as it wishes, including by not prosecuting the claim at all. The purpose of this motion is to underscore IBM's intent as to the Ninth Counterclaim and to put an end to SCO's tactical efforts to misconstrue it.

³Despite SCO's unsupported (and unsupportable) assertions to the contrary: (1) IBM denies, and has repeatedly denied, SCO's allegations of infringement; (2) IBM did not "disguise" its allegedly infringing conduct with regard to AIX; (3) IBM has, from the beginning of the case, taken the same position with respect to the Ninth Counterclaim and SCO's pending copyright claim; (4) IBM did not accede to SCO's construction of the Ninth Counterclaim by producing for deposition witnesses whom SCO requested and then elected to ask about its proposed copyright claim; rather, IBM complied with its discovery obligations; and (5) there is nothing improper about IBM's motion, which seeks merely to clarify the issues in dispute.

⁴ To support the baseless assertion that IBM's description of the Ninth Counterclaim "has continually evolved", SCO points out that IBM has stated that the counterclaim is only as "broad as the first five counts of SCO's own complaint". SCO further states "the first four of SCO's counts . . . explicitly concern IBM's pretermination contract breaches". (Opp'n at 5.) Thus, SCO concludes, IBM has stated that "the scope of its Ninth Counterclaim is not limited to its post-termination AIX and Dynix activities". (Id.) This argument cannot withstand scrutiny.

Insofar as it relates to IBM's non-Linux activities, SCO's copyright claim depends on its four claims for breach of contract. As noted in the text above, SCO contends that because IBM breached its contractual obligations to SCO, SCO terminated IBM's right to distribute AIX and Dynix such that IBM's distribution of AIX and DYnix after the alleged termination infringes SCO's alleged copyrights. The Ninth Counterclaim seeks a declaration that the post-termination distribution of AIX and Dynix does not infringe SCO's alleged copyrights and therefore depends on SCO's claims for breach of contract. As a result, the Ninth Counterclaim is in fact no broader than SCO's first five claims. Contrary to SCO's suggestion, IBM's prior description of the Ninth Counterclaim is no different from its current description of the counterclaim.

⁵ SCO seems to suggest that IBM should be required to prosecute the Ninth Counterclaim as SCO construes it because the Court allowed IBM's Tenth Counterclaim to remain in the case. The suggestion is unsound. Requiring IBM to prosecute a counterclaim beyond its intended scope is very different from allowing IBM to prosecute a separate counterclaim. That is especially so since the counterclaim the Court allowed IBM to prosecute was based not only on a cause of action that SCO had already asserted against IBM but also on SCO's public and pervasive accusations that IBM's Linux activities infringe SCO's alleged copyrights.

CERTIFICATE OF SERVICE

I hereby certify that on the 1st day of April, 2005 a true and correct copy of the foregoing was served by U.S. Mail, postage prepaid, to the following:

Brent O. Hatch
Mark F. James
HATCH JAMES & DODGE, P.C.
[address]

Stephen N. Zack
Mark J. Heise
BOIES SCHILLER & FLEXNER LLP
[address]

Robert Silver
Edward Normand
Sean Eskovitz
BOIES SCHILLER & FLEXNER LLP
[address]

____[signature]____
Amy F. Sorenson

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