Remember back in 2005, when the court denied SCO's motion for leave to amend its complaint again to add claims based on an alleged breach of the Project Monterey agreement? The SVR4 on Power saga? IBM had pointed out it was too late to complain about anything related to Project Monterey, and the court agreed that SCO knew or should have known all about the activities being complained of prior to filing this lawsuit. At the time, SCO hinted that even though it had lost its motion, we hadn't heard the last of Project Monterey. In fact, SCO's unfair competition claim in its Second Amended Complaint is based on the same alleged activities related to Project Monterey, IBM says,
in this Memorandum in Support of its Motion for Summary Judgment of SCO's Unfair Competition Claim (SCO's Sixth Cause of Action) [PDF], and it's still too late to sneak them in by the trick of slapping a new name on the allegations. Here's the bombshell. Under the contract, Santa Cruz was supposed to get IBM's written consent to any assignment of the agreement in a change of control. It didn't, and further -- and this is the piece we didn't know -- IBM sent a letter in June of 2001, stating that IBM did *not* consent to the contract being assigned to Caldera: 31. Santa Cruz did not obtain IBM's prior
written consent to
an assignment of the JDA. Instead,
Santa Cruz informed IBM of the sale of its Server
Software and
Professional Services divisions and its
UNIX-related assets to
Caldera in a letter dated June 6, 2001.(Ex.
244.)
32. IBM declined to consent to the
assignment of
Santa Cruz's rights and obligations under the JDA. Pursuant
to Section 22.12 of the JDA, IBM's
consent was
necessary for such assignment to take effect. On the
contrary, IBM
invoked its right to cancel the JDA under
Section 15.2 in
a letter dated June 19, 2001. (Ex. 220.)
How do you like them apples, as the expression goes? So much for SCO's Project Monterey whining. And that, IBM points out, is what SCO bases its unfair competition claims on, and so, there you are. Poof again. SCO wasn't a party to the Project Monterey agreement, and it has no legal standing to complain about it.
We thus find out at last why IBM has consistently used phrases like "purported predecessor in interest" when talking about Santa Cruz and the SCO Group. And finally, as some of you have been begging IBM to do, it explains all that history to the court, including SCO's odd name change from Caldera to SCO, when Santa Cruz, the original SCO, continued to exist. According to this news, SCO Group has no rights under the Project Monterey agreement. The agreement, and the rights under it, died when Santa Cruz sold its server divisions to Caldera, IBM explains, because Santa Cruz failed to ask IBM if it was OK to transfer the agreement to Caldera, as the contract required, and IBM took the added step of sending the letter (it's sealed, Exhibit 220 on IBM's list of exhibits supporting its summary judgment motions), making sure it was clear it did not consent. Consequently, IBM says: "SCO was never party to and does not have
standing to
assert a claim related to a breach of the Monterey
JDA....While it is probably for this reason that SCO
attempts to cast
its Monterey claim as one for unfair
competition rather than breach of
contract, SCO
cannot help itself to claims it never owned by the
simple
expedient of claiming that IBM's alleged breaches of
contract
amounted to breaches of a fiduciary duty arising
out of the
contract." Why didn't SCO know about this letter? Maybe because it actually isn't the successor in interest? Or if it did know, why did it tell the court it was Santa Cruz's successor in interest? I have absolutely no idea. It's unfathomable. I would venture to suggest that if it knew, it's yet another example, in my opinion, of a frivolous claim. That's the kind a law firm can end up having to pay for. In any case, IBM says that there is no basis for rerouting the same issues the court already told SCO it can't introduce into the case, but with a new name, and it asks the court to award IBM summary judgment on SCO's unfair competition claim. IBM has been playing a very interesting hand. When you consider that it had this information in all likelihood from the beginning, along with other winners -- like the fact that it had ceased distribution of Sequent before SCO's comical "termination" -- it isn't hard to see why IBM has always been so calm. It knew vindication was coming. First, though, SCO would spend every Microsoft penny before losing embarrassingly. No wonder IBM was never willing to settle. IBM has been holding Aces, knowing SCO held only a 2 and a 5. He who laughs last... You will find the funniest defense in this entire saga on page 20, where IBM points out that an unfair competition claim involves "palming off" one's products so as to benefit from the goodwill of another company. IBM has not "palmed off" its products as SCO's to cause confusion in the marketplace, it points out, so it can't be accused of trying to "profit by the reputation of SCO". Is that not a funny phrase? I think it's fair to say there isn't a company in the world, from here to China and back, that would want customers to think its products were really SCO's products, hoping "to profit by the reputation of SCO".
Why You Should Always Retain a Lawyer On pages 14-17, you'll see why you always need a lawyer when you're in a legal dispute. There is a discussion, with cases galore, on how to interpret the phrases "related to" and "arising out of", something that normal folks never need to think about, let alone research, in connection with interpreting a forum selection clause and on when it would be too late to complain about a breach. Every comma matters in the law, and that is why you should never represent yourself if you have a choice and why you should never assume you've understood a legal matter 100% unless you've checked with a lawyer. I can't stress that enough. That includes whether or not to go with GPLv3 or stay with v2 or any other license question. I know some of you will point out that lawyers don't always agree, which is how cases end up in courtrooms. That is true. It's also true that some lawyers are better than others. But at least they all know the language used in those courtrooms, and they should know the history of how cases have turned out or can find out, information you probably lack. So if it's you against a skilled lawyer, you'll have no chance at all. You will say something was "related to" a contract, and sure as shooting, the lawyer will trap you in something he knows from some obscure case, and you won't have a clue what he's even talking about, so you'll keep digging yourself a fine hole to fall into, and you'll end up losing or having to try your case in another state across the country. You'll never even know what hit you. Read pages 18-20, for example, and see if you understand what the issue is about and ask yourself, would you know how to reply? The answer is that IBM is making statements based on cases it has researched; you would be unable to reply effectively unless you not only read its cases but found some of your own to counter. And doing that kind of research is a skill that you need training to do right.
I believe that's one reason some folks hate lawyers and why there are so many lawyer jokes. Folks feel like they got sandbagged, but the truth is, lawyers use the tools that lawyers are supposed to use, and lay people don't know about those tools or how to use them. But your lawyer will know. What about if you are broke? Then make an appointment with a lawyer to at least discuss your case and strategy. Pay him to show you the way, even if you have to implement it yourself pro se. That one-time fee will more than pay for itself. Some state bar associations have special fee arrangements for those who are truly broke. In New York, you can make an appointment in 15-minute increments at a special rate, for example, and if you've sent the lawyer a letter explaining the situation and included all the evidence you have before you arrive for the appointment, even 15 minutes of his time will be worthwhile. I stress this because some courts will tell you that you don't need a lawyer. Family courts, for example, say you can represent yourself. But you'd be a fool to do so, in my view, even though you are allowed to. Finally, so you can compare SCO's 6th Cause of Action from its Second Amended Complaint with IBM's arguments regarding it, here it is:
SIXTH CAUSE OF ACTION
(Unfair Competition)
181. Plaintiff incorporates and re-alleges paragraphs No. 1-180, above.
182. Plaintiff and its predecessors have built the UNIX System V Technology, the Unix Software Code, SCO OpenServer, UnixWare and their derivatives through very substantial efforts over a time span in excess of 20 years and expenditure of money in excess of $1 billion.
183. IBM has engaged in a course of conduct that is intentionally and foreseeably calculated to undermine and/or destroy the economic value of UNIX anywhere and everywhere in the world, and to undermine and/or destroy plaintiff’s rights to fully exploit and benefit from its ownership rights in and to UNIX System V Technology, the Unix Software Code, SCO OpenServer, UnixWare and their derivatives, and thereby seize the value of UNIX System V Technology, the Unix Software Code, SCO OpenServer, UnixWare and their derivatives directly for its own benefit and indirectly for the benefit of its Linux distribution partners.
184. In furtherance of its scheme of unfair competition, IBM has engaged in the following conduct:
a) Misappropriation of source code, methods, trade secrets and confidential information of plaintiff;
b) Breach of contract;
c) Violation of confidentiality provisions running to the benefit of plaintiff;
d) Inducing and encouraging others to violate confidentiality provisions;
e) Contribution of protected source code and methods for incorporation into one or more Linux software releases, intended for transfer of ownership to the general public;
f) Use of deceptive means and practices in dealing with plaintiff with respect to its software development efforts; and
g) Other methods of unlawful and/or unfair competition.
185. IBM’s unfair competition has directly and/or proximately caused significant foreseeable and consequential harm to plaintiff in the following particulars:
a) Plaintiff’s revenue stream from UNIX licenses for Intel-based processing platforms has decreased substantially;
b) As Intel-based processors have now become the processing platform of choice for a rapidly-increasing customer base of enterprise software users, plaintiff has been deprived of the opportunity to fairly exploit its market-leading position for UNIX on Intel-based processors, which revenue opportunity would have been very substantial on a recurring, annual basis but for IBM’s unfairly competitive practices;
c) Plaintiff stands at imminent risk of being deprived of its entire stream of all UNIX licensing revenue in the foreseeably near future;
d) Plaintiff has been deprived of the effective ability to market and sell its new UNIX-related improvements, including a 32-bit version of UNIX for Intel processors developed prior to Project Monterey, and its new web-based UNIX-related products, including UNIX System V Release 6;
e)Plaintiff has been deprived of the effective revenue licensing opportunity to transfer its existing UNIX System V Release 4 and Release 5 customer base to UNIX System V Release 6; and
f) Plaintiff has been deprived of the effective ability to otherwise fully and fairly exploit UNIX’s market-leading position in enterprise software market, which deprivation is highly significant given the inability of Microsoft Windows to properly support large-scale enterprise applications.
186. As a result of IBM’s unfair competition and the marketplace injury sustained by plaintiff as set forth above, plaintiff has suffered damages in an amount to be proven at trial, but no less than $1 billion, together with additional damages through and after the time of trial foreseeably and consequentially resulting from IBM’s unfair competition in an amount to be proven at the time of trial.
188. [sic] IBM’s unfairly competitive conduct was also intentionally and maliciously designed to destroy plaintiff’s business livelihood and all opportunities of plaintiff to derive value from its UNIX-based assets in the marketplace. As such, IBM’s wrongful acts and course of conduct has created a profoundly adverse effect on UNIX business worldwide. As such, this Court should impose an award of punitive damages against IBM in an amount to be proven and supported at trial. ******************************
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,
INTERNATIONAL BUSINESS
MACHINES
CORPORATION,
Defendant/Counterclaim-Plaintiff.
_______________________________
IBM'S REDACTED
MEMORANDUM IN SUPPORT
OF ITS MOTION FOR SUMMARY JUDGMENT ON SCO'S UNFAIR
COMPETITION
CLAIM (SCO'S SIXTH CAUSE OF ACTION)
(ORAL ARGUMENT
REQUESTED)
Civil No. 2:03CV-0294 DAK
Honorable Dale A. Kimball
Magistrate Judge Brooke
C. Wells
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,
INTERNATIONAL BUSINESS
MACHINES
CORPORATION,
Defendant/Counterclaim-Plaintiff.
_______________________________
IBM'S
MEMORANDUM IN SUPPORT
OF ITS MOTION FOR SUMMARY JUDGMENT ON SCO'S UNFAIR
COMPETITION
CLAIM (SCO'S SIXTH CAUSE OF ACTION)
(ORAL ARGUMENT
REQUESTED)
FILED UNDER SEAL PURSUANT TO
9/16/03 PROTECTIVE
ORDER, DOCKET #38
Civil No. 2:03CV-0294DAK
Honorable Dale A. Kimball
Magistrate Judge Brooke
C. Wells
Table of Contents
Page
Table of Authorities ...............................................ii
PreliminaryStatement..................................................1
Statement of Undisputed Facts
....................................................................2
A.
SCO's Unfair Competition Claim......................................2
B. SCO 's Disclosures ..................................................3
C. Project Monterey....................................................6
D. SCO's Failure of Proof......................................................10
Standard of Decision..................................................11 Argument.................................................................11
SCO'S UNFAIR COMPETITION CLAIM IS UNTIMELY...............................11
The JDA's Two-Year Limitations
Provision Is
Enforceable and Applies to SCO's Unfair
Competition Claim..........................................12
B. SCO's Claim Was
Not Timely Under the Two-Year Limitations
Provision..............................................................15
II. SCO
HAS NO EVIDENCE OF UNFAIR COMPETITION BY IBM..........................17
A. IBM's Alleged Conduct Does Not Constitute Unfair Competition.............18
B. SCO Lacks Standing to Pursue its Claim
..............................................................21
III.SCO'S CLAIM ALSO IS PREEMPTED BY FEDERAL COPYRIGHT
LAW..................................................................23
Conclusion.............................................................27
Table of
Authorities
Page(s)
Cases
Allen's Prods. Co. v. Glover, 434 F.2d 93 (Utah 1966)..........19
Briarpatch
Ltd., L.P v.
Phoenix Pictures. Inc.,
373
F.3d 296 (2d Cir. 2004).........................23, 24
Brockmeyer v.
Hearst Corp.,
248 F. Supp. 2d 281 (S.D.N.Y. 2003)...............................20
Cambridge
Nutrition A.G. v. Fotheringham,
840 F. Supp.
299 (S.D.N.Y. 1994)........................ 14
Celotex Corp.
v.
Catrett,
477 U.S. 317 (1986)
................................................................11
Czech Beer Importers, Inc. v.
C.
Haven Imports,
LLC,
No. 04-2270, 2005 WL
1490097
(S.D.N.Y. June 23,
2005)..............................................................20
Deer Crest Assocs.
I.
v.
Deer
Crest Resort Group, L.L.C.,
No.
04-220, 2006 WL
722216 (D.
Utah Mar. 16. 2006)
.....................................................18, 19
Digital Envoy.
Inc. v. Google,
Inc.,
319 F.
Supp.
2d 1377 (N.D. Ga.
2004) ............................... 14
Durham Indus. v.
Tomy Corp
., 630
F.2d 905 (2d Cir.
1980).......................................................26
Ehat v.
Tanner,
780 F.2d 876 (10th Cir.
1985)........................................................23, 25, 26
Gates Rubber Co.
v.
Bando Chem.
Indus., Ltd
., 9
F.3d 823, 847 (10th Cir. 1993)......................25
Harbor
Court Assocs. v. Leo A.
Daly Co.,
179 F.3d 147 (4th Cir 1999).................................16
Harolds Stores, Inc. v. Dillard
Dep't Stores, Inc
., 82
F.3d 1533 (10th Cir.
1996)................23, 25
Incorp.
Village of Saltaire
v.
Zagata,
720 N.Y.S.2d 200 (App. Div.
2001)
................................. 12
Ippolito v. Ono-Lennon, 526 N.Y.S.2d
877 (N.Y. Sup.Ct. 1988)
.......................................26
Keating v. Baskin-Robbins USA,
Co.,
No. 99-148, 2001 WL 407017
(E.D.N.C. Mar. 27, 2001)
......................................14
Kerry v.
Southwire Co.
& Affiliates
Employee Benefits
Plan,
324 F. Supp.2d
1225 (D. Utah 2004)
................................................12
Kregos v. Associated
Press, 3
F.3d 656 (2d Cir. 1993)............................................23
ii
Lexmark
Int'l, Inc. v.
Static Control Components. Inc., 387 F.3d 522
(6th
Cir. 2004).............................................................24
Louis Capital Mkts., L.P.
v. REFCO Group Ltd., LLC,
801 N.Y.S.2d 490
(Sup. Ct. 2005...................................................................19
Medinol Ltd. v. Boston
Scientific Corp., 346
F. Supp. 2D 575 (S.D.N.Y. 2004)......................18
Monsanto Co.
v.
McFarling,
302 F.3d 1291 (Fed. Cir. 2002)......................................15
Oliver Res. PLC v. Int'l Fin. Corp., 62 F.3d 128
(5th Cir.
1995)...............................................22
Oriskany Cent.
Sch.
Dist.
v.
Edmund J.
Booth
Architects,
615 N.Y.S.2d 160
(App.
Div. 1994)
..........................................................15
Proctor &
Gamble Co. v.
Haugen
, 222
F.3d 1262 (10th Cir.
2000).............................................19
Productivity
Software Int'l,
Inc. v. Healthcare
Techs. Inc.,
No.
93-6949,
1995 WL
437526
(S.D.N.Y. July 25,
1995)
.........................................................18, 19
Rockwell Int'l
Corp. v.
Goss Graphic Sys.,
Inc.,
No. 00-8763, 2001 WL 293818
(S.D.N.Y. Mar.
27, 2001)............................................................15
Ruder & Finn Inc.
v.
Seaboard
Surety Co.,
422
N.E.2d 518 (N.Y. 1981) ...................................20
Saratoga Vichy Spring Co. v.
Lehman,
625
F.2d 1037 (2d Cir.
1980).....................................21
TeeVee Toons, Inc. v.
Gerhard Schubert GmbH
, No.
00-5189, 2006
WL
2463537
(S.D.N.Y. Aug.
23, 2006)................................................................22
The Pizza Public Co.
v.
Tricon Global
Restaurants, Inc.,
No. 99-12056, 2000 WL
1404716
(S.D.N.Y. Sept 25, 2000)
...................................20
Turtur v. Rothschild
Registry Int'l, Inc., 26
F.3d 304 (2d Cir. 1994)
..........................................14
Twentieth Century Fox Film Corp. v.
Marvel Enters., Inc
., 155
F. Supp.
2d 1
(S.D.N.Y. )
.......................................................................25
Vann v.
Spak,
19 Fed.Appx. 668 (9th Cir.
2001)...................................................22
Ward Enters., Inc.
v.
Bang & Olufsen Am., No.
02-7640, 2004 WL 830461
(N.D. Ill.
Apr.15,
2004).................................................................14
Warner & Swasey Co.
v. Salvagnini Transferica
S.p.A.,
633 F. Supp. 1209
(W.D.N.Y. 1986)........................................................15
iii
Warner Bros. Inc. v. Am. Broad. Cos., 720
F.2d 231 (2d Cir. 1983)...........................................25
Welding v. Bios Corp
., 353
F.3d 1214 (10th Cir. 2004)..........................................10
Wilson v. Electro Marine Sys., Inc., No. 83-5863, 1986 WL
12604 (N.D. I11. Oct.
30, 1986)
......................................................................12
X-IT Prods. L.L.C. v. Walter Kidde Portable Equip., Inc., 227 F. Supp. 2D 494
(E.D. Va. 2002)...................................................12
YWCA v. HMC Entm't, Inc., No.
91-7943, 1992 WL 279361
(S.D.N.Y. Sept.
25,
1992)
..................................................................14
Statutes & Rules
17 U.S.C. §106...................................................23, 24
17 U.S.C. §§102, 103................................................23
17 U.S.C.A. §301 (West)...................................................23
N.Y. C.P.L.R. 201
(McKinney 2006)........................................................12
Other Authorities
Fed.R.Civ. P.
56(c).................................................................10
Fed.R.Civ.P. 56(e)......................................................10
Restatement (Second) of Conflict of Laws §145....................................12
iv
Defendant/Counterclaim-Plaintiff International
Business Machines Corporation ("IBM")
respectfully submits this
memorandum of law in support of its motion for
summary judgment
on the unfair competition claim (Count Six) of
Plaintiff/Counterclaim-Defendant The SCO Group,
Inc. (“SCO”).
1
Preliminary Statement
SCO's unfair
competition claim
is a mix of SCO's other causes of action and
separate
allegations of misconduct regarding Project Monterey
("Monterey"),
which was a joint development project between IBM and
The Santa Cruz
Operation, Inc. ("Santa Cruz") beginning in
1998. To the
extent SCO's unfair competition claim concerns
Monterey -- which
appears to be its focus -- the claim is untenable for at
least three
independent reasons: (1) it is untimely; (2) SCO
cannot show that IBM
engaged in unfair competition regarding Monterey; and
(3) the claim
is preempted by federal copyright law. To the extent
the claim is
based on the alleged misconduct underlying SCO's other
claims, it is
untenable for the reasons set out in IBM's motions for
summary
judgment with respect to those claims, which are
incorporated herein
by reference, as well as the reasons set out herein.
Thus, IBM
respectfully submits that summary judgment should be
entered in its
favor on SCO's unfair competition claim.
1
Statement of
Undisputed Facts
The undisputed and indisputable facts
material to
this motion are set forth below, and in
the
memoranda in
support of IBM's other motions for summary judgment,
which are
submitted
herewith and
incorporated by
reference.2
A.
SCO's
Unfair Competition Claim.
1. SCO filed its
original Complaint, which included a claim for unfair
competition, on
March 6, 2003. (Ex. 1.) SCO's unfair competition claim
repeated the
allegations of its other causes of action, including a
claim for
misappropriation of trade secrets, but labeled those
same
allegations
as "unfair competition". (Ex.
1 ¶ 118-19.)
2. On
July 22, 2003,
SCO filed an Amended Complaint. (Ex. 2.)
In the Amended
Complaint, SCO
again asserted a
claim for unfair competition, and again based that
claim on the
same alleged
conduct that
supported each of its other causes of action. (Ex. 2 ¶¶ 147-53.)
3. SCO
thereafter sought, and
was granted, permission to file a Second Amended Complaint. (Ex. 3.)
4. SCO's Second Amended
Complaint, filed
on February 27,2004, again included
an unfair competition claim (the
sixth cause of
action), which remained an amalgamation of its
other claims relabeled as
"unfair competition".
(Ex. 3 ¶¶ 181-188.) In its Second
Amended
Complaint, SCO abandoned its claim for
misappropriation of trade secrets altogether. (Ex.
3.) In
2
fact, at a hearing on December 5, 2003,
SCO
acknowledged that there are no trade secrets in UNIX
System V. Counsel for SCO stated: "There is no trade
secret in UNIX
system [V]. That is on the
record. No problem
with that." (Ex. 414 at 46:2-3.)
5. SCO then sought leave to file
a Third
Amended Complaint to add a tenth cause of action. (Ex. 10 ¶¶217-41.) SCO's
proposed tenth cause of action asserted that
"IBM misappropriated, and used in its own 'AIX for Power'
operating system, substantial copyrighted source code
relating to
UnixWare System V Release 4 ['SVr4']". (Ex. 10
¶ 217.) SCO
further
alleged that "IBM obtained access
to the
copyrighted UnixWare SVr4 code through 'Project
Monterey'". (Ex. 10 ¶ 217.)
6. In a decision dated July 1, 2005,
this Court denied
SCO's motion to add a cause of action based upon
IBM's alleged copying
of code obtained through Project Monterey into
AIX. The Court held that SCO
had unduly
delayed seeking leave to add the proposed cause of
action because it
appeared that "SCO -- or its predecessor -- either
knew or should
have known about the conduct at issue before it filed
its original
Complaint". (Ex. 58 at 4.)
B. SCO's Disclosures.
7. IBM served interrogatories asking
SCO to
describe in detail its allegations and alleged
evidence of
misconduct by IBM. (Ex. 11.)
8. With respect to SCO's
unfair competition claim,
IBM asked SCO to "describe, in detail, each
instance in which
plaintiff alleges that IBM engaged in unfair
competition, including
but not limited to: (a) the dates on which IBM
allegedly engaged in
unfair competition; (b) all persons involved
in the
alleged unfair competition; and (c) the
specific manner in which IBM
is
alleged to have engaged
in unfair
competition".(Ex. 11 at Interrogatory No. 7.)
3
9.
Following SCO's failure fully to disclose its
allegations and
evidence of IBM's alleged misconduct, the Court
entered three
different orders requiring SCO to provide detailed
responses to IBM's
Interrogatories.
(See Ex. 55; Ex.56; Ex.
58.) In the final of those three
orders, the Court set
December 22, 2005 as
the “final deadlined for [SCO] to identify
with
specificity all
allegedly misused
material" and update its interrogatory responses
accordingly.
(Ex. 58 at 4.)
10.
Initially, SCO defined
its unfair
competition claim as a combination of each of
its other causes of action, including its
breach of
contract claims, its tortious interference claims and
its copyright claims.
(See Ex. 31 at
Interrogatory Response No. 7; Ex. 32 at Interrogatory
Response No. 7; Ex. 33 at
Interrogatory Responses No.
7 and 8; Ex. 46 at Interrogatory Response
No. 8.)
11. SCO eventually focused its unfair competition claim upon allegations related to
Monterey. Specifically,
SCO alleges
that:
a. IBM made and continued to make
investments in
the development of Linux, and
secretly advanced and promoted
development of Linux
without disclosing such
activities to SCO, during and at a
time when IBM was
under a duty to deal fairly with and disclose such competing
activities to SCO
pursuant to its contractual obligations to SCO under
Project
Monterey and otherwise. (Ex. 32 at
Interrogatory Response No. 7.)
b. IBM's unfair competition
arose from the relationship it established with SCO as
a result of the joint effort between SCO
and IBM known
as "Project Monterey".
(Ex. 33 at Interrogatory Response No.
7.)
4
c. As a result of
the formal
agreement between SCO and IBM and the numerous
representations made
by IBM that were calculated to be relied upon by SCO,
IBM had a
fiduciary obligation to SCO that required IBM to be
forthright and
truthful in all affairs related to the partnership
agreement. (Ex.33
at Interrogatory Response No. 7.)
d. IBM unfairly took advantage of its
partnership
relationship with SCO, unfairly gained access to
SCO's business
relationships, and unfairly and knowingly diverted
SCO's resources
away from competition with IBM and toward the purposes
of the
relationship. (Ex. 33 at Interrogatory Response No.
7.)
e.
During a
substantial part of
1999 IBM was secretly developing plans to cease its
planned strategic
relationship with SCO ... and
to begin supporting Linux. (Ex. 3
3 at Interrogatory Response No. 7.)
12. SCO
alleges that
"[b]ecause IBM has been developing its plan to
replace UnixWare
support with Linux support, and because it knew
SCO had dedicated
its entire enterprise resources to the IBM/UnixWare
joint
relationship, IBM had a fiduciary obligation to inform
SCO of its
Linux-related plans long before its Linux public
announcement in
December 1999."
(Ex. 33 at
Interrogatory Response No. 7.) In fact, IBM
made a public
announcement of its intention to support Linux at
LinuxWorld in March
1999. (Ex. 21 at 4; Ex. 259 at 38.)
13. SCO also alleges that IBM engaged in unfair competition by copying into
IBM's AIX operating system code from the UNIX System V
Release Four ("SVr4")
operating system
that had been included in Santa Cruz's
UnixWare 7
product. (Ex. 33 at Interrogatory Response
No. 7.)
According to SCO, IBM obtained that code during the
course of
Monterey and its use of that code exceeded the
scope permitted
by the Monterey joint development agreement (the
"JDA").
(Ex. 33 at Interrogatory Response No. 7.)
14. Santa Cruz was
aware of the
allegedly improper inclusion of Santa Cruz code
in AIX for
Power by August 2000. (Ex. 227 ¶
16;
see also Exhibits
to
the Declaration of Todd M.
5
Shaughnessy in support
of IBM's
opposition to SCO's Motion for Leave to File a Third
Amended
Complaint (Docket # 345).)
15. In
interrogatory responses, SCO has named a slightly
later date,
alleging that IBM began copying Santa Cruz code
obtained
through Project Monterey/64 into AIX in October
2000. (See Ex. 41
at Interrogatory Response No. 8.)
SECTION
REDACTED
C. Project
Monterey.
16. In 1994, Intel and Hewlett-Packard (HP) announced
their collaboration to create a new 64-bit processor
architecture
design, known as IA-64. (Ex. 27.) Intel and HP,
along with
various others, believed that IA-64 would move Intel
systems into
higher-end server applications and quickly become the
industry leader
in that area. (Ex. 27.)
17. In or around 1998, IBM began
negotiating with
Santa Cruz to undertake a joint
development project for,
among other things, a UNIX-like operating system that
would run on
the IA-64 platform. This project subsequently came to
be known as
"Project Monterey". (Ex. 24; Ex. 25; Ex. 123; Ex. 86 ¶ 54; Ex.
259 at 30-31.) At that time,
Santa
Cruz sold two UNIX
products that ran exclusively on Intel's
existing 32-bit
hardware platform: UnixWare and
OpenServer. (Ex. 1
¶¶ 26,
47; Ex. 115 at 5-8.)
6
18.
Both IBM and
Santa Cruz were interested in attempting to leverage
and strengthen
their existing UNIX-like operating system products
as part of
Project Monterey. The goal was to develop and
market a "family"
of UNIX-like operating system products, including a
Monterey/64 version of the
IA-64 Intel
processor, a version to run on IBM's
proprietary "Power"processor
architecture and a version to run on the IA-32
architecture. (Ex. 23;
Ex. 24; Ex. 25; Ex. 245.)
19. On
October 26, 1998, IBM and Santa Cruz entered into the
JDA, whereby
Santa
Cruz and IBM agreed to provide
resources and
technology to pursue these goals. (Ex. 245.)
20. In furtherance of IBM and Santa
Cruz's intention
to create a compatible family of products, both
companies granted
licenses to the other. (Ex. 245.) For its part, IBM
granted Santa
Cruz a royalty-free license to certain AIX
source code for
Santa Cruz's use in its UnixWare product for the
existing 32-bit
Intel processor. (Ex. 245 §2.0(c)(2).) In
turn, Santa Cruz
granted IBM a royalty-free license to certain
UnixWare source
code for IBM's use in its AIX operating system
tailored to run
on IBM's Power architecture processor. (Ex. 245
§2.0(d)(2); Ex.
227 ¶16.) Each
party also
granted the other a license to use any code supplied
during Project
Monterey for the development of the
operating system that would be marketed for use on the
forthcoming IA-64 product. (Ex. 245 §§ 2.0(c)(2),2.0(d)(2).)
21. In the JDA, IBM also
stated its intention
to engage in certain marketing activities to
"market, promote
and sell the UnixWare and IA-32 Product on IBM
systems in 1999".
(Ex. 245 Attachment A, §I.)
7
22. IBM also agreed to make certain
middleware available for the UnixWare 7 and IA-32, subject to
IBM's determination of commercial considerations. IBM's
plan included
Tivoli,
WebSphere and DB2. (Ex. 245 Attachment A, §II.)
23. Section 15.2 of the JDA,
which is
entitled “Change of Control”,
provides:
Notwithstanding
Section 15.1,
IBM shall have the right to terminate this Agreement
immediately upon
the occurrence of a Change of Control of SCO which IBM
in its sole
discretion determines will substantially and adversely
impact the
overall purpose of the cooperation set forth by this
Agreement and
applicable Project Supplements or will create a
significant risk or
material and adverse exposure of IBM's confidential
and/or technical
proprietary information (which is subject to, and to
the extent of,
confidentiality
restrictions)
("Information ). For the purposes of this
Agreement, control
shall be deemed to be constituted by rights, contract
or any other
means which, either separately or jointly and having
regard to the
consideration of fact or law involved, confer the
possibility of
exercising decisive influence (other than by an entity
currently
exercising such influence or any entity controlled by
or controlling
such entity) on SCO by: (1) owning more than half the
equity, capital
or business assets, or (2) having the power to appoint
more than half
of the members of the supervisory board, board of
directors or bodies
legally representing SCO, or (3) having the right to
directly manage
SCO's business activities. (Ex. 245.)
24. Section 22.12
of the JDA, which is entitled
"Assignment", provides, in
relevant part: "Neither
party may
assign, or otherwise transfer, its rights or delegate
any of its
duties or
obligations
under this
Agreement without the prior written consent of the
other party."
(Ex. 245.)
25.
Section 22.3
of the JDA, which is entitled "Choice of
Law/Venue",
provides:
This Agreement
shall be
governed by, and the legal relations between the
parties
hereto shall be
determined in
accordance with, the substantive laws of the State of
New York,
without regard to the
conflict of law principles of such State, as if
this Agreement was
executed and
fully performed within the State of New York.
Each party
hereby waives any
right to a trial by jury in any dispute arising under
or in connection
with this
Agreement, and agrees that any dispute hereunder shall
be tried by a
judge without a
jury. Any legal or other action related to a breach of
this Agreement
must be
commenced no later than two (2) years from the date of
the breach in a
court sited in
the State of New York. (Ex. 245.)
8
26. Although
development of the
Project Monterey IA-64 operating system proceeded
throughout 1999 and
2000, the project encountered substantial
difficulties due to delays
in Intel's IA-64 processor development schedule.
Intel's release of
the initial Intel IA-64
processor, code named
“Merced”
and officially named Itanium, was substantially
delayed. In 1995 and 1996,
executives of
Itanium co-developer HP hinted that the
processor was well
underway, and might ship as early as
1997. That date
came and went, and eventually 1999 was stated as
the target.
But that date also came and went. Itanium did not end
up shipping
until mid-2001. (Ex. 22; Ex. 186 ¶ 57;
Ex. 394.)
9
27. Once Itanium
did arrive, it
performed poorly relative to alternatives in the
marketplace. As a
result, Intel and HP re-positioned it as
primarily an
evaluation and development platform, a precursor to
the
second-generation Itanium 2
"McKinley"release that would
enable true production deployments. Neither IBM nor
Santa Cruz had
any involvement in -- or control over -- the development
of the Itanium
processor. (Ex. 26; Ex. 28; Ex. 186 ¶58.)
28. In addition
to creating
development difficulties, these delays caused a
substantial decrease
in market interest and confidence in the forthcoming
IA-64 product
and thereby the IA-64 operating system then under
development by IBM
and Santa Cruz. (Ex. 26; Ex. 28;
Ex. 186 ¶ 59.)
29. Despite the delays in the launch of the IA-64 processor, in late April 2001, IBM and Santa Cruz announced the first release of AIX 5L for the IA-64 processor on May 4, 2001. (Ex. 593; Ex. 594; Ex. 595.) That release occurred as scheduled. (Ex. 10 ¶236; Ex. 259 at 44.)
30. In May 2001, Santa Cruz
finalized the
sale of its Server Software and Professional Services
divisions and
its UNIX-related assets to Caldera International
("Caldera"),
ending its
investment in and
support of the Monterey development effort. (Ex.
111 at 52; Ex.244.)
31. Santa Cruz did not obtain IBM's prior
written consent to
an assignment of the JDA. Instead,
Santa Cruz informed IBM of the sale of its Server
Software and
Professional Services divisions and its
UNIX-related assets to
Caldera in a letter dated June 6, 2001.(Ex.
244.)
32. IBM declined to consent to the
assignment of
Santa Cruz's rights and obligations under the JDA.
Pursuant
to Section 22.12 of the JDA, IBM's
consent was
necessary for such assignment to take effect. On the
contrary, IBM
invoked its right to cancel the JDA under
Section 15.2 in
a letter dated June 19, 2001. (Ex. 220.)
33. Caldera did not acquire Santa
Cruz, which
continued in business, albeit changing its corporate
name to
"Tarantella". (Ex. 244.)
34. After the start of this
litigation, Caldera
changed its name to "The SCO Group, Inc."
(Ex. 113 at
4.)
D. SCO's Failure of Proof.
35. SCO has not adduced -- and
cannot adduce
-- any evidence to show
that IBM engaged
in
unfair competition,
despite three
orders of the Court requiring SCO to disclose all
such evidence.
10
Standard of
Decision
Summary judgment
is proper "if the pleadings, depositions, answers
to
interrogatories, and admissions on file, together with
the
affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R. Civ. P.
56(c); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 322-24
(1986); Welding
v. Bios Corp., 353 F.3d 1214, 1217 (10th Cir. 2004). To survive summary judgment, SCO must
provide
admissible evidence -- not mere allegations or
suppositions -- that at
least raises a genuine issue of fact sufficient to
satisfy the
elements of its unfair competition claim.
See Fed. R.Civ.P. 56(e).
Argument
3
SCO'S
UNFAIR COMPETITION CLAIM
IS UNTIMELY.
As stated, while SCO's unfair
competition claim is an
amalgamation of its other causes of action, it is
focused on IBM's
alleged misconduct related to Project Monterey. SCO
asserts that
IBM unfairly competed with SCO by "secretly
developing plans to
cease its strategic relationship with SCO" (¶11(e)),
and by using SVr4 code obtained through Monterey in
IBM's AIX for Power operating system (¶¶13-15).
However, in resting its unfair competition
claim upon obligations and conduct relating
to Monterey, SCO ignores a critical fact: the Monterey JDA
states that "[a]ny legal or
other action
related to a breach of this
Agreement must
be commenced no later than two (2) years
from the date of the breach". (¶25.)
This provision bars SCO's claim, which is
indisputably
"related to" an alleged
breach of the
JDA.
11
A. The JDA's Two-Year Limitations
Provision Is
Enforceable and Applies to SCO's
Unfair Competition Claim.
It is well-established
that the parties
to a contract "may agree to limit the period of
time
within which an
action must be
commenced to a shorter period of time than that
provided by the
applicable
Statute of
Limitations". Incorp. Village of Saltaire v.
Zagata, 720
N.Y.S.2d 200, 200
(App. Div.
2001); see also
N.Y. C.P.L.R. 201 (McKinney 2006); Kerry v.
Southwire Co. & Affiliates
Employee Benefits
Plan, 324 F. Supp. 2d 1225, 1227 (D. Utah 2004)
("It is true
that
contractual
limitations on the
time to bring suit if reasonable are valid, binding
and enforceable."(internal
quotations omitted)).
Provisions limiting the period within which to file
suit to periods far less than
two years have
been found reasonable. See, e.g., Incorp. Village
of Saltaire,
720 N.Y.S.2d at 201
(finding 90-day
limitations provision enforceable).
4
Section 22.3 of
the JDA applies to SCO's unfair competition claim.
Section 22.3
expressly governs "[a]ny legal or
other action
related to a breach of this Agreement", and SCO's
unfair competition claim is directly
"related
to "such an alleged breach. SCO specifically
asserts
that "[a]s a result of the formal
agreement
between SCO and IBM and the numerous
12
representations
made by IBM
that were calculated to be relied upon by SCO, IBM had
a fiduciary
obligation to SCO that required IBM to be
forthright and
truthful in all affairs related to the partnership
relationship".
(¶ 11(c).) Thus, SCO itself identifies the basis
of its unfair
competition claim as IBM's
alleged breach of
duty that purportedly arose from the JDA.
Indeed, not only
are the
alleged representations upon which SCO bases its claim
"related"
to the JDA, they are explicitly contained in the JDA.
In its
interrogatory responses, SCO asserts that IBM's
fiduciary duty arose
from IBM's representations that it would:
1.
Port its family of
enterprise
applications to SCO's existing 32-bit version of
UnixWare, including
Lotus/Domino, Tivoli, WebSphere and DB2;
2.
Publish its own list
price for SCO's
existing 32-bit version of UnixWare, and market 32-bit
UnixWare
within its own customer base;
3. Market SCO's existing
32-bit version of
UnixWare within IBM's ISV channels,
encourage IBM's ISV
partners to port their
applications to UnixWare, and invite SCO marketing
representatives on
joint marketing calls to IBM's ISV partners for these
purposes; and
4. Expand IBM's family of products so
that SCO's
existing 32-bit version of UnixWare and AIX would
jointly operate in a
combined environment
for RISC and Intel Processors. (See ¶11(c).)
With respect to the first
representation alleged, IBM
specifically stated (in Section II of
Attachment A of the JDA) its intent to
make certain
middleware, including the middleware
products listed by SCO, available for
the UnixWare
product, subject to IBM's own determination of
commercial
considerations. (¶ 22.) With
respect to the second and third representations, IBM
represented in
Section I of Attachment A
to
the JDA that it intended to
"market, promote and sell the
UnixWare and
IA-32 product on IBM systems" in various ways,
including many of those listed in
points two and three
above. (¶ 21.) Finally, with respect to the
fourth
representation, the intention to create a shared
family of products
was the core purpose of
13
the JDA. (¶18.)
Thus, the representations upon which SCO relies are
explicitly
contained in the
contract, and
SCO's allegation that IBM breached duties allegedly
arising from those
representations therefore "relates to a
breach"of the JDA.
Likewise, to the extent SCO's
unfair
competition claim rests on its allegations that
IBM improperly used
Santa Cruz
code obtained through Project Monterey in IBM's
AIX for
Power
operating
system, SCO does not
dispute that IBM was entitled to access to that code
and licensed to use it for
certain purposes;
the thrust of SCO's (erroneous) allegation is that IBM
breached its
obligations
under the JDA by
using the code outside the authorized consent.
(¶¶ 13, 20.) Again, this claim is intimately "related
to "an
allegation of a breach of the JDA.
Courts routinely
have construed language such as the "related
to" language of
Section
22.3 to include
non-contractual
claims comparable to SCO's unfair competition cause of
action. See,
e.g., Turtur v. Rothschild Registry Int'l,
Inc ., 26 F.3d
304, 309-10 (2d Cir. 1994) (holding "arising
out of or
relating to" language to apply to tort as
well as
contract claims); Ward Enters.,
Inc. v. Bang & Olufsen Am.,
No.
02-7640, 2004 WL 830461, at *2 (N.D. Ill.
Apr. 15, 2004)
(finding that "the scope of 'relating to'
language is broad and
is intended to cover a much wider
scope of disputes, not just those
arising under the
agreement itself' (internal quotation omitted))
(Ex. B
hereto); Cambridge Nutrition A.G. v.
Fotheringham, 840
F. Supp. 299, 300-02 (S.D.N.Y. 1994) (applying forum selection clause
referring to
"any claim, dispute or controversy relating to
this Agreement"
to tort claim for unfair competition).5
14
Indeed, various
courts have
interpreted language far more restrictive than that
contained in
Section 22.3 to encompass non-contractual claims.
See, e.g.,
Monsanto Co. v. McFarling, 302 F.3d 1291, 1294-96
(Fed. Cir.
2002) (holding patent claims subject to forum
selection clause
applicable to “all disputes arising
under” contract),
Rockwell Int'l Corp. v. Goss Graphic Sys., Inc., No. 00-8763, 2001 WL
293818, at *1-2
(S.D.N.Y. Mar. 27,2001) (applying forum
selection clause using "arising
out of this
Agreement" language to copyright claim because
resolution of claims "relate to
the
interpretation of the Agreement") (Exhibit E
hereto); Warner
& Swasey Co. v. Salvagnini
Transferica S.p.A.,
633 F. Supp. 1209, 1211-12 (W.D.N.Y. 1986)
(finding "on the basis of an
alleged
breach" language in forum selection clause
applicable to
claim for patent infringement).
B. SCO's Claim Was Not Timely
Under the
Two-Year Limitations Provision.
Because the JDA includes a two-year
limitations
provision, the only remaining question is whether
SCO's unfair
competition claim was timely when filed in March 2003.
Section 22.3
specifically provides that Santa Cruz was required to
initiate its
action "no later than two (2) years from the date
of the
breach". (¶ 25.) Courts
routinely enforce contractual provisions that not
only limit the time to bring suit, but also establish
when a cause of
action accrues. See Oriskany Cent.
Sch. Dist. v. Edmund J. Booth Architects,
61 5 N.Y.S.2d 160, 161 (App. Div.
15
1994) (ruling
that contract
provision prescribing "when the period of
limitations will
commence ...
will govern in the absence of duress,
fraud or
misrepresentation" (internal citations omitted));
Harbor Court
Assocs. v. Leo A. Daly
Co.,
179 F.3d 147, 151 (4th Cir.
1999) (finding
accrual
provision valid
and
applicable, noting that
"the only
courts to consider a contractual accrual date
provision have
all enforced
it" (citing cases)). As demonstrated below, if
Santa Cruz
had an
unfair competition claim, it accrued
when IBM
purportedly breached the JDA by engaging in the
alleged misconduct related to Project
Monterey, which
SCO alleges occurred more than two
years before SCO filed its complaint.
First, under SCO's own theory
of the case, IBM
engaged in a course of conduct related to
Monterey constituting unfair
competition that
culminated in December 1999. SCO asserts that
"[b]ecause IBM had been
developing its
plan to replace UnixWare support with Linux support,
and because IBM knew that SCO had
dedicated its
entire enterprise resources to the
IBM/UnixWare joint relationship, IBM
had a fiduciary
obligation to inform SCO of its Linux-related plans
long before its
Linux public announcement of December 1999".
(¶11.) In
fact,
IBM publicly
announced its support
for Linux as early as March 1999. (¶ 12.)
SCO thus was required to file suit based upon that
conduct within two
years of December 1999 at the latest, and
its March 2003 filing
was
substantially late.
Second, SCO asserts that
IBM engaged in
unfair competition by copying into IBM's AIX
operating
system code from the SVr4 operating system that had
been included in
Santa Cruz's UnixWare 7 product. (¶ 13.) Santa
Cruz itself,
however, was aware of IBM's inclusion of SCO code in
AIX for
Power by August 2000 (¶ 14),
and in this litigation SCO
asked
its expert Christine A.
Botosanto to
calculate damages for SCO's unfair competition
claim beginning on
16
October
1, 2000. (¶15.) As a result, it is clear that
even if (contrary
to fact) IBM did engage in unfair competition by
misusing code
provided in Project Monterey, that alleged breach
occurred no later
than October 2000, based on
SCO's own
assertion. Because SCO failed to file its action
prior to October 2002,
Section 22.3 bars
SCO's claim for unfair competition.
Based upon the
foregoing, SCO's
unfair competition claim is "related to a
breach" of the JDA.
Because SCO did not assert that claim within the
relevant contractual
limitations period, it is barred and IBM is
entitled to summary judgment in its
favor on SCO's
sixth cause of action.
II. SCO HAS
NO EVIDENCE OF
UNFAIR COMPETITION BY IBM.
Even were SCO's
unfair
competition claim timely, IBM would still be entitled
to summary
judgment in its favor because there is no evidence
that could support
a finding that IBM engaged in unfair competition
against SCO.
To the extent
(if any) that SCO
seeks to support its unfair competition claim based
upon its
allegations of copyright infringement, tortious
interference, or
breach of the IBM and Sequent Licensing Agreements (K.
Br. ¶¶177-181), IBM demonstrates the legal baselessness of each of
those claims
in its separate motions for partial
summary judgment against
Claims I through IV, and VII through IX,
submitted
herewith and incorporated by reference, and those
allegations fail as
a basis for an unfair competition claim for the
reasons discussed
therein (as well as herein).
Nor can
SCO's tactical
refocusing of its unfair competition claim upon
Monterey save this
claim, because SCO has no evidence that could support
a finding that
IBM's conduct in connection with Project Monterey (or
any other
conduct, for that matter) constituted unfair
competition against SCO
(even if there were no limitations period barrier).
This is so for
two independent reasons: First, the conduct SCO
alleges, even
if true, would not constitute unfair
17
competition. (See
Section II.A.)
Second, SCO was never party to and does not have
standing to
assert a claim related to a breach of the Monterey
JDA. (See Section
II.B.) It is also true, but not relied on as a basis
for this motion,
that IBM did not in fact breach any obligations
relating to
Monterey.
A.
IBM's Alleged Conduct Does Not Constitute
Unfair Competition.
First, as set out previously (see Section I.A), SCO's
Monterey-related
allegations fundamentally allege a breach of contract.
Such claims
may not be transmuted into a tort claim such as unfair
competition.
"A charge of misappropriation of confidential
information, as a
tort claim, must spring from circumstances extraneous
to, and not
constituting elements of, the contract, although it
may be connected
with and dependant upon the contract."
Productivitv Software Int'l, Inc. v. Healthcare
Techs. Inc
., No. 93-6949,1995 WL 437526, at *8 (S.D.N.Y. July
25, 1995) (internal quotations and citations omitted)
(Ex. F hereto); Medinol Ltd. v. Boston Scientific
Corp., 346 F.
Supp. 2d 575, 607 (S.D.N.Y. 2004) (holding that
misappropriation claim
"raised in a case that stems from a breach of
contract [must]
be sufficiently distinct from the
breach of contract claim in order to
be legally
sufficient" (internal citations omitted)).
Indeed, a court in
this district recently granted summary judgment
against a
misappropriation counterclaim, finding that "because
of the express
contract provision dealing with [the issue of
misappropriation],
there is no independent duty created here which would
create a
tort apart from the contractual obligations between
the parties".
Deer Crest Assocs. I. v. Deer Crest Resort
Group, L.L.C., No.
04-220, 2006 WL 722216, at *3 (D. Utah
Mar. 16, 2006)
(Ex. G hereto).
SCO's assertions that IBM improperly
copied code
obtained during Project Monterey into its AIX
operating system
fall squarely within this rule. Under the JDA,
IBM had a
license to
18
use the SVr4 code
obtained through
Monterey. (¶ 19-20.) SCO does
not allege that IBM was not
entitled to use
the SVr4 code provided by Santa Cruz during Monterey
for any
purpose -- only that the
way in which IBM
used that code violated the terms of its license.
Thus,
SCO is in
fact assuming a
quintessential claim for
breach of contract. Irrespective of whether SCO
could demonstrate a
breach of the JDA itself or any other breach of contract (it
cannot), SCO certainly
does not have any evidence that IBM's use of
the SVr4 code in
its AIX operating system or any other IBM conduct
violated any duty unrelated to its contractual
obligations to SCO. As
a result, SCO's tort claim fails.
See
Productivity Software, 1995 WL 437526,
at *8 ("[A] simple
breach of contract
is not to be considered a tort unless a duty
independent of the
contract itself has been
violated."(internal citations omitted)) (Ex.
F
hereto); Deer Crest, 2006 WL 722216 at *3 (same) (Ex.
G
hereto).
Second,
the alleged
misconduct is not of the type that can constitute
"unfair competition". "Unfair
competition" is not,
as SCO would have it, a catch-all remedy for
any and all
commercial misconduct. Rather,
"unfair
competition" is "considered ...primarily
in the context of palming off and misappropriation of
goodwill. Both
'palming off and 'misappropriation of goodwill'
involve situations in
which a company attempts to profit
from the reputation of its
competitor by selling one its own
products as that
of its competitor or misappropriating a trademark
belonging to its
competitor." Proctor & Gamble Co. v.
Haugen, 222 F.3d
1262, 1280 (10th Cir. 2000) (refusing to extend tort
of unfair
competition beyond the scope of the tort as
defined by Utah
state courts); see also Allen's Prods. Co. v.
Glover, 414 P.2d
93 (Utah 1966); Louis Capital Mkts., L.P. v.
REFCO
Group, Ltd., LLC, 801 N.Y.S.2d 490, 490 (Sup. Ct.
2005). Some
courts have permitted a claim for unfair competition
absent specific
allegations of palming
19
off or
misappropriation
of a trademark, but only upon proof of the "bad
faith
misappropriation of
the labors and
expenditures of
another, likely to cause confusion or to deceive
purchasers as to
the origin of
the goods".
Brockmeyer v. Hearst Corp., 248 F. Supp.
2d 281, 300(S.D.N.Y. 2003)
(internal
quotations omitted).
Thus, even in
this somewhat
broader form, of
misappropriation that is likely to
cause customer
confusion remains the "cornerstone" of a
claim of unfair
competition. See Ruder & Finn
Inc. v.
Seaboard Surety Co., 422 N.E.2d 518, 522
(N.Y. 1981).
6 Absent proof of
either palming
off or misappropriation, SCO's unfair competition claim
cannot
survive.
Since SCO is clearly not
accusing IBM
of "palming off" IBM products as those of
SCO
(or anyone else), SC0's
unfair competition
claim, if it is anything at all, must be based upon
misappropriation.
It is not. Instead, as demonstrated above, SCO's claim
is nothing
more than a claim for a breach of the JDA and other
contracts that
SCO strains to mask as a tort. Nor is there
a scintilla of evidence that
IBM's alleged conduct in
connection with Project Monterey, its AIX for
Power operating
system or otherwise caused any "customer
confusion"
of a type that enabled IBM to "profit by
the reputation
of SCO".
See
Brockmeyer, 248 F. Supp.
2d at 300. SCO
has been ordered by this Court to identify any
allegations and adduce
any evidence that would support its unfair competition
claim on three
separate occasions; it has completely
failed to do so. (¶¶ 9, 35.) As a result,
SCO's unfair competition claim must
fail.
20
Third,
SCO cannot
establish the element of bad faith necessary to
support a claim for
unfair competition based upon misappropriation.
See Saratoga
Vichy Spring Co. v. Lehman , 625 F.2d 1037,
1044 (2d Cir.
1980) (holding that the "essence of an unfair
competition
claim" is the
misappropriation
of the labors and expenditures of another, and that
central to this
motion
is some element
of bad
faith" (internal citation omitted)). As previously
noted, IBM
indisputably had a license to access the Santa
Cruz code and to
use it in AIX for Power, albeit allegedly
subject to
certain conditions.
(¶ 20.) Likewise,
it is
undisputed that the publicly known delays in
Intel's release
of the IA-64
chip created some difficulties for the business goals
of Project
Monterey. (See
¶¶ 26-28.)
Thus, even if it could be
shown that IBM
violated any provision of
the license it
received under
the JDA (which it did not), or any of its other
obligations
under the
JDA or
any other
contract, despite three orders from this Court
requiring SCO to
identify any
evidence
supporting its claim,
SCO has not adduced any evidence that IBM acted
in bad faith.
For this
additional reason, IBM
is entitled to summary judgment on SCO's unfair
competition
claim.
B. SCO Lacks Standing to
Pursue its Claim.
SCO's unfair competition claim also cannot
survive for the
independent reason that SCO was never a party to
and does not
have standing to assert a claim related to a breach of
the JDA. While it is probably for this reason that SCO
attempts to cast
its Monterey claim as one for unfair
competition rather than breach of
contract, SCO
cannot help itself to claims it never owned by
the
simple
expedient of claiming that IBM's alleged breaches of
contract
amounted to breaches of a fiduciary duty arising
out of the
contract.
21
Project Monterey
began in 1998
as a joint development effort between IBM and
Santa Cruz -- a
corporation that was not and never has been affiliated
with the
company presently known as SCO. (¶ 19; see
also ¶¶ 30-33.)
In 2001, Santa Cruz agreed
to sell its
Server Software
and Professional
Services
division (which included its UNIX assets) to Caldera International,
and thus
terminated its support
of Monterey. (¶ 30.) Caldera subsequently changed
its name to
the "The
SCO Group, Inc."
(¶ 34), perhaps precisely to muddy these waters.
Santa Cruz informed IBM of
this sale in a
letter dated June 6, 2001. (¶ 31.)
However, Section 22.12 of the JDA,
which is entitled
"Assignment", provides that
"[n]either party
may assign, or otherwise transfer, its rights
or delegate any of its
duties or obligations under this Agreement without the
prior written
consent of the other party". (¶ 24.) In a
letter dated June
19, 2001, IBM invoked Section 22.12 and its
right to cancel the
agreement under Section 15.2. (¶
32.)
As a result, SCO never was a
party
to the JDA, nor did it
acquire any of Santa
Cruz's rights under the JDA. (¶¶19,
30-33.) It does not, therefore, have standing to
enforce any of those
rights, no matter how it labels its claim.
TeeVee Toons, Inc. v. Gerhard
Schubert GmbH,
No. 00-5189, 2006 WL 2463537, at *3 (S.D.N.Y.
Aug. 23, 2006)
(holding that because plaintiff was neither party to
the relevant
contract, nor an intended third-party beneficiary,
plaintiff lacked
standing both to enforce the contract and assert a tort
claim related
to a breach of that contract) (Ex. J hereto);
Vann v. Spak,
19 Fed.Appx. 668 (9th Cir.
2001) ("Dismissal
was proper
because [plaintiff] was not a party to the contract and
did not have
standing to bring suit for tortious conduct arising
from breach of
the contract."); see also Oliver Res. PLC v. Int'l Fin.
Corp., 62 F.3d 128,132 (5th Cir. 1995) (holding
that putative
assignee of rights under joint venture did not have
standing to
assert breach of contract claim because
22
original
party to joint venture had not consented to assignment
of rights or
obligations under that contract).
III. SCO'S
CLAIM ALSO IS
PREEMPTED BY FEDERAL COPYRIGHT LAW.
Even
if SCO's unfair competition claim were
not
barred by the
JDA's limitations
provision, and
were not an
improper attempt to transform a contract claim into a
tort which SCO
could have no
standing to
assert in any case, IBM still would be entitled
to the entry
of summary
judgment on this
claim. The
only one of SCO's unfair competition allegations that
even
arguably could
satisfy the
requirement for alleging
"misappropriation" is its claim
that IBM
"misus[ed] code
provided in
Project Monterey to strengthen IBM's proprietary AIX
product". (¶15.)7
That claim is
preempted by federal copyright law.
Section 301 of
the Copyright
Act "preempts a state common law or statutory
claim if: '(1) the
work is within the scope of the subject matter of
copyright as
specified in 17 U.S.C. §§ 102 and 103; and
(2) the rights
granted under state law are equivalent to any
exclusive rights within
the scope of federal copyright as set out in 17 U.S.C. §
106.'"8
Harolds
Stores, Inc. v. Dillard Dep't
Stores, Inc.,
82 F.3d 1533, 1542-43 (10th Cir. 1996) (applying 17
U.S.C.A. § 301);
see also Ehat
v. Tanner, 780 F.2d 876, 878 (10th Cir. 1985);
Kregos v.
Associated Press,
3 F.3d 656, 666 (2d Cir. 1993).
Courts employ a
two-prong test
to determine whether a state law cause of action is
preempted by the
Copyright Act. See Briarpatch Ltd.,
L.P v. Phoenix
Pictures, Inc., 373 F.3d
23
296, 305 (2d Cir. 2004). "The
first prong of this
test is called the 'subject matter requirement,'
and the second
prong is called
the 'general scope requirement."'
Briarpatch, 373 F.3d at
305
(citations
omitted). SCO's
claim that IBM misappropriated SVr4 code provided
during
Montery
satisfies both prongs
of this test.
First,
"[t]he subject
matter requirement is satisfied if the claim applies
to a work of
authorship fixed
in a tangible
medium of expression and falling within the ambit of
one of the categories of
copyrightable
works". Id. It is well
established that
computer programming code
may be protected
under
copyright law. See, e.g., Lexmark Int, Inc. v.
Static Control Components,
Inc., 387
F.3d 522, 533 (6th Cir. 2004). Here, SCO's charge is
that IBM
misappropriated
SVr4 code from
SCO's UnixWare 7 Product by reproducing it in the
AIX for
Power product;
that allegedly
misappropriated code falls within the subject matter
of federal
copyright law, as SCO itself has argued. (¶¶
5-6.)
Indeed, any
argument by SCO
that its unfair competition claim based upon IBM's
alleged
inclusion of SVr4 code in AIX is not
equivalent to a copyright claim would contradict its
own prior
positions. Earlier in this litigation, SCO requested
leave to amend
its complaint to assert a
cause of action for copyright
infringement based upon
that very same conduct. SCO's proposed tenth cause of
action asserted
that "IBM misappropriated, and used in its
own 'AIX for
Power' operating system, substantial copyrighted
source code relating
to UnixWare System V Release 4". (¶ 5.)
SCO further alleged that "IBM
obtained
access to the
copyrighted UnixWare
SVr4 code through 'Project Monterey'". (¶ 5.)
SCO thus asserted that the
SVr4 source code
that now
24
forms the basis
for its Monterey unfair competition claim is
copyrighted, and
asserted a claim under federal law for IBM's alleged
infringement of
SCO's copyrights. This Court, however, denied SCO's
motion to add
that cause of action, not on the grounds that the
material was not
subject to
copyright, but rather SCO's proposed amendment came
late. In
a decision dated July
1, 2005, the Court
ruled that SCO had unduly delayed seeking leave to add
the
proposed cause of action because
it appeared
that "SCO -- or its predecessor either knew or
should have
known about the conduct at issue before it filed
its original
Complaint". (¶ 6.)
Second,
under the general scope requirement, "federal law
will preempt
'a state-created right if that right may be abridged by
an act which,
in and of itself, would infringe one of the exclusive
rights'
established by federal law". Gates Rubber Co.
v. Bando Chem.
Indus., Ltd., 9 F.3d 823, 847 (10th Cir. 1993). In
determining
whether the state law claim at issue asserts rights
equivalent to
those specified in section 106 of the Copyright Act,
the court will
"compare the elements of the causes of
action, not the
facts pled to prove them". Harolds Stores,
Inc., 82
F.3d at 1543 (emphasis added). Applying this test,
courts routinely
have concluded that copying-based unfair competition
claims are
preempted by federal copyright law. See. e.g., Ehat
V. Tanner,
780 F.2d 876, 878 (10th Cir. 1985) (holding that
unfair competition
claim under Utah law based upon alleged
misappropriation of
copyrightable literary work was preempted by copyright
law);
Twentieth Century Fox Film Corp. v. Marvel Enters.,
Inc., 155
F. Supp. 2d 1, 24-25 (S.D.N.Y.) (dismissing unfair
competition claim
based upon misappropriation claims as preempted by
copyright law);
Warner Bros. Inc. v. Am. Broad. Cos., 720 F.2d
231, 247 (2d Cir. 1983) (noting that "state law claims
that rely on
the misappropriation branch of unfair
25
competition [as
distinguished
from the passing off branch] are
preempted");
Durham
Indus. v. Tomy Corp.,
630 F.2d
905, 918 (2d Cir. 1980) (same); Ippolito v.
Ono-Lennon, 526 N.Y.S.2d 877, 883 (N.Y.
Sup. Ct. 1988)
(same).
As the foregoing
establishes, SCO is precluded
from asserting its state law unfair competition claim based
upon IBM's
alleged misappropriation of SVr4 code obtained through
Project
Monterey. That claim, absent valid defenses, is
governed by the
federal copyright law. It is not only preempted, it is
the very claim
that this Court already refused to allow into this
litigation. SCO
cannot avoid the Court's ruling precluding its claim
for copyright
infringement by now recharacterizing those same
allegations as a
claim for unfair competition. See Ehat, 780
F.2d at 876
("[Plaintiff] 'cannot achieve by an unfair
competition claim
what [he] failed to achieve under [his] copyright
claim.' (quoting
Durham Indus., Inc., 630 F.2d at 918)).
26
Conclusion
For the
foregoing reasons, summary judgment should be
entered in favor
of IBM and against SCO on SCO's claim for unfair
competition.
DATED this 27th
day of September, 2006
SNELL & WlLMER, 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
Alec
S. Berman
[address, phone]
Attorneys for
Defendant/Counterclaim-Plaintiff
International Business Machines Corporation
27
CERTIFICATE OF
SERVICE
I
hereby certify
that on the 27th day of September, 2006, a true
and correct
copy of the
foregoing was
served by U.S.
Mail, postage pre-paid, to the following:
Brent O. Hatch
Mark F. James
HATCH JAMES
& DODGE
[address]
Stephen N. Zack
Mark
J. Heise BOIES, SCHILLER & FLEXNER LLP
[address]
Robert Silver
Edward
Normand BOIES, SCHILLER &FLEXNER LLP
[address]
___[signature]_____
Todd M. Shaughnessy
28
CERTIFICATE OF
SERVICE
I hereby certify that on
the 29th day of
September, 2006, a true and correct copy of the
foregoing was electronically filed
with the Clerk of
the Court and delivered by CM/ECF system
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]
and by U.S. Mail, postage pre-paid to:
Robert Silver Edward Normand
BOIES, SCHILLER
& FLEXNER LLP
[address]
/s/ Todd M. Shaughnessy
1The
undisputed and
indisputable facts set out in this motion are
supported by the
declarations and documents submitted herewith,
including those
appended to the Declaration of Todd M. Shaughnessy,
which are cited
herein as "Ex. __".
2References
to the memoranda in support of IBM's motions for
summary judgment
submitted herewith are cited as follows:
IBM's motion for summary judgment on SCO's contract
claims as
"K. Br. __"; IBM's
motion for summary judgment
on SCO's copyright claim as "AIX Br. __"; IBM's
motion for summary judgment on SCO's interference
claims as
"Interference Br. ___"; IBM's motion for summary judgment for copyright infringement (IBM's Eighth Counterclaim) as "Copyright Br. ___"; and IBM's motion for summary judgment for a declaration of non-infringement (IBM's Tenth Counterclaim) as "DJ Br. ___".
3The
undisputed
facts are cited in this Part as "¶ __",
referring to the relevant paragraph
number(s) in
the foregoing "Statement of
Undisputed Facts".
4Throughout this
brief, IBM cites
to both Utah and New York law, which is in accord on
all issues
discussed herein. For most torts, the place of
injury generally
is accorded more weight than the place of the alleged
conduct. See
Restatement (Second) of Conflict of Laws $145,
cmt. e (1971). It is primarily for this reason that, as IBM
explains in its
Memorandum of Law in Support of its Motion For Summary
Judgment on
SCO's Interference Claims, Utah law governs those
claims. However, for
the tort of unfair competition, which regulates
conduct, the place of
that conduct is of paramount importance, suggesting
that New York law
may be applicable to this claim. See. e.g.,
Restatement
(Second) of Conflict of Laws §145,
cmt. e (1971); Wilson v.
Electro Marine
Sys., Inc., No. 83-5863, 1986 WL 12604,
at *3 (N.D. Ill.
Oct. 30, 1986) (Ex.
A hereto); X-IT Prods.
L.L.C. v. Walter
Kidde Portable Equip., Inc.,
227 F. Supp. 2d 494, 494 (E.D. Va. 2002). Since the result
would be the same
under both New York and Utah law, the Court need not
reach the choice
of law issue to determine the instant motion.
5
See also
Digital Envoy,
Inc. v. Google, Inc., 319 F. Supp. 2d 1377,
1380-81 (N.D. Ga. 2004) (applying forum selection clause to claims
for
misappropriation of trade secrets and unfair
competition where clause
covered
"[a]ny lawsuit regarding this
Agreement"); Keating
v. Baskin-Robbins USA Co., No. 99-148, 2001
WL 40701
7, at *8 (E.D.N.C. Mar. 27,2001) (finding that
one-year contractual limitation
period, which stated
that it applied to "[a]ny and all claims
and actions
arising out of or relating to [the parties']
agreement", barred
claims for unfair and deceptive trade practices,
fraud and negligent
misrepresentation)(Ex. C hereto); YWCA v. HMC Entm't, Inc.,
No. 91-7943, 1992 WL 279361, at *1,
4 (S.D.N.Y. Sept. 25, 1992) (holding claim seeking
declaratory
judgment with respect to potential unfair competition, trademark
infringement misappropriation
and unfair competition
claims "arises
under this agreement" and, thus, was
subject to forum selection clause) (Ex.
D
hereto).
6See also The Pizza Public
Co. v. Tricon
Global Restaurants, Inc., No. 99-12056, 2000 WL
1404716, at *3 (S.D.N.Y. Sept. 25, 2000) (rejecting
unfair
competition claim "[b]ecause there are no facts
indicating that
Tricon misappropriated PPCL's property, PPCL cannot
sustain a claim
for unfair competition under New York
law.") (Ex. H
hereto); Czech Beer Importers, Inc. v. C.
Haven Imports,
LLC, No. 04-2270, 2005 WL 1490097, at *7
(S.D.N.Y. June 23,
2005) (same) (Ex. I hereto).
7In
fact, this
allegation, too, falls short, as it does not allege a
type of
misappropriation likely to cause customer confusion. (See Section II.A.)
8 Section 106
of the Copyright Act grants to the copyright owner the
exclusive
rights to:
(1) reproduce the copyrighted work;
(2) prepare
derivative works; (3) distribute copies of the work; (4) perfom the work publicly;
and (5) display
the work publicly. 17 U.S.C. § 106.
29
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