And here is SCO's redacted Memorandum in Opposition to IBM's Motion for Summary Judgment on SCO's Unfair Competition Claim (SCO's Sixth Cause of Action), as text.It's opposing this IBM Memorandum in Support of Motion for Summary Judgment on SCO's Unfair Competition Claim.
********************************
Brent O. Hatch (5715)
Mark F. James (5295)
HATCH, JAMES & DODGE
[address, phone, fax]
Stuart H. Singer (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address, phone, fax]
Robert Silver (admitted pro hac vice)
Edward Normand (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address, phone, fax]
Stephen N. Zack (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address, phone, fax]
Attorneys for The SCO Group, Inc.
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.
________________________
PLAINTIFF/COUNTERCLAIM-
DEFENDANT SCO'S
MEMORANDUM IN OPPOSITION TO
IBM'S MOTION FOR SUMMARY
JUDGMENT ON SCO'S UNFAIR
COMPETITION CLAIM (SCO'S
SIXTH CAUSE OF ACTION)
FILED IN REDACTED FORM
[ORIGINALLY FILED UNDER SEAL]
Case No. 2:03CV0294DAK
Honorable Dale A. Kimball
Magistrate Judge Brooke C. Wells
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT.........................................................1
SCO'S STATEMENT OF ADDITIONAL MATERIAL FACTS................................. 3
A. SCO's Strong Position in the 1990's in the Increasingly Important
UNIX-on-Intel Market....................................................... 3
B. IBM Is Attracted to SCO's Technical Expertise and Strong Position in the
UNIX-on-Intel Market........................................................ 4
C. IBM Is Attracted to the SVR4 Technology Base of SCO's UNIX Operating
System..................................................................... 6
D. Project Monterey Is Announced ................................................................. 6
E. SCO and IBM Enter the Joint Development Agreement ........................................ 7
F. IBM Acknowledges Its Duties to SCO As a Partner .............................................. 8
G. IBM Secretly Abandons Project Monterey and Transitions Support to Linux ....... 9
H. IBM Engaged In This Ruse In an Effort to Legitimize Its Use in AIX of
SCO's SVR4 Code................................................................................................ 13
I. IBM's "Solution" Is More Deception: A Sham PRPQ of the Project Monterey
Operating System .................................................................................................. 18
J. IBM Conceals Its Intent to Object to the Acquisition of the UNIX Business
by Caldera ............................................................................................................ 23
K. Caldera Acquires the UNIX Business, Including the Misappropriated SVR4
Code and Pre-Existing Legal Claims Relating to That Code ............................... 25
L. SCO Was Not Aware of IBM's Deception in March 2001 .................................. 25
M. IBM Continued to Cover Its Tracks Well Into 2002 ............................................ 27
N. SCO Was Injured By IBM's Deception................................................................ 28
i
ARGUMENT ................................................................................................................................ 30
I. SCO TIMELY FILED ITS UNFAIR COMPETITION CLAIM ..................................... 30
A. The Continuing Tort Doctrine Defeats IBM's Motion ......................................... 30
B. The Two-Year Provision Applies Only to Breach of Contract Claims ................ 32 1. Limitations Shortening Provisions Are Strongly Disfavored ................... 32 2. Section 22.3 Has No Relevance to Unfair Competition Claims............... 34 3. At Most, the JDA Relates Only to an IBM Defense to SCO's Unfair Competition Claim........................................................................ 35
C. Even If Applicable, the Two-Year Period Did Not Start Prior to April 2001 ...... 35
II. SCO HAS STRONG EVIDENCE OF UNFAIR COMPETITION BY IBM................... 39
A. IBM’s Alleged Conduct Constitutes Actionable Unfair Competition.................. 39 1. IBM Misstates the Independent Tort Doctrine ......................................... 40 2. The Tort of Unfair Competition Includes More Than "Palming Off" and "Misappropriation"............................................................................. 45 3. In Any Event, SCO Has Ample Proof of Misappropriation ..................... 46 4. SCO Has Overwhelming Proof that IBM Acted in Bad Faith.................. 47
B. SCO Has Standing to Sue IBM For Unfair Competition...................................... 45
III. SCO’S UNFAIR COMPETITION CLAIM IS NOT PREEMPTED............................... 49
IV. SCO’S UNCHALLENGED ALLEGATIONS PRECLUDE SUMMARY JUDGMENT ON THE NON-MONTEREY UNFAIR COMPETITION CLAIMS ........ 51 CONCLUSION............................................................................................................................. 54
APPENDIX A................................................................. 55
ii
TABLE OF AUTHORITIES
Page
CASES
Allen v. First Wallstreet Settlement Corp.,
130 A.D.2d 824, 514 N.Y.S.2d 726 (3d Dept.1987) .................................................................44
American Exp. Financial Advisors, Inc. v. Topel,
38 F.Supp. 2d 1233 (D. Colo. 1999) ..........................................................................................39
Anderson v. State Farm Fire & Cas. Co.,
583 P.2d 101 (Utah 1978) ..........................................................................................................33
Apple Records, Inc. v. Capitol Records, Inc.,
137 A.D.2d 50, 529 N.Y.S.2d 279 (1st Dept.1988)...................................................................44
Astroworks, Inc. v. Astroexhibit, Inc.,
257 F. Supp. 2d 609 (S.D.N.Y. 2003)..................................................................................47, 48
Backus v. Nationwide Mut. Ins. Co.,
392 N.Y.S.2d 765 (2d Dept. 1977) ............................................................................................33
Butcher v. Gilroy,
744 P.2d 311 (Utah Ct. App. 1987) ...........................................................................................38
Clark-Fitzpatrick, Inc. v. Long Island R.R. Co.,
70 N.Y. 2d 382, 521 N.Y.S. 2d 653 (1987) ...............................................................................44
CMAX/Cleveland, Inc. v. UCR, Inc.,
804 F. Supp. 337 (M.D.Ga. 1992) .............................................................................................54
Computer Associates Intern., Inc. v. Altai, Inc.,
982 F.2d 693 (2d Cir.1992)........................................................................................................53
Culp Constr. Co. v. Buildmart Mall,
795 P.2d 650 (Utah 1990) ..........................................................................................................45
Data Gen. Corp. v. Grumman Sys. Support Corp.,
36 F.3d 1147 (1st Cir.1994) .......................................................................................................55
Dep't of Soc. Serv. v. Higgs,
656 P.2d 998 (Utah 1982) ..........................................................................................................48
iii
Derrick Mfg. Corp. v. Southwestern Wire Cloth,
934 F. Supp. 796 (S.D.Tex. 1996) .............................................................................................32
Dime Sav. Bank of N.Y. v. Skrelja,
227 A.D. 2d 372, 642 N.Y.S. 2d 84 (2d Dept. 1996) ................................................................43
Doty v. Elias,
733 F.2d 720 (10th Cir. 1984) ...................................................................................................38
Dundes v. Fuersich,
No. 602314104 2006 WL 2956005 (N.Y.Sup. Ct. 2006) ..........................................................38
Dunlop Tire & Rubber Corp. v. Ryan,
108 N.W.2d 84 (Neb.1961)........................................................................................................34
Durham Indust., Inc. v. Tomy Corp.,
630 F.2d 905 (2d Cir. 1980).......................................................................................................55
Ehat v. Tanner,
780 F.2d 876 (10th Cir.1985) ....................................................................................................54
Equilease Corp. v. State Fed. Sav. and Loan Ass'n,
647 F. 2d 1069 (10th Cir. 1981) ................................................................................................45
Frank Management, Inc. v. Weber,
145 Misc.2d 995, 549 N.Y.S.2d 317 (N.Y.Sup.Ct. 1989) .........................................................44
Fuller v. Favorite Theaters Co. of Salt Lake,
230 P. 2d 335 (Utah. 1951) ........................................................................................................50
Gates Rubber Co. v. Bando Chem. Indus., Ltd.,
9 F.3d 823 (10th Cir.1993) ................................................................................................ passim
General Stencils, Inc. v. Chiappa,
219 N.E.2d 169 (N.Y. 1966) ......................................................................................................37
Greenlight Capital, Inc. v. GreenLight (Switz.) S.A.,
No. 04-Civ.-3136, 2005 WL 13682 (S.D.N.Y. Jan. 3, 2005) ..............................................31, 33
Hafen v. Strebeck,
338 F.Supp.2d 1257 (D.Utah 2004) ...........................................................................................38
Hammer v. Amazon.com,
No. CV 03-4238 2005 WL 2467046 (E.D.N.Y. Sept. 27 2005)................................................42
iv
Hargrave v. Oki Nursery, Inc.,
636 F. 2d 897 (2d Cir. 1980)................................................................................................42, 43
Harline v. Campbell,
728 P.2d 980 (Utah 1986) ..........................................................................................................38
Harolds Stores, Inc. v. Dillard Dept. Stores, Inc.,
82 F.3d 1533 (10th Cir. 1996) .......................................................................................52, 53, 54
Hauer Const. Co. v. City of New York,
85 N.Y.S.2d 42 (N.Y. Sup. Ct. 1948) ........................................................................................34
Huckshold v. HSSL, L.L.C.,
344 F.Supp.2d 1203 (E.D.Mo. 2004).........................................................................................54
In re Britton,
288 B.R. 170 (Bankr. N.D.N.Y. 2002) ......................................................................................49
In re Hoopiiaina Trust,
___ P.3d ___, 2006 WL 2669933 (Utah Sept. 19, 2006).....................................................37, 40
In re Piccillo,
797 N.Y.S.2d 236 (4th Dept.. 2005) ..........................................................................................38
In re Penn Central Transp. Co.,
391 F. Supp. 1404 (E.D. Pa. 1975) ............................................................................................33
In re Shulman Trans. Enter., Inc.,
744 F.2d 293 (2d Cir. 1984).......................................................................................................39
Ippolito v. Ono-Lennon,
526 N.Y.S.2d 877 (N.Y. Sup.Ct. 1988) .....................................................................................55
Keating v. Baskin-Robbins USA Co.,
No. 5:99-CV-148 2001 WL 407017 (E.D.N.C. 2001)...............................................................35
Kilpatrick v. Wiley, Rein & Fielding,
909 P.2d 1283 (Utah App. Ct. 1996) .........................................................................................45
Kindergartners Count, Inc. v. Demoulin,
171 F. Supp.2d 1183 (D.Kan. 2001) ..............................................................................53, 54, 55
Kwan v. Schlein,
441 F. Supp.2d 491 (S.D.N.Y. 2006).........................................................................................30
v
Lewis v. Hopper,
295 P.2d 93 (Cal.App.1956) ......................................................................................................33
LNC Inv. Inc. v. Rep. of Nicar.,
No. 96-6360, 1999 WL 92603 (S.D.N.Y. Feb. 19, 1999)..........................................................49
M/S Bremen v. Zapata Off-Shore Co.,
407 U.S. 1 (1972) .......................................................................................................................34
Meridien Intern. Bank Ltd. v. Government of the Republic of Liberia,
Mobius Mgmt. Sys, Inc. v. Fourth Dimension Software, Inc.,
880 F. Supp. 1005 (S.D.N.Y. 1994)...........................................................................................47
Morelli v. Tiffany & Company,
2002 WL 991017 (E.D.Pa. 2002) ..............................................................................................32
Nassau Chapter Civil Serv. Employees Ass'n, Local 830 v. County of Nassau,
585 N.Y.S.2d 966, 970 (Sup.Ct.1992), aff'd, 612 N.Y.S.2d 880 (App.Div.1994) ....................34
Niagara Mohawk Power Corp. v. Freed,
733 N.Y.S.2d 828 (N.Y. App.Div. 2001) ..................................................................................38
Niagara Mohawk Power Corp. v. Stone & Webster Engineering Corp.,
1992 WL 121726 (N.D.N.Y. 1992) ...........................................................................................39
Nobel Ins. Co. v. City of New York,
00-CV-1328 2006 WL 2848121 (S.D.N.Y. 2006).....................................................................34
Penato v. George,
383 N.Y.S.2d 900 (2d Dept. 1976) ............................................................................................39
Pravin Banker Assoc., LTD. v. Banco Popular De Peru,
109 F. 3d 850 (2d Cir. 1997)......................................................................................................49
Productivity Software Int'l, Inc. v. Healthcare Techs. Inc.,
No. 93-6949, 1995 WL 437526 (S.D.N.Y. July 25, 1995) .................................................42, 43
Roslyn Associates v. Incorporated Village of Mineola,
443 N.Y.S.2d 424 (2d Dept.) .....................................................................................................51
Russell Packard Development, Inc. v. Carson,
108 P.3d 741 (Utah 2005) ..........................................................................................................37
vi
Russello v. U.S.,
464 U.S. 16 (1983) .....................................................................................................................51
SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assoc., Inc.,
28 P. 3d 669 (Utah 2001) ...........................................................................................................50
Stump v. Gates,
211 F.3d 527 (10th Cir. 2000) .....................................................................................................38
Sun Trust Bank v. Sun International Hotels, Ltd.,
184 F.Supp. 2d 1246 (S.D.Fla. 2001) ........................................................................................34
Telex Corp. v. IBM,
367 F. Supp. 258 (D. Okl. 1973), aff'd in part, rev'd in part on other grounds,
510 F.2d 894 (10th Cir.), cert. dismissed, 423 U.S. 802 (1975) ................................................31
Too, Inc. v. Kohl's Dep't Stores,
210 F. Supp. 2d 402 (S.D.N.Y. 2002)........................................................................................47
Towers Fin. Corp. v. Dun & Bradstreet, Inc.,
803 F. Supp. 820 (S.D.N.Y 1992)..............................................................................................47
Twentieth Century Fox Film Corp. v. Marvel Enterprises, Inc.,
155 F.Supp. 2d 1 (S.D.N.Y. 2001).............................................................................................55
Underwater Storage, Inc. v. U.S. Rubber Co.,
371 F.2d 950 (D.C. Cir. 1966) ...................................................................................................30
Warner Bros. Inc. v. American Broad. Co., Inc.,
720 F.2d 231 (2d Cir. 1983).......................................................................................................55
Zulawski v. Taylor,
2005 WL 3823584 (N.Y.Sup.Ct. 2005) .....................................................................................38
STATUTES AND OTHER CITES
18 Am. Jr. 2d Copyright and Literary Property § 6 ..................................................................... 52
R. Nimmer, Law of Computer Technology § 3:61 ........................................................................54
U.C.A. 1953 §13-5a-102-4(a) ........................................................................................................48
Utah Code § 78-12-25 ....................................................................................................................33
Utah Code § 78-12-25 (1) ..............................................................................................................33
vii
Utah Code § 78-12-25 (3) ..............................................................................................................33
viii
PRELIMINARY STATEMENT
As a result of IBM's deceptive, unlawful and unfair competition with SCO, IBM
generated billions of dollars in revenue for itself while greatly reducing the value of SCO's
UNIX code and SCO's business as the recognized leader of the UNIX-on-Intel market. SCO's
claim is not time-barred, is not a "transmuted" breach of contract claim, is not preempted, and is
supported by more than ample evidence to support a jury finding in SCO's favor.
IBM's improper and unfair competition permeated Project Monterey,
1 which was
supposed to be a joint IBM-SCO project to develop a UNIX-based operating system and related
products for a new Intel chip:
First, the evidence demonstrates that, during the Project Monterey joint venture
relationship, IBM made a conscious decision to abandon the project, concentrate instead on a
competing Linux solution, and keep SCO in the dark about this decision. To obtain an unfair
competitive advantage, IBM led SCO to believe that IBM intended to continue the project,
market a jointly developed Project Monterey Operating System for the Intel 64-bit chip, and
create a family of products that would compliment that operating system to the benefit of both
partners, IBM and SCO. This deprived SCO of the opportunity to find other partners, to upgrade
its UNIX products to compete with Linux, and to avoid wasting the company's resources on the
venture.
Second, by stringing SCO along to believe that it was committed to Project Monterey and
that it intended to release a working Project Monterey Operating System and a family of
products to compliment that product, IBM deceptively obtained access to SCO's valuable SVR4
1
source code and then used that source code to improve IBM's own, competing AIX 5L for
Power operating system. IBM then attempted to cover-up its scheme by making a non-functional, sham version of the Monterey operating system.
Had IBM been honest with its joint venture partner, SCO would not have given IBM
access to its valuable source code and would not have invested its time and resources on the
project. It was not until IBM issued a sham version of a Monterey product in May 2001 and then
summarily terminated Project Monterey in June 2001 that SCO had any reason to suspect that
IBM did not have any intention to market in good faith the Project Monterey product or to
partner with SCO in the UNIX on Intel market.
While SCO and IBM undoubtedly had a contractual relationship which defined the
general parameters of Project Monterey, it is not that contractual relationship but IBM's
deceptive and unfair conduct which abused the access and the trust that SCO reposed in IBM that
caused the Monterey-related damage of which SCO complains in Count Six.
2
SCO'S STATEMENT OF ADDITIONAL MATERIAL FACTS
A. SCO's Strong Position in the 1990's in the Increasingly Important UNIX-on-Intel Market
1. Plaintiff's predecessor, the Santa Cruz Operation ("SCO" or "Santa
Cruz")
2 was founded in 1979, and in 1983 it delivered the first packaged UNIX System for Intel
processor-based PCs. (Ex. 250 at 1.) SCO's UNIX operating systems, UnixWare and
OpenServer, run on the 32-bit Intel IA-32 microprocessor or "chip." (Ex. 214 at 181047252,
("SCO is the clear leader in providing UNIX operating systems on the IA-32 architecture.").)
2. As one industry analyst described it, "SCO established the market for
advanced operating systems on industry-standard Intel platforms in the 1980s, pioneering such
features as a full 32-bit implementation, security, and multiprocessing." (Ex. 244 at 6.) At least
as far back as 1989, SCO was described as "the largest vendor of Unix-like operating systems on
Intel-based computers." (Ex. 246 at 1.)
3. SCO sold its UNIX-on-Intel operating systems to major corporate
customers located throughout the world including NASDAQ, McDonalds, Sherwin Williams,
Papa Johns, Daimler Chrysler, BMW and Lucent Technologies. SCO's UnixWare product was
certified for and sold on a wide variety of OEM IA-32 systems including those from Compaq,
HP, Unisys, NCR, Data General, Siemens Nixdorf, FujitsuICL, Olivetti and IBM. (Ex. 354, ¶ 7;
Ex. 362, ¶ 7.)
3
4. In 1998, SCO was the worldwide UNIX market leader in terms of unit
shipments, with roughly 40 percent of total market unit sales. (Ex. 214 at 181047252 and n. 2.)
In terms of revenue, SCO dominated what is referred to as the "UNIX-on-Intel market" to an
even greater extent, with an 80% market share. (Ex. 204 at 1710117641.)
5. At that time, the processing capacity of the Intel processor chip was
increasing rapidly. By 1995, Intel began to target its chips to be used in high-performance
desktops and servers, and new UNIX servers based on 32-bit Intel chips began to compete
against UNIX systems based on the far more expensive RISC chip, which until then had been the
preferred chip for enterprise-critical systems. From 1995 to 1999, shipments of servers based on
Intel architecture approximately tripled and, by 2000, servers based on Intel architecture began to
dominate the UNIX market. (Ex. 284 at 18-20.)
6. By 1998, Intel was developing the first commercial 64-bit chip, called
Itanium, with the code name Merced. (Ex. 214 at 181047251-52; Ex. 249 at 1.) Capitalizing on
its substantial expertise with the Intel IA-32, SCO began work on porting its operating systems to
the Itanium, IA-64 chip. (Ex. 354, ¶ 8; Ex. 362, ¶ 8.)
7. The strength of SCO's market position at this time is described in detail in
the expert reports of Dr. Gary Pisano and Dr. Jeffrey Leitzinger, and those findings are
incorporated herein by reference. (Ex. 284 at 40-47, Ex. 281 at 9-20, respectively.)
B. IBM Is Attracted to SCO's Technical Expertise and Strong Position in the
UNIX-on-Intel Market
8. In contrast to SCO, IBM in 1998 had almost no presence in the market for
UNIX-based operating systems on Intel chips. Instead, IBM had focused its efforts on its
operating system called AIX for Power, which ran on servers using IBM's RISC-type Power
processor. (Ex. 214 at 181047252; Ex. 166 at 8:11-9:17.)
4
9. Accordingly, IBM began considering the benefits of partnering with SCO
to gain footing in the increasingly important Intel market. A May 6, 1998 internal IBM
document recommended: REDACTED
10. In a July 30, 1998 summary of IBM's UNIX Strategy, addressed to IBM's
CEO Lou Gerstner, IBM recognized REDACTED
Lou Gerstner was informed:
REDACTED
REDACTED Lou Gerstner was informed: REDACTED
11. On August 5, 1998, IBM executives again presented Mr. Gerstner with a REDACTED Specifically, Gerstner was informed: REDACTED REDACTED
IBM further explained that
REDACTED
REDACTED
REDACTED
12. In addition, IBM identified for Gerstner REDACTED
REDACTED For instance, IBM recognized that REDACTED
5
REDACTED
C. IBM Is Attracted to the SVR4 Technology Base of SCO's UNIX Operating
System
13. SCO's technology was also attractive to IBM for another reason: SCO's
UnixWare operating system was based on UNIX System V Release 4 ("SVR4") technology, the
most recent version of UNIX. (Ex. 354, ¶ 9; Ex. 362, ¶ 9.) In contrast, IBM's AIX operating
system was based on the earlier UNIX System V Release 3.2 ("SVR3.2") technology. (Ex. 205
at 181017195.) SCO owned the UNIX source code. (Ex. 227 at 181472999.) IBM had opted
not to buy from SCO an upgrade of its UNIX license to the SVR4 code base. (Id)
14. Like SCO's UnixWare, Sun Microsystems' UNIX operating system,
Solaris, was based on SVR4 code. (Ex. 205 at 181017194.)
15. IBM perceived Sun Microsystems ("Sun") as one of its most significant
competitors, and believed that incorporation of SVR4 code into AIX would help it compete
against Sun, whose Solaris product had steadily been gaining market share at the expense of
IBM's AIX. (Ex. 285 at 76-77; Ex. 216 at 181677477-79; see also paragraph 42, infra, for
details on IBM's interest in obtaining the SVR4 code to compete with Sun.)
D. Project Monterey Is Announced
16. In October 1998, a partnership between IBM, SCO, Sequent, and Intel was
announced, and this partnership came to be known as Project Monterey. (Ex. 240; Ex. 354, ¶ 9;
Ex. 362, ¶ 9; Ex. 17 ¶ 9). Project Monterey was described by IBM as a "major UNIX operating
system initiative" (Ex. 214 at 181047251) that would deliver a "single UNIX operating system
6
product line that runs on IA-32, IA-64 and IBM microprocessors, in computers that range from
entry- level to large enterprise servers." (Ex. 240 at 1.)
17. In the press release announcing Project Monterey, IBM proclaimed:
"We're extending into broader markets with our award-winning AIX software that delivers the
reliability and security required of an enterprise-class operating system . . . . Working with these
companies, we're capitalizing on the base of proven leadership technologies to deliver the
world's best UNIX on Power microprocessor and high-volume Intel microprocessor systems."
(Ex. 240 at 1-2.)
E. SCO and IBM Enter the Joint Development Agreement
18. The agreement between SCO and IBM was consummated in the Joint
Development Agreement ("JDA"), signed by the parties in October 1998. (IBM Ex. 245, at
1710141492; Ex. 214 at 181047251.)
19. In the JDA, the parties agreed to jointly develop an operating system that
would run on Intel's forthcoming 64-bit chip. This operating system was defined as the "IA-64
Product" (sometimes referred to herein as the "Project Monterey Operating System"). The "IA-64 Product" was to be the cornerstone of a "family of products" that would be sold by both IBM
and SCO. (IBM Ex. 245, at Preamble and § 1.10 (JDA); Ex. 166 at 21:6-9; Ex. 214 at
181047252; Ex. 191 at 1710013164.)
20. The agreement contemplated that SCO would continue to sell its 32-bit
operating systems and would also be able to upgrade or migrate its customers to the jointly-developed Project Monterey Operating System on the 64-bit chip. (IBM Ex. 245 at Preamble
and §§ 1.9 and 9.0-9.4 (JDA); Ex. 214 at 181047252-53; Ex. 176 at 181441556.)
21. The agreement further specified that, after a "generally available"
"Release 1" of the IA-64 Product, IBM would earn a license to use any SVR4 source code
7
contained in Release 1 in its existing products, such as AIX for Power. This would make it
easier for customers to migrate from AIX and the Power microprocessor to the Project Monterey
Operating System and the 64-bit processor. (IBM Ex. 245 at § 2(d)2 (JDA); Ex. 81at § 4 (JDA
Supplement B); Ex. 85 at 1710013964 (JDA Amendment 5); Ex. 214 at 181047252-53; Ex. 17 at
¶ 9.)
22. Thus, the ultimate goal was that both SCO customers (those using Santa
Cruz's UnixWare operating system software on computers with Intel's 32-bit processors) and
IBM customers (those using IBM's AIX for Power operating system software on computers with
IBM's Power processor) would upgrade to the jointly developed Project Monterey Operating
System software (the IA-64 Product), which was to be compatible with computers using either
the 32-bit or the 64-bit Intel chip or the IBM Power chip. (Ex. 214 at 181047252-53; Ex. 176 at
181441556
REDACTED
F. IBM Acknowledges Its Duties to SCO As a Partner
23. The JDA was an agreement to create an enterprise for profit; it provided
for mutual contributions of property and other resources; it called for a measure of joint control
over the enterprise; and it required sharing of profits and losses. (IBM Ex. 245 (JDA) at
Preamble and §§ 2.0(a), 4.0, 5.1, 8.0-8.11, 11.3, 12.0-12.5; Ex. 81 (JDA Supplement B) at § 4
and Attachments 3 and 4.)
24. Consistent with that arrangement, IBM repeatedly referred to SCO as a
"partner" during the course of Project Monterey:
REDACTED
8
b) In 2S000, one IBM employee cautioned:
REDACTED
c) Even as late as 2002, IBM discussed internally that REDACTED
G. IBM Secretly Abandons Project Monterey and Transitions Support to Linux
25. As the evidence cited in the following paragraphs will show, IBM, in
disregard of its partnership and confidentiality obligations to SCO, secretly transitioned its
efforts and focus away from Project Monterey while continuing the pretext of support and
publicly proclaiming its continued commitment to the project. This was because, after entering
into Project Monterey, IBM decided that a competing system, Linux, rather than the Project
Monterey Operating System, offered a more profitable entryway for IBM into the UNIX-on-Intel
market. Yet IBM could not overtly withdraw from Monterey without raising legal issues and
forfeiting the opportunity to obtain needed SVR4 code for free.
26. REDACTED
27. REDACTED
9
REDACTED
28. REDACTED
29. In March of 1999, IBM publicly announced its support of Linux at the
LinuxWorld event (IBM Ex. 21 at 4) a fact which IBM admits in its brief (at ¶12).
10
30. However, what IBM omits in its brief is that it continued to tell SCO and
announce publicly that it was also fully supporting Monterey as its enterprise level operating
system. For instance, in an August 10, 1999 article about IBM's support of both Linux and
Project Monterey, IBM assuaged concerns:
IBM's John Prial said Big Blue is comfortable with many operating
systems under its roof, and that AIX today and Monterey
tomorrow will sell in a different area than Linux. "We're very
comfortable having many operating systems," he said.
"Monterey will be popular in high business-value transactional
systems and heavy-duty business intelligence," Prial said. Linux,
on the other hand, currently is popular in Web servers, file and
print servers, and other smaller-scale computers, though that could
change two or three years down the line.
(Ex. 252 at 2.)
REDACTED
31. SCO believed IBM's representations. (Ex. 351, ¶¶ 17-18; Ex. 17 ¶ 10; Ex.
351 ¶ 17.) In an August 19, 1999 article about IBM's support of Trillian (the IA-64 project for
Linux), SCO CEO Doug Michels was quoted as follows:
"IBM is not looking at Trillian as an alternative to Monterey. The
real interest in Linux is coming from all the software companies
that sell databases and transaction based tools because they are
frustrated that Microsoft more or less gives these things away as
part of the Back Office bundle. So they say `if you give us a free
OS, we'll make money from it'."
But Trillian is not intended to make Linux an enterprise class OS
and there are no real efforts elsewhere to do so either, he claimed.
(Ex. 253 at 1-2) (emphasis added); (Ex. 351 ¶18.)
32. REDACTED
11
REDACTED
a) REDACTED
33. REDACTED
12
REDACTED
34. REDACTED
35. REDACTED
H. IBM Engaged In This Ruse In an Effort to Legitimize Its Use in AIX of
SCO's SVR4 Code
36. Even as IBM was publicly stating its support for Monterey but internally
transitioning away from Monterey to Linux, IBM obtained SCO's SVR4 code through the
partnership and used it in its non-Intel AIX for Power product.
37. On October 24, 2000, IBM placed SCO's SVR4 source code into a PRPQ
(IBM's internal name for a beta test version), "early adopters" of AIX for Power (named AIX 5L
13
for Power 5.0), which was intended for certified software developers and "not intended for
general production use." (Ex. 289.)
38. Then, on May 4, 2001, IBM included SCO's code in the first "generally
available" version (AIX 5L for Power 5.1). (IBM Ex. 229 at 30:12-15, 30:22-31:10, 33:8-23,
107:21-32; Ex. 229; Ex. 82 at 3-4.)
39. The SVR4 code IBM placed in AIX for Power was valuable to IBM's
strategy for competing with Sun's Solaris operating system. This was achieved through IBM's
use of SRV4 code to enhance the affinity between AIX and both Solaris and Linux. In addition,
IBM used SRV4 code and expertise obtained from SCO through Project Monterey to mature
Linux into a commercially hardened operating system capable of handling mission-critical
workloads. (Ex 286 at 36-43, 76-77; Ex. 287 at 9, 37-38.)
40. IBM has continued to use SCO's code in every subsequent version of this
product. Indeed, IBM is still distributing AIX 5L for Power, which continues to contain SVR4
code, to this day. (IBM Ex. 229 at 30:12-15, 30:22-31:10, 33:8-23, 107:21-32).
41. IBM fully recognized that this SVR4 code it was using had come to IBM
from SCO via Project Monterey: REDACTED
14
REDACTED
42. As discussed above at ¶15, this SVR4 code was fundamental to IBM's
ability to establish greater affinity between its AIX operating system and Sun's SVR4-based
Solaris operating system, and thus, lure Sun's customers to IBM. It was highly valuable to IBM
for that reason. (Ex. 286 at 76-77.) The value and necessity of SCO's SVR4 code to IBM's
strategy to compete against Solaris is reflected in IBM documents detailing how it used SVR4
code it gained access to in Project Monterey to create "Solaris Affinity" in AIX for Power. (Ex.
225 at 181472943; Ex. 373 at 181473004; Ex. 229 at 181473018-19; Ex. 230 at 181473042-43;
Ex. 372 at 181473052-53.)
43. AIX 5L for Power, which ran on RISC -- not Intel -- architecture was not
the "IA-64 Product" under development in Project Monterey, and SCO could not collect any
royalties or other benefit from its sales. (IBM Ex. 245 at §12 (JDA provision setting forth that
royalties are only to be paid to SCO for IBM's distribution of Release 1 of the IA-64 product)).
Thus, SCO would benefit and IBM would obtain the right and license to use SCO's SVR4 code
it obtained through Project Monterey in AIX for Power only if IBM in good faith completed and
released a working, generally available Project Monterey Operating System (the IA-64 Product): REDACTED
15
REDACTED
44. Notably, IBM acknowledged SCO's intellectual property rights in SVR4
when it twice sought but failed to obtain from SCO the right to use SVR4 code in AIX for
Power without a Release 1 of the IA-64 Product.
a) In March 1999, IBM proposed an Amendment 2 to the JDA, which
would have given IBM the right, among other things, to use SVR4 source code without
royalties (and without a Release 1 of the IA-64 Product) in AIX for Power. However, this
proposed amendment was never signed as the parties could never agree upon final terms. (Ex.
94.)
REDACTED SCO viewed the draft Supplement C and the nature of the negotiations as an "end
around" SCO's right to certain royalties for the IA-64 Product. (Ex. 299 at SCO1234593; Ex.
16
298 at SCO1234593; Ex. 297 at 181506932.) Again, this agreement was never signed because
the parties could not agree upon the terms. (Ex. 354 at ¶¶ 10-11 and Ex. A thereto).
45. Once IBM used the SVR4 code in AIX for Power, it fully recognized that
it could not legitimately back out of Monterey (as some IBM executives had urged) while
keeping the code. REDACTED
46. Similarly, in June 2000, the IBM Academy of Technology OS
Consultancy cautioned: REDACTED (emphasis added.)
47. IBM was also interested in using SCO's code to advance its Linux
initiatives:
REDACTED
17
REDACTED
48. Because of its interest in the SCO code and its legal concerns, IBM
ignored the recommendations of IBM executives to terminate Monterey, and instead strung the
project and SCO along in order to legitimize its use of the SVR4 code.
REDACTED
I. IBM's "Solution" Is More Deception: A Sham PRPQ of the Project
Monterey Operating System
18
49. IBM's "solution" to the problem of the SVR4 code was to put out a
pretextual, non-functional PRPQ of the Monterey product, and then quickly terminate the
Monterey agreement, leaving IBM with the valuable code and SCO with nothing, as set forth
below. Contrary to JDA § 3.0, and for the purpose of sowing confusion, IBM unilaterally
branded the so-called Monterey product "AIX 5L for IA-64" or "AIX 5L for Itanium."
50. REDACTED
51. REDACTED
52. Nevertheless, on April 17, 2001, IBM announced the pretextual
availability of AIX 5L for Itanium as an I-Listed PRPQ, and made it "available" on May 4, 2001.
(Ex. 89 at 181015076; Ex 97 at 181014956.) Unlike the PRPQ of AIX 5L for Power in October
2000, the PRPQ of AIX 5L for Itanium was so spurious it did not even have a compiler to make
it work REDACTED Moreover, the
PRPQ was offered free of charge, without support. (Id)
19
53. A compiler is a program that takes an application and processes it, or
"translates" it, to allow it to run on specific computer architecture. (Ex. 72 at 142:23-143:1.) As
IBM executive Anthony Befi admitted: "If a compiler wasn't available there wouldn't be
applications to run on it, so you wouldn't sell very many." (Id at 159:4-17.)
54. REDACTED
55. REDACTED
56. In short, this pretextual PRPQ was not the functional, generally available
Release 1 contemplated in Project Monterey, and IBM recognized this. REDACTED
57. Nevertheless, IBM shrewdly developed its external positioning on this
product in order to try to maximize its appearance of satisfying the Monterey requirements. On
REDACTED
20
REDACTED
58. This positioning understandably sparked confusion within IBM. REDACTED
21
59. REDACTED
22
REDACTED
60. REDACTED
Outside observers similarly noted that "AIX for Itanium never went beyond beta." (Ex. 67 at 2.)
J. IBM Conceals Its Intent to Object to the Acquisition of the UNIX Business
by Caldera
61. Caldera International (plaintiff SCO) closed its acquisition of the UNIX
assets of Santa Cruz on May 7, 2001, three days after the sham PRPQ of the Project Monterey
Operating System. (Ex. 141 at 1710137001.) This acquisition was originally publicly
announced on about August 1, 2000. (Ex. 113; Ex. 142.)
62. Several weeks before the public announcement, Santa Cruz complied with
Section 16.1 of the JDA and provided IBM with a detailed notice of the proposed transaction and
an opportunity to tender a counteroffer within 15 days, pursuant to Section 16.2 of the JDA. (Ex.
206 (6-21-00 Santa Cruz's notice to IBM of Caldera offer).)
63. Although IBM thus had notice of the pending transaction for almost a
year, IBM never told Santa Cruz or Caldera that it would not consent to the assignment of the
JDA from Santa Cruz to Caldera. IBM's consent was important because, under Section 15.2 of
the JDA, IBM was able to cancel the JDA in the event of a change of control. IBM led Santa
Cruz and Caldera to believe that it would not cancel their joint efforts and, in fact, IBM sought
23
and obtained assurances from Ransom Love and David McCrabb, the named CEO and COO of the new company, that they would continue to support Project Monterey. (Ex. 290, Ex. 334 at 181671481; Ex. 354, ¶¶ 12-13; Ex. 362, ¶¶ 10-11; Ex. 356 ¶ 6.)
64. REDACTED
65. Moreover, long after the announcement of the transaction, IBM reiterated
its "strong commitment" to Project Monterey. REDACTED
66. Before the transaction was closed, Caldera met with IBM representatives,
who affirmatively discussed plans for continuing with Project Monterey. IBM's team never
suggested that IBM intended to terminate the Project or that they thought the Project would not
or should not continue once Santa Cruz sold its UNIX assets to Caldera. (Ex. 356 ¶ 6; Ex. 6 ¶
15.) Caldera's representatives were led to believe that IBM would continue the project after the
closing. (Id)
67. IBM timed the May 4, 2001 sham PRPQ of the Project Monterey
Operating System to occur just three days before the May 7 closing of the Santa Cruz-Caldera
24
transaction. (Ex. 89.) On the same day, IBM released the first "generally available" version of
the SRV4-enhanced AIX 5L for Power. (Ex. 82.) REDACTED
68. In light of IBM's pre-closing conduct, IBM's cancellation was a major
shock and disappointment to Caldera, since the joint venture with IBM was critically important
to Caldera's decision to acquire SCO's UNIX assets and Caldera had fully expected to proceed
with IBM on Project Monterey. (Ex. 362, ¶ 13; Ex. 269, ¶ 8; Ex. 356 ¶ 6; Ex. 6 ¶ 15.)
K. Caldera Acquires the UNIX Business, Including the Misappropriated SVR4
Code and Pre-Existing Legal Claims Relating to That Code
69. As part of the May 2001 transaction in which Caldera/SCO acquired the
UNIX business and assets, Santa Cruz assigned to SCO all of Santa Cruz's "right, title, and
interest" in the Contributed Assets, which consisted of Santa Cruz's entire UNIX business,
including the SVR4 code that IBM misappropriated into AIX for Power. (Ex. 113 at § 1.4; Ex.
114 at ¶¶ 1-9; Ex 30 at ¶ 2; Ex. 115 at § 1). SCO also acquired all of Santa Cruz's "rights and
privileges pertaining to" this intellectual property, including all "rights to enforce confidentiality
or similar obligations" in relation to the code, "the right, if any, to sue or bring other actions for
past, present and future infringement thereof," and "any and all other forms of intellectual
property right or proprietary right recognized anywhere in the world." (Ex. 115 (IP Assignment)
at §§ 1(v)-(vii).
L. SCO Was Not Aware of IBM's Deception in March 2001
70. SCO was not aware of IBM's duplicity in March 2001. (Ex. 354 ¶¶ 16-
18; Ex. 362 ¶ 15). At this time, SCO's management did not know, and had no reason to know,
that IBM had placed SCO's SVR4 code into AIX 5L for Power. SCO also did not know then
25
that IBM had abandoned Project Monterey, that IBM had no intent of issuing a generally
available Monterey product, or that IBM was solely interested in deceptively securing the rights
to SCO's SVR4 code for other products. SCO had no reason to suspect IBM's malfeasance until
April-June 2001, when IBM announced and delivered both its first "generally available" release
of AIX 5L for Power containing SVR4 code and the premature PRPQ of the Project Monterey
Operating System, promptly followed by the cancellation of the JDA. (Ex. 354, ¶¶ 16-18; Ex.
362, ¶ 15; Ex. 351 at ¶ 16; Ex. 17 at ¶ 10).
71. IBM incorrectly asserts that SCO was aware of the allegedly improper
inclusion of the SVR4 code in AIX for Power by August 2000.
REDACTED
26
REDACTED
e) Finally, SCO had no knowledge of the industry reports IBM points
to, which were not widely circulated at the time and were not sent to SCO. (Ex. 354, ¶ 19; Ex.
362, ¶ 16.)
72. Furthermore, even if SCO knew by March 2001 that its SVR4 code had
been used in IBM's PRPQ beta test release of AIX 5L for Power 5.0 in October 2000, this alone
would not have been cause for concern or suspicion, because it was expected that IBM would
fulfill its obligations and earn the contingent license to use the SCO code in its other products.
In fact, it was expected that an SVR4-enhanced AIX 5L for Power would be a part of the
Monterey "family" of operating systems. SCO certainly did not know in March 2001 that IBM
had no intent to fulfill the obligations that would have legitimized its use of that code. SCO did
not actually learn of IBM's use of SVR4 code until 2004, during discovery in this case. (Ex. 57;
Ex. 354, ¶¶ 19-20; Ex. 362, ¶ 15, Ex. 351, ¶ 17.)
M. IBM Continued to Cover Its Tracks Well Into 2002
73. IBM was still grappling with its Monterey positioning -- in response to a
query from SCO in late 2002, over a year after it terminated the project. REDACTED
27
REDACTED
74. REDACTED
75. REDACTED
N. SCO Was Injured By IBM's Deception
76. SCO was damaged by IBM's concealment of its intention to cancel Project
Monterey, from IBM's misappropriation of the SVR4 code, and the subsequent cover up and
IBM benefited greatly from that misconduct. SCO expert Marc Rochkind has described the
28
substantial SVR4 technology that IBM misappropriated and put into its AIX for Power operating
system. (Ex. 287 at 152). IBM's improper actions, which enhanced AIX for Power and gave
rise to a free-of-charge Linux operating system that directly competed with SCO's own
proprietary operating systems, greatly harmed SCO's business and its ability to compete. (Ex.
281 at 62-68; Ex. 284 at 47-56; Ex. 286 at 20-26.) SCO's damages from IBM's wrongful
action are set forth in detail in the expert report and rebuttal report of Christine Botosan (Ex. 270
at 3-4, 10-12; Ex. 272 at 8-9, 24-25) and the rebuttal report of Gary Pisano (Ex. 286 at 76-77),
which are incorporated herein by reference.
77. SCO incorporates by reference the facts set forth in SCO's Memorandum
in Opposition to IBM's Motion for Summary Judgment on IBM's Eighth Counterclaim, SCO's
Memorandum in Opposition to IBM's Motion for Summary Judgment on SCO's Contract
Claims, SCO's Memorandum in Opposition to IBM's Motion for Summary Judgment on SCO's
Interference Claims, SCO's Memorandum in Opposition to IBM's Motion for Summary
Judgment on IBM's Tenth Counterclaim, SCO's Memorandum in Opposition to IBM's Motion
for Summary Judgment on SCO's Unfair Competition Claim, and SCO's Memorandum in
Opposition to IBM's Motion for Summary on SCO's Copyright Claim.
78. Based on the evidence and reasons set forth in the attached Appendix A,
SCO disputes each of the allegations of IBM's "Statement of Undisputed Facts," except to the
extent set forth in Appendix A. All material facts which would support the relief IBM seeks are
disputed.
29
ARGUMENT
I. SCO TIMELY FILED ITS UNFAIR COMPETITION CLAIM
IBM first asserts that the portion of SCO's unfair competition claim relating to Project
Monterey
3 is barred by a two-year limitations provision in the Joint Development Agreement
("JDA") between Santa Cruz and IBM. IBM is wrong for several reasons. First, the "continuing
tort" doctrine applies to unfair competition claims, and SCO's claim is timely under this
doctrine, because IBM continues to use the misappropriated SCO code to this day. Second, the
provision cited by IBM applies only to breach of contract claims, not to unfair competition and
other tort and statutory claims. Third, the cause of action did not accrue until April-June 2001,
when the deceptive scheme was executed, or at least the limitations period was tolled until then
due to IBM's concealment.
A. The Continuing Tort Doctrine Defeats IBM's Motion
Unfair competition is a continuing tort, and thus each use by IBM of the misappropriated
SCO property is a separate tort with its own separate limitations period. Underwater Storage,
Inc. v. U.S. Rubber Co., 371 F.2d 950, 955 (D.C. Cir. 1966). SCO's claim is therefore "not
time-barred because unfair competition occurring over a period of time can give rise to liability
as a continuing tort." Kwan v. Schlein, 441 F. Supp.2d 491, 503 (S.D.N.Y. 2006). See
Greenlight Capital, Inc. v. GreenLight (Switz.) S.A., No. 04-Civ 3136, 2005 WL 13682, **7-8 & n. 9 (S.D.N.Y. Jan. 3, 2005) (Ex. B).
IBM itself successfully invoked the continuing tort doctrine to avoid a time-bar defense
to its own unfair competition counterclaim in Telex Corp. v. IBM, 367 F. Supp. 258, 359-60 (D.
Okl. 1973), aff'd in part, rev'd in part on other grounds, 510 F.2d 894 (10th Cir.), cert. dismissed,
30
423 U.S. 802 (1975). In that case, Telex sued IBM for alleged antitrust violations, and IBM
counterclaimed against Telex for alleged unfair competition, theft of trade secrets and copyright
infringement. IBM claimed, and the court found, that Telex had engaged in unfair competition
by inducing present and former IBM employees to breach their duty of loyalty by revealing trade
secrets and other confidential information about IBM's business. Id at 357-58. The court
rejected Telex's statute of limitations defense under the continuing tort doctrine:
I am of the opinion that IBM's misappropriation counterclaim is
not time barred also because it involves a continuing wrongful
course of action pursued to within two years of the filing of the
counterclaim-the shortest limitations period contended for by
Telex and applicable to tort claims in general .... [T]he gist of the
claim is the use of the trade secrets, not necessarily their
acquisition, and in this sense the statute would not commence to
run prior to any such use and, with the period renewed by its
continuance.
Id at 359-60. Accord, Morelli v. Tiffany & Co. Civ. A. 00-99662002 WL 991017, at *1 (E.D.
Pa. 2002) (Ex. G) (unfair competition is continuing tort); Derrick Mfg. Corp. v. Southwestern
Wire Cloth, 934 F. Supp. 796, 808 (S.D.Tex. 1996) (each sale of an item marked with plaintiff's
trademark or product number was a separate cause of action, so unfair competition claim not
time-barred as to sales within the limitations period).
Here, it is undisputed that, to the present day, IBM is selling and intends to continue
selling AIX 5L for Power with SCO's SVR4 code. (¶¶ 38-40.) Thus, at the very least, SCO is
entitled to sue for damages on all of IBM's sales from March 2001 (two years prior to the March
2003 filing date). This includes virtually every sale at issue in this case, because IBM did not
make a "generally available" release of the SVR4-enhanced AIX 5Lfor Power product until
May 2001 (the same date as the sham PRPQ of the Monterey product, which IBM confusingly
named AIX 5L for Itanium, which never was "generally available") (¶ 38.) The prior, October
31
2000 release of AIX 5L for Power 5.0 was an "early adopters," beta test PRPQ release not
intended for the public. (¶ 37.) IBM's statute of limitations argument should therefore be
rejected.
B. The Two-Year Provision Applies Only to Breach of Contract Claims
IBM does not contend that any portion of SCO's unfair competition claim is time-barred
if the normal statutory limitations period applies.4Instead, IBM relies on Section 22.3 of the
JDA, which states that any "action related to a breach of this Agreement" must be filed no later
than two years from the date of the breach." However, unfair competition is an independent tort
action, not an "action related to the breach of" the JDA, and thus the two-year provision is
inapplicable.
1. Limitations Shortening Provisions Are Strongly Disfavored
Most jurisdictions, including New York and Utah, allow parties to agree to a reasonable
shortening of a statutory limitations period by agreement, but shortening provisions "are viewed
with caution by the courts and are construed strictly against the party invoking the shorter
period." Backus v. Nationwide Mut. Ins. Co., 392 N.Y.S.2d 765, 766 (2d Dept. 1977).
"[C]ontractual limitations of the time in which to bring actions ... are looked upon with
disfavor." Anderson v. State Farm Fire & Cas. Co., 583 P.2d 101, 103 (Utah 1978).
5
Indeed, in
32
some jurisdictions, limitations-shortening provisions are totally void as contrary to public policy.
See, e.g., Dunlop Tire & Rubber Corp. v. Ryan, 108 N.W.2d 84, 88 (Neb.1961).
One recent case applied these principles to a provision shortening the time for filing an
action "against the City by the Contractor upon any claims based upon this Agreement." Nobel
Ins. Co. v. City of New York, 00-CV-1328 2006 WL 2848121, at *18 (S.D.N.Y. 2006)(Ex. I)
(quoting Nassau Chapter Civil Serv. Employees Ass'n, Local 830 v. County of Nassau, 585
N.Y.S.2d 966, 970 (Sup.Ct.1992), aff'd, 612 N.Y.S.2d 880 (App.Div.1994)).
The court deemed this clause inapplicable to a claim by a subrogee who stood in the shoes of
subcontractors, because a "party to a contract does not surrender his right to resort to the Courts,
with all of their safeguards, unless he has agreed, in writing, to do so, by clear language. Further,
an agreement to do so will not be extended by construction or implication." Id.
With one exception, every case cited by IBM in support of its argument that JDA 22.3
applies to an unfair competition claim does not even involve a limitations shortening provision.
Instead, IBM cites cases involving forum selection clauses, where the opposite presumption
applies: such clauses are "strongly favored." Sun Trust Bank v. Sun International Hotels, Ltd.,
184 F. Supp.2d 1246, *1260 n.5 (S.D.Fla. 2001); see M/S Bremen v. Zapata Off-Shore Co., 407
U.S. 1, 9-10 (1972). Because a forum selection clause does not cut off a statutorily granted right
to file an action, IBM's cases are inapposite.
In the only case that IBM cites that does involve limitations, IBM misquotes the pertinent
contractual language. Although IBM asserts (Opp. at 14 n. 5) that the clause in Keating v.
Baskin-Robbins USA Co., 2001 WL 407017, *8 (E.D.N.C. 2001) (Ex. E) applied to "[a]ny and
all claims and actions arising out of or relating to [the parties'] agreement," IBM omits the
language further extending the clause to actions arising out of or relating to "the relationship of
33
franchisee, Baskin-Robbins or the franchisee's operation of the retail unit." Id Thus, the clause
unambiguously included the entirety of the parties' relationship.
2. Section 22.3 Has No Relevance to Unfair Competition Claims
Here, in contrast to the clause at issue in Baskin-Robbins, JDA 22.3 does not encompass
claims relating to "the relationship," and it does not even include actions that relate to "the
agreement" as a whole. Instead, it only covers actions that relate to "a breach of this
Agreement," in which case suit must be filed within "two years from the date of the breach."
Under any reasonable interpretation, the "breach" terminology plainly limits the provision to
contractual actions, as a breach is not an essential or even an ordinary element of an unfair
competition claim. And given the required strict construction against shortening, IBM cannot
seriously contend that Section 22.3 "clearly and unambiguously" applies to SCO's unfair
competition claim.
3. At Most, the JDA Relates Only to an IBM Defense to SCO's Unfair
Competition Claim
SCO's unfair competition does not "relate to" any breach of contract. It arises from
IBM's concealment and deception, false and misleading statements, misappropriation of code,
and other conduct in breach of its (common law and statutory) fiduciary and confidentiality
duties to its partner SCO. Nothing in the JDA says, "IBM shall not deceive SCO" or "IBM shall
not misappropriate SCO's confidential code." At most, the contract relates not to a breach, but
to an IBM defense (that IBM was entitled to use SCO's SVR4 code in AIX 5L for Power, even
though SCO received no benefit in exchange, on the basis of the contingent license in the JDA).
It is undisputed that SCO owns the SVR4 code that IBM placed in AIX for Power. (¶
13.) In the absence of a license or some other form of authorization, IBM's use of SCO's code is
improper, regardless of whether such use is a breach of any contract. IBM cannot shorten the
34
statute of limitations by pleading a defense (license) that relates to the contract. There is no
indication in the JDA, let alone the requisite "clear and unambiguous" statement, that the parties
intended JDA 22.3 to apply to defenses. IBM's statute of limitations argument lacks merit and
should be denied.
C. Even If Applicable, the Two-Year Period Did Not Start Prior to April 2001
Even if the two-year provision applies to SCO's unfair competition claim, the claim was
still timely because, in light of IBM's concealment and deception, the two-years did not start to
run until, at the very earliest, April-June 2001, which is less than two years from the date (March
6, 2003) when SCO filed suit. The cause of action accrued only when IBM's deceptive scheme
was executed with the pretextual PRPQ of the IA-64 Product, the simultaneous first "generally
available" release of the SVR4-enhanced AIX 5L for Power, and the surprise cancellation of the
JDA. (¶¶ 38, 49-60, 62-68.) SCO before then did not know and did not have any basis to
suspect that IBM had done anything improper (¶¶ 70-72) so, even if the cause of action somehow
accrued earlier, the running of limitations was tolled at least until then.
"[T]here are two situations in which an equitable discovery rule will operate to toll a
statute of limitations: (1) where a plaintiff does not become aware of the cause of action because
of the defendant's concealment or misleading conduct, and (2) where the case presents
exceptional circumstances and the application of the general rule would be irrational or unjust."
In re Hoopiiaina Trust, ___ P.3d ___, 2006 WL 2669933, at *10 (Utah Sept. 19, 2006) (Ex. D)
(quoting Russell Packard Development, Inc. v. Carson, 108 P.3d 741, 747 (Utah 2005))
(quotation marks omitted.)
A plaintiff may utilize the concealment version of the discovery rule to toll the statute of
limitations if he demonstrates that he "neither discovered nor reasonably should have discovered
the facts underlying the cause of action before the limitations period expired" due to the
35
defendant's concealment, in which case the statute of limitations will not commence running
"until the date the plaintiff possessed actual or constructive knowledge of the facts forming the
basis of his or her cause of action." Id Accord, General Stencils, Inc. v. Chiappa, 219 N.E.2d
169, 171 (N.Y. 1966); Meridien Intern. Bank Ltd. v. Government of the Republic of Liberia, 23
F.Supp.2d 439, 446 (S.D.N.Y. 1998).
The discovery rule applies with additional force where, as here, the defendant has
breached a fiduciary duty or otherwise abused a special relationship of trust and confidence. In
such a case, the defendant has a duty to fully disclose all pertinent facts, and the statute of
limitations is tolled even if he has not made any affirmative misrepresentations. In re Piccillo,
797 N.Y.S.2d 236, 237-38 (4th Dept.) ("well settled" that where a fiduciary relationship exists
and there are allegations of concealment, "equitable estoppel may be applied to toll the statute of
limitations"); Niagara Mohawk Power Corp. v. Freed, 733 N.Y.S.2d 828, 830 (N.Y. App.Div.
2001) (if fiduciary duty exists, estoppel may be applied even "without an actual
misrepresentation"); Butcher v. Gilroy, 744 P.2d 311, 314 (Utah Ct. App. 1987) (limitations
tolled if defendant concealed a misappropriation of property and misled plaintiffs into believing
that he was still performing a settlement agreement).
6
36
Under these authorities, the statute of limitations was tolled at least until April-June 2001,
the first time when SCO could have had reason to suspect any wrongdoing by IBM. Until then,
when IBM made its pretextual PRPQ and then promptly terminated the JDA, SCO had every
reason to believe that IBM was being a faithful partner. (¶¶ 70-72.) Until that date, and even
after IBM publicly announced its Linux initiatives in March and December 1999, IBM had
assured Santa Cruz that the Linux initiative would not conflict with Project Monterey and that
IBM intended to continue with the venture. (¶¶ 35, 63-66.) Secretly, however, IBM planned to
"drop Monterey," switch resources and support from Monterey to Linux, and withdraw from the
joint project, all while executing its plan to misappropriate SCO's technology and then cover its
tracks. (¶¶ 24-34.) When informed of the forthcoming transfer of the UNIX business from
Santa Cruz to SCO, IBM did not indicate any objection. (¶ 63-66.)
In accordance with the JDA, Santa Cruz gave IBM access to confidential code and other
materials that IBM had a fiduciary and common law confidentiality duty to use solely for Project
Monterey purposes, at least until IBM earned a license by making a good faith, generally
available Release 1 of the IA-64 Product. (¶ 43.) Nevertheless, IBM used SCO's confidential,
copyrighted SVR4 code in its October 2000 developmental, beta test release of AIX 5L for
Power 5.0. (¶ 37.) SCO has come forward with evidence that IBM did not tell Santa Cruz it had
done so, and Santa Cruz had no reason to know of it, at least not as of March 2001, two years
prior to the filing of suit. (¶¶ 70-71.) As of March 2001, IBM had not yet made its first
37
"generally available" release of AIX 5L for Power containing SCO code (¶ 38), IBM had not
made its sham PRPQ of the Project Monterey Operating System (¶¶ 49-60) , and both Santa Cruz
and SCO reasonably believed that IBM intended to continue Project Monterey after closing of
the Santa Cruz-SCO transaction. (¶¶ 35, 63-66.) At the least, there are fact issues as to SCO's
and Santa Cruz's knowledge as of March 2001, and these fact issues foreclose IBM's effort to
obtain summary judgment on its limitations argument.7
Furthermore, even if Santa Cruz had known or suspected by March 2001 of IBM's use of
the SVR4 code, it would have had no grounds for concern prior to April 2001. It was then
expected that IBM would perform and earn the right to use the SVR4 code in other products.
SCO also then reasonably anticipated that the SVR4-enhanced AIX for Power would be a part of
the "family of products" contemplated by Project Monterey. (¶ 72.) IBM would have earned the
right to a license to use the SVR4 code in AIX for Power if it had fulfilled its duties and
completed a valid, commercially viable Release 1 of the IA-64 Product, and prior to May 2001
IBM falsely represented that it was "strongly committed" to Monterey and diligently working
towards a "generally available" Release 1, without disclosing its intent to make only a sham
PRPQ and then terminate the venture. (¶¶ 35, 63-66.)
Only when IBM made the May 2001 sham PRPQ of the IA-64 Product, a PRPQ that had
no compiler, no support, and was so clearly bogus that Santa Cruz should have arguably become
38
suspicious (¶¶ 49-60), along with the simultaneous release of the first "generally available"
release of AIX 5L for Power containing SVR4 code (¶ 38), followed shortly by IBM's June 2001
surprise termination of the JDA (¶¶ 61-68), thus making it apparent that there would never be a
"family of products," could anyone at SCO have connected the dots and had even the slightest
reason to suspect IBM's deception. Only then did SCO's cause of action accrue.
IBM's prior representations and concealment of its true intentions tolled the limitations
period until at least April-June 2001 or, at the very least, there is a genuine factual issue as to
whether SCO or Santa Cruz should have known prior to March 2001. Under the discovery rule
and the equitable tolling doctrine, SCO's unfair competition claim is timely even if the two-year
period is applied, and IBM's limitations argument must be rejected.
II. SCO HAS STRONG EVIDENCE OF UNFAIR COMPETITION BY IBM
IBM seeks summary judgment on the non-Monterey portion of SCO's unfair competition
claim
8 because this claim is a "transmuted" contract claim, because unfair competition is limited
to palming off and misappropriation, and because SCO lacks standing. IBM is wrong on both
the facts and the law.
A. IBM's Alleged Conduct Constitutes Actionable Unfair Competition
1. IBM Misstates the Independent Tort Doctrine
IBM begins by asserting that "a charge of misapplication of confidential information, as a
tort claim, must spring from circumstances extraneous to, and not constituting elements of, the
contract, although it may be in connection with and dependant upon the contract." Productivity
Software Int'l, Inc. v. Healthcare Techs. Inc., No. 93-6949, 1995 WL 437526, at *8 (S.D.N.Y.
July 25, 1995) (Ex. J) . Although some New York cases suggest that a plaintiff may not
39
"transmogrify" a contract claim into one for tort, this is limited to instances where "the only
interest at stake is that of holding the defendant to a promise." Hargrave v. Oki Nursery, Inc.,
636 F. 2d 897, 899 (2d Cir. 1980); Hammer v. Amazon.com, No. CV 03-4238 2005 WL
2467046 (E.D.N.Y. Sept. 27, 2005.) (Ex. C) That, however, is not this case.
As IBM itself concedes, tort claims are sufficiently independent even if they are
"connected with" and "dependant" upon the contract, e.g., the claims need not spring from
wholly divergent circumstances. Productivity, 1995 WL 437526 (Ex. J), at *8. Here, SCO is
not seeking to hold IBM to a promise. Indeed, IBM never expressly promised not to deceive or
not to misappropriate code. Nothing in the JDA expressly required IBM to inform SCO of its
intent to string the project along. SCO complains are not about a contractual breach, but of
IBM's pattern of deceptive and unfair conduct that exploited the access that the Project Monterey
relationship provided to SCO's intellectual property. With full knowledge that its conduct would
harm SCO (¶ 33(d)), IBM deceived Santa Cruz and SCO about its intentions regarding both
Project Monterey and Linux (¶¶ 25-35, 61-68), fraudulently made a sham PRPQ of the IA-64
Product (¶¶ 49-60), deprived Santa Cruz and Caldera of other partnership and business
opportunities by pretending to support Monterey and the Santa Cruz-Caldera transaction long
after it had decided to terminate the project (¶¶ 35, 61-68), and misappropriated code for use in
both Linux and AIX for Power. (¶¶ 36-48.)
In Hargrave, the Second Circuit explicitly noted that "tort liability is imposed on the basis
of some social policy that disapproves the infliction of a specified kind of harm irrespective of
any agreement." Id (further noting that "if in addition there is an interest in protecting the
plaintiff from other kinds of harm, the plaintiff may recover in tort whether or not he has a valid
claim for breach of contract."). The evidence of IBM's deceptive and unfair conduct extends far
40
beyond a contractual breach. Thus, as a matter of law and public policy, SCO's unfair
competition claims are actionable.
Tort claims for unfair competition are appropriate where, as here, the conduct at issue
supports the availability of different remedies and causes of action. Productivity, at *8 (Ex. J).
If anything, it is IBM that is trying to "transmogrify" a series of egregious commercial torts into
a claim for breach of contract, not the other way around. As discussed above in Part I.B.3, the
unfair competition claim relates at most not to a breach, but to an IBM defense (that IBM was
entitled to use SCO's SVR4 code in AIX 5L for Power, even though SCO received no benefit in
exchange, on the basis of the contingent license in the JDA).
IBM would have this Court believe that a party surrenders the right to bring an unfair
competition claim just because there is a contract governing certain issues between parties. That
is simply not the law. For example, in Dime Sav. Bank of N.Y. v. Skrelja, where a mortgagor
signed a provision waiving his rights under his contract, he did not forbear the right to sue for
breach of a fiduciary duty. 227 A.D. 2d 372, 642 N.Y.S. 2d 84 (2d Dept. 1996) ("[t]he same
conduct which constitutes a breach of a contractual obligation may also constitute the breach of a
duty arising out of the contract relationship which is independent of the contract itself."). Thus,
if a legal duty independent of the contract itself has been violated, then a breach of that duty may
be pled as a tort claim.9
41
It is well settled that a misappropriation of confidential information claim may be
connected with and dependant on the contract. Id See also e.g., Clark-Fitzpatrick, Inc. v. Long
Island R. R Co., 70 N.Y. 2d 382, 521 N.Y.S. 2d 653 (1987) ("[t]his legal duty must spring from
circumstances extraneous to, and not constituting elements of, the contract, although it may be
connected with and dependant upon the contract."). Thus, despite the fact that SCO's unfair
competition claim is, in certain respects, related to the contract (as opposed to related to a breach
of the contract), the claim is actionable because, in view of the joint venture relationship, IBM
has independent fiduciary and common law confidentiality duties that are distinct and wholly
separate from the contract.10IBM also has an independent duty under unfair competition law to
refrain from committing unfair and anti-competitive acts. Therefore, SCO is not precluded from
bringing an unfair competition claim just because IBM committed its improper acts and breached
its independent duties in the course of a relationship created by a contract.
As in New York, Utah law is also clear that "in some cases the acts constituting a breach
of contract may also result in breaches of duty that are independent of the contract and may give
rise to causes of action in tort. Statutory requirements that give rise to independent causes of
action under various unfair practices acts may also give rise to independent tort actions." Culp
Constr. Co. v. Buildmart Mall, 795 P.2d 650, 654-55 (Utah 1990) (quotations deleted). Thus, the
Culp court reversed the grant of summary judgment because of material factual issues as to
whether the defendant owed plaintiff a non-contractual duty of disclosure. Id at 655. See also
Kilpatrick v. Wiley, Rein & Fielding, 909 P.2d 1283, 1289 (Utah App. Ct. 1996) (clients
42
wronged by their lawyers may sue for "breach of contract, breach of fiduciary duty, or
negligence").
Here, IBM had duties independent of the contract to refrain from deceiving Santa Cruz
and SCO about its intentions, misappropriating SCO's source code and committing the other
wrongful acts alleged by SCO, and the JDA merely created the opportunity for IBM to do so.
Under these circumstances, IBM's behavior is wholly actionable in tort. Equilease Corp. v. State
Fed. Sav. and Loan Ass'n, 647 F. 2d 1069 (10th Cir. 1981) ("where a contract is mere
inducement creating the state of things that furnishes the occasion for the tort, the tort, not the
contract, is the basis of the action [and] if a duty to take care arises from the relation of the
parties irrespective of the contract, the action is one of tort.") (citations and quotations omitted).
In view of IBM's independent duties under fiduciary, confidentiality, and unfair competition
law, IBM's motion lacks merit and should be denied.
2. The Tort of Unfair Competition Includes More Than "Palming
Off" and "Misappropriation"
IBM incorrectly asserts (Memo. at 19) that, under New York law, unfair competition is
limited to "palming off and misappropriation of goodwill." Quite the contrary, the tort broadly
encompasses all forms of "commercial immorality." Too, Inc. v. Kohl's Dep't Stores, 210 F.
Supp. 2d 402, 405 (S.D.N.Y. 2002) ("[u]nfair competition may be based on a wide variety of
illegal practices, including misappropriation and other forms of commercial immorality); Mobius
Mgmt. Sys, Inc. v. Fourth Dimension Software, Inc., 880 F. Supp. 1005, 1023 n.11 (S.D.N.Y.
1994) (same); Towers Fin. Corp. v. Dun & Bradstreet, Inc., 803 F. Supp. 820, 823 (S.D.N.Y
1992) (unfair competition claim requires allegation that defendant engaged in "commercial
immorality"). Here, IBM's actions are textbook examples of the types of "commercial
immorality" found to constitute unfair competition.
43
In Astroworks, Inc. v. Astroexhibit, Inc., the court held that, in determining whether a
particular conduct constitutes unfair competition, the ultimate issue is whether the conduct is
"fair or unfair." 257 F. Supp. 2d 609, 619 (S.D.N.Y. 2003) ("[a]lthough unfair competition may
take many forms, the pivotal question is always the same: whether the conduct complained of is
"fair or unfair.") (internal citation and quotation marks omitted). In the present situation, IBM's
conduct is most certainly "unfair" and thus fully actionable. At a minimum, however, it is a fact
question that should be answered by a jury given the significant material factual issues here.11
3. In Any Event, SCO Has Ample Proof of Misappropriation
Even if this tort were limited in the manner suggested by IBM, SCO has alleged and has
evidence that, among other things, IBM misappropriated its confidential and proprietary
information, including source code. (¶¶ 36-48.) "The gravamen of a misappropriation claim is
that a defendant has seized for his own benefit something of value that the plaintiff had built up
through time, money, or effort, which is then generally used to compete against the plaintiff."
Astroworks, supra. SCO has strong evidence that IBM misappropriated SCO's confidential and
proprietary information and then used it to compete against SCO. (¶ 76.) Thus, SCO has a
viable unfair competition claim even if (contrary to fact) this tort were limited to
misappropriation and palming off.
4. SCO Has Overwhelming Proof that IBM Acted in Bad Faith
44
IBM also contends (Memo. at 21) that SCO has no evidence that IBM acted in bad faith.
However, despite IBM glib attempt to dismiss its misconduct as the result of "some difficulties"
resulting from Intel's delay in releasing the IA-64 chip, SCO has come forward with powerful
evidence, including IBM internal emails and deposition testimony, of IBM's bad faith. As set
forth above, IBM intentionally and repeatedly deceived and harmed its partner for its own sole
benefit and profit (¶¶ 25-76), with full knowledge that its tactics would be harmful to its partner
SCO. (33(d)). IBM's motion must therefore be denied.
B. SCO HAS STANDING TO SUE IBM FOR UNFAIR COMPETITION
IBM next contends that because SCO was not a party to the JDA between Santa Cruz and
IBM and that agreement contains a non-assignment provision, SCO lacks standing to pursue its
unfair competition claim. Unfortunately for IBM, neither the law nor the facts support this
conclusion. IBM flatly ignores the distinction between the assignment of contractual
performance rights and the assignment of legal causes of action. This distinction is fatal to
IBM's standing argument.
It is undisputed that the JDA prohibited the assignment of certain contract rights, e.g. ,
those related to performance under the contract. However, the non-assignment provision does not
reference the assignment of any litigation rights against IBM, let alone assignments of any non-contractual actions, such as unfair competition. Under New York law, "only express limitations
on assignability are enforceable." In re Britton, 288 B.R. 170, 173 (Bankr. N.D.N.Y. 2002)
(emphasis in original); Pravin Banker Assoc., LTD. v. Banco Popular De Peru, 109 F. 3d 850,
856 (2d Cir. 1997) (same); LNC Inv. Inc. v. Rep. of Nicar., No. 96-6360, 1999 WL 92603, at *5
(S.D.N.Y. Feb. 19, 1999)(Ex. F). Here, there is no express inclusion of litigation rights in the
assignment provision; indeed, the only "express limitation" on assignment relates to performance
45
of the contract, not the assignment of a cause of action. Thus, under New York law, Santa Cruz
was not prohibited from assigning any legal claims it possessed against IBM to SCO.
In addition, New York's General Obligations Law Section 13-101 titled Transfer of
Claims states:
Any claim or demand can be transferred, except in one of the
following cases:1) Where it is to recover damages for a personal injury; 2) Where it is founded upon a grant, which is made void by a statute of the state; or upon a claim to or interest in real property, a grant of which, by the transferrer [sic], would be void by such a statute; 3) Where a transfer thereof is expressly forbidden by: (a) a statute of the state, or (b) a statute of the United States, or (c) would contravene public policy.
Since the transfer of the Santa Cruz’s litigation rights do not fall within one of the above exceptions, under New York law it was entitled to transfer its litigation rights to SCO in the context of the acquisition.
The result is the same under Utah law: a non-assignment provision does not affect a party’s right to assign legal claims. Fuller v. Favorite Theaters Co. of Salt Lake, 230 P. 2d 335, 336 (Utah. 1951) (“provision prohibiting the assignability of the contract itself does not affect the assignability of a cause of action which has arisen from the breach.”); SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assoc., Inc., 28 P. 3d 669, 674 (Utah 2001) (“[a]s a general rule, a contract provision prohibiting the assignment of the contract itself, or of rights and privileged under the contract, does not, unless a different intention is manifested, prohibit the assignment of a claim for damages on account of the breach of contract.”).
46
Thus, both Utah and New York law make clear that a party may assign litigation rights
even where there is a provision prohibiting assignment of a related contract. Such a result only
makes sense given that the policy behind a non-assignment provision is to ensure that a
contracting party is not forced to do business with an unknown entity or to otherwise receive
performance from a party with whom there is no relationship or experience. That policy
argument is not present where the issue is merely the assignment of litigation rights.
Santa Cruz assigned to SCO all of its "right, title and interest" in the transferred assets,
which included the SVR4 code that IBM misappropriated into AIX for Power. (¶ 69.) SCO also
acquired all of Santa Cruz's "rights and privileges pertaining to" this intellectual property,
including all "rights to enforce confidentiality or similar obligations" in relation to the code, "the
right, if any, to sue or bring other actions for past, present and future infringement thereof," and
"any and all other forms of intellectual property right or proprietary right recognized anywhere in
the world." (Id) See also Russello v. U.S., 464 U.S. 16, 21 (1983) ("interest" is the "most
general term that can be employed to denote a right, claim, title or legal share in something");
Roslyn Associates v. Incorporated Village of Mineola, 443 N.Y.S.2d 424, 425 (2d Dept., 1981)
(transfer of all right, title and interest in property presumably included pre-existing damages
claims). Other than the assignment argument dispensed with above, IBM has not raised any
issue regarding the validity of the transfer of the litigation rights here to SCO. Therefore, IBM's
argument lacks merit and should be rejected.
47
III. SCO'S UNFAIR COMPETITION CLAIM IS NOT PREEMPTED
IBM finally contends that the portion of SCO's unfair competition claim relating to
IBM's unauthorized use of SCO's code in AIX for Power
12 is barred by federal preemption.
Incredibly, IBM fails even to mention the "extra element" test that the Tenth Circuit and other
courts have adopted for copyright preemption analysis. Under this test, SCO's claim is not
preempted, because it has the requisite "extra element" that makes it qualitatively different from
a copyright claim.
It is settled that if "a state cause of action requires an extra element, beyond mere
copying, preparation of derivative works, performance, distribution or display, then the state
cause of action is qualitatively different from, and not subsumed within, a copyright
infringement claim and federal law will not preempt the state action." Harolds Stores, Inc. v.
Dillard Dept. Stores, Inc., 82 F.3d 1533, 1543 (10th Cir. 1996) (quoting Gates Rubber Co. v.
Bando Chem. Indus., Ltd., 9 F.3d 823, 847 (10th Cir.1993)). Thus, a state cause of action is
preempted if it imposes liability for the mere "act of reproduction, performance, distribution, or
display," but if an extra element is required, "instead of or in addition to such acts, "there is no
preemption, provided that the extra element changes the nature of the action so that it is
qualitatively different from a copyright-infringement claim." 18 Am. Jur. 2d Copyright and
Literary Property § 6.
Where the state claim "entails the additional element of the wrongful possession of the
tangible embodiment of a work," there is no preemption. Id Thus, there is no preemption of
"unfair competition claims based upon breaches of confidential relationships, breaches of
fiduciary duties and trade secrets." Computer Assoc. Intern., Inc. v. Altai, Inc., 982 F.2d 693,
48
717 (2d Cir.1992) (cited with approval by the Tenth Circuit in both Harolds Stores and Gates
Rubber).
This is precisely the case here. Utah and New York unfair competition law do not
impose liability for mere copying or distribution of another's work, and SCO's unfair
competition claim is not based on mere copying or distribution. Instead, it is based on IBM's
misappropriation of the SCO code used in AIX for Power by a fraudulent, deceptive scheme
involving a sham PRPQ of the IA-64 Product, concealment and affirmative deception in breach
of common law, fiduciary and contractual duties of confidentiality, loyalty and candor, and the
duping of SCO into believing that IBM intended to partner with SCO in the development of a
Monterey "family of products." (¶¶ 25-76.)
13
Directly on point is Kindergartners Count, Inc. v. Demoulin, 171 F. Supp.2d 1183 (D.
Kan. 2001), where the plaintiff and defendants were parties to consulting and marketing
agreements, under which the defendants obtained "confidential and proprietary information"
about plaintiff's work. When plaintiff sued for unfair competition on the grounds that
defendants "obtained confidential and proprietary information through their respective
confidential relationships" and "used that protected information in developing [a competing]
program," defendants argued that the unfair competition claim was preempted.
The court rejected the preemption argument without hesitation: "Proof of a confidential
relationship and its breach are extra elements that distinguish this unfair competition claim from
the copyright infringement claim." Id at 1192. Accord, e.g., CMAX/Cleveland, Inc. v. UCR,
49
Inc., 804 F. Supp. 337, 359 (M.D.Ga. 1992) (trade secret claims "not preempted because they
involve the additional element of a breach of confidentiality, which was owed to [plaintiff] under
the license agreement and the common law"); Huckshold v. HSSL, L.L.C., 344 F.Supp.2d 1203,
1208 (E.D.Mo. 2004) (allegation that defendant "permitted a third party, Miller, to copy the
Software in violation of their agreement" was sufficient extra element to avoid preemption); R.
Nimmer, Law of Computer Technology § 3:61 ("Allegations that a contract or a confidence has
been breached clearly fall beyond the allegations necessary for copyright infringement").
As the Kindergartners court expressly recognized, a breach of duty distinguishes a claim
such as SCO's from pre-Harolds Stores and Gates Rubber decisions such as Ehat v. Tanner, 780
F.2d 876 (10th Cir. 1985), upon which IBM relies. Ehat's stolen work "found its way" to
defendants, who had "no part" in the theft and no relationship with Ehat. Id at 877. Here, in
contrast, IBM had a relationship with SCO and had direct participation in the theft and misuse of
the code.
Similarly, in every other case cited by IBM, the defendants misappropriated publicly
available works, and there was no relationship between the parties.14In light of the recognized
breach of duty exception, statements in such cases are clearly overbroad to the extent they
suggest that every case involving the "misappropriation branch of unfair competition" is
preempted. Gates Rubber, supra (breach of a duty of trust or confidence "qualitatively
distinguishes such trade secret causes of action from claims for copyright infringement that are
based solely on copying"); Kindergartners, supra (distinguishing Ehat); Data Gen.. Corp. v.
50
Grumman Sys. Support Corp., 36 F.3d 1147, 1165 (1st Cir.1994) ("participation in the breach of
a duty of confidentiality -- an element that forms no part of a copyright infringement claim -- represents unfair competitive conduct qualitatively different from mere unauthorized copying").
Accordingly, since SCO's unfair competition claim focuses on IBM's fraudulent and
deceptive breaches of its fiduciary and confidentiality duties, IBM's preemption argument must
be rejected.
IV. SCO'S UNCHALLENGED ALLEGATIONS PRECLUDE SUMMARY
JUDGMENT ON THE NON-MONTEREY UNFAIR COMPETITION CLAIMS
While acknowledging that SCO has other allegations and evidence in support of its unfair
competition claim, IBM focuses its motion entirely on SCO's Project Monterey allegations.
IBM states only that, to the extent the unfair competition claim "is based on the alleged
misconduct underlying SCO's other claims, it is untenable for the reasons set forth in IBM's
motions for summary judgment (at 1) with respect to those claims." However, while SCO
submits that all of IBM's motions lack merit, the "reasons set forth" in IBM's other motions
have nothing to do with unfair competition. For example, a finding that a certain act did not
breach a contract or infringe a copyright does not preclude a finding that the act constituted
unfair competition. IBM's motion should therefore be denied with respect to SCO's non-
Monterey theories.
Furthermore, the arguments made by IBM in the present motion do not apply at all to
much of SCO's non-Monterey evidence. For example, SCO's unfair competition allegations and
evidence include IBM's interference with SCO's contractual relationships. Both before and after
SCO's original complaint was filed, IBM spitefully induced various customers to stop doing
business with SCO. See SCO's Memorandum in Opposition to IBM's Motion for Summary
Judgment on SCO's Interference Claims. This conduct constituted unfair competition because it
51
was "commercially immoral," and IBM's statute of limitations, "transmutation," standing, and preemption arguments are patently irrelevant to this conduct.
IBM's arguments do not even apply to the entirety of SCO's caase concerning Project Monterey. For example, IBM's preemption section concerns only SCO's claim that IBM wrongfully used SCO's code in AIX for Power. IBM has not contended, and cannot credibly contend, that preemption precludes the remainder of SCO's Monterey claim, such as the concealment of IBM's decision to abandon Project Monterey in favor of a competing Linux product.
CONCLUSION
For the reasons set forth above, IBM's motion to dismiss SCO's unfair competition claims should be denied.
DATED this 11th day November, 2006.
Respectfully submitted,
By ___[signature]_____
HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark F. James
BOIES, SCHILLER & FLEXNER LLP
Robert Silver (admitted pro hac vice)
Stephen N. Zack (admitted pro hac vice)
Stuart H. Singer (admitted pro hac vice)
Edward Normand (admitted pro hac vice)
Attorneys for The SCO Group, Inc.
52
APPENDIX A
RESPONSE TO IBM'S "STATEMENT OF UNDISPUTED FACTS"
1. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the Complaint was filed on that date. Disputed to the extent it implies that the unfair competition claim merely repeated other allegations. (IBM Ex. 1.)
2. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the Amended Complaint was filed on that date. Disputed to the extent it implies that the unfair competition claim merely repeated other allegations. (IBM Ex. 2.)
3. IBM ALLEGED FACT: SCO thereafter sought, and was granted, permission to
file a Second Amended Complaint. (Ex. 3.)
SCO RESPONSE: Undisputed.
4. IBM ALLEGED FACT: 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 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.)
SCO RESPONSE: Undisputed that the Second Amended Complaint was filed
on that date and that it did not include a trade secrets claim. Disputed to the extent it implies
that the unfair competition claim merely repeated other allegations. (IBM Ex. 3.)
53
5. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed.
6. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the Court denied SCO’s motion on that date. Disputed that the quoted statement was a holding, and disputed to the extent it implies anything at all about whether SCO or its predecessor knew or should have known about the state of SCO’s knowledge in March 2001 rather than March 2003 (when the original Complaint was filed).
B. SCO's Disclosures.
7. IBM ALLEGED FACT: IBM served interrogatories asking SCO to describe in
detail its allegations and alleged evidence of misconduct by IBM. (Ex. 11.)
SCO RESPONSE: Undisputed.
8. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed.
9. IBM ALLEGED FACT: 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 deadline for [SCO] to
54
identify with specificity all allegedly misused material" and update its interrogatory responses
accordingly. (Ex. 58 at 4.)
SCO RESPONSE: Undisputed that the orders attached as IBM Ex. 55, IBM
Ex. 56, and IBM Ex. 58 were entered. Disputed that SCO failed to fully disclose its
allegations and evidence of IBM's alleged misconduct. SCO answered all of IBM's discovery
requests to the best of its ability, based on the information available at the time.
10. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that SCO filed the discovery responses attached
as IBM Ex. 31, IBM Ex. 32, IBM Ex. 33, and IBM Ex. 46. Disputed as to the argumentative and
out-of-context characterizations of those responses.
11. IBM ALLEGED FACT: 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.)
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 relations 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.)
55
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.
33 at Interrogatory Response No. 7.)
SCO RESPONSE: Undisputed that SCO made the quoted statements in IBM Ex.
33. Disputed as to the argumentative and out-of-context characterizations of those responses.
Disputed to the extent the term "focused" is intended to imply that SCO abandoned its other
unfair competition claims.
12. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that SCO made the quoted statement in IBM Ex.
33, and that IBM announced in March 1999 that it would support Linux. Disputed that IBM's
public statements revealed IBM's true Linux strategy, which included the abandonment of
Project Monterey, the duping of Santa Cruz and Caldera, and the misuse of SCO's SVR4 code.
(¶¶ 25-75). Moreover, even after the 1999 announcement, IBM deceived Santa Cruz into
believing that it would continue to support Project Monterey. (¶¶ 25-74.)
13. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed, except to the extent it implies that SCO's unfair
competition claim concerning Project Monterey is merely for "use of code outside the scope of a
license." SCO has alleged and has evidence of a broad array of fraudulent and deceptive conduct
by IBM in connection with Project Monterey. (¶¶ 25-74.)
56
14. IBM ALLEGED FACT: 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. Shaughnessy in support of IBM's opposition to SC0's Motion for
Leave to File a Third Amended Complaint (Docket # 345).)
SCO RESPONSE: Disputed. Neither Santa Cruz nor SCO knew, or had reason
to know, that Santa Cruz's code had been included in AIX for Power prior to 2004, or at the least
not prior to March 2001. (¶¶ 70-72.)
15. IBM ALLEGED FACT: In interrogatory responses, SCO has named a slightly
later date, alleging that IBM began copying Santa Cruz code obtained through Project Monterey
into AIX in October 2000. (See Ex. 41 at Interrogatory Response No. 8.) REDACTED
SCO RESPONSE: Undisputed that IBM began distributing the SCO code copied
into AIX for Power beginning in October 2000, although the October 2000 distribution was a
beta test primarily limited to certified software developers, with no public "generally available"
distribution until May 2001. (¶¶ 37-38.) Disputed to the extent it implies that SCO had
knowledge of the copying in October 2000 or any other time prior to March 2001. (¶¶ 70-72.)
C. Project Monterey.
16. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that IBM Ex. 27 supports the statement "[i]n
1994 Intel and Hewlett-Packard (HP) announced their collaboration to create a new 64-bit
processor architecture design." Disputed that this exhibit supports the statement that the new
architecture would be "known as IA-64", as that term does not appear therein. Disputed that the
57
exhibit supports the statement "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", as the exhibit does not mention servers and states only that "the intent of the
technology agreement is to have a single architecture that will replace all others from either
company."
17. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed.
18. IBM ALLEGED FACT: 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 for 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.)
SCO RESPONSE: Undisputed, except to the extent it implies that the parties
contemplated the use of SCO's expertise and technology, particularly its SVR4 and UW7
codes, for development of an operating system "version to run on IBM's proprietary `Power'
processor architecture." The JDA only contemplated the use of SCO's expertise and
technology, particularly its SVR4 and UW7 codes, for development of the defined "IA-32
Product" and an "IA-64 Product." (IBM Ex. 245 at §§ 1.9 and 1.10.)
19. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the parties entered into the JDA on that date.
Disputed to the extent it implies that the parties agreed only to provide resources and technology.
The JDA gave imposed broader duties and obligations and created a joint venture (¶¶ 18-24.)
58
20. IBM ALLEGED FACT: 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).)
SCO RESPONSE: Undisputed, except to the extent it implies that IBM Ex. 245
§2.0(d)(2) was the final agreement between the parties on this point. REDACTED
21. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed, except to the extent it omits the statement's
continuation: "with a minimum cumulative funding of Five Million Dollars in the first year"
which backs the opening phrase "IBM intends to engage in at least the following marketing
activities," after which ten specific activities are listed. [CITE]
22. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that IBM agreed to make certain middleware
available for the UnixWare 7 and IA-32 Product platforms. Disputed to the extent it overstates
59
the breadth of the qualifier "based on IBM's own determination of commercial considerations"
and concomitantly omits the subsequent sentence which reads: At a minimum, however, IBM
plans to make the following middleware available for the IA-32 or UnixWare 7 Product:
- MQ-series
- DB2
- eNetwork Directory
- Net.Data
- IBM Websphere
- Commserver
- Tivoli Management Software
- Network Station Manager
23. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the JDA contains this provision. Disputed
to the extent it implies that IBM did not deceive Santa Cruz and SCO into believing that it
would not invoke this provision and would continue the Monterey venture after the closing of
the Santa Cruz-SCO transaction. (¶¶ 61-68.)
60
24. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the JDA contains this provision. Disputed to
the extent it implies that IBM did not deceive Santa Cruz and SCO into believing that it intended
to consent to the assignment and continue the Monterey venture with Caldera after the closing of
the Santa Cruz-Caldera transaction. (¶¶ 61-68.)
25. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the JDA contains this provision. Disputed to
the extent it implies that this provision has any relevance to SCO's unfair competition claims.
(Part I.B, supra.).
26. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that there were delays in the release of the Intel
IA-64 processor. Disputed to the extent it implies that these delays justified IBM's concealment
61
of its decision to drop the UNIX-based Monterey solution in favor of its Linux strategy, its
breaches of fiduciary duties, or IBM's misappropriation of SCO's SVR4 code. (¶¶ 25-74.)
27. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the Itanium processor initially did not
perform as well as expected. Disputed to the extent it implies that such performance deficiencies
justified IBM's concealment of its decision to drop the UNIX-based Monterey solution in favor
of its Linux strategy, its breaches of fiduciary duties, or IBM's misappropriation of SCO's SVR4
code. (¶¶ 25-74.)
28. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that the delays caused some decrease in market
interest. Disputed to the extent it implies that such performance deficiencies justified IBM's
concealment of its decision to drop the UNIX-based Monterey solution in favor of its Linux
strategy, its breaches of fiduciary duties, or IBM's misappropriation of SCO's SVR4 code.
(¶¶ 25-74.)
29. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Disputed. This so-called "release" of a product with no
compiler and no support was a mere pretext by which IBM attempted to deceive Santa Cruz and
62
SCO into believing that IBM had earned the right to use SVR4 code in AIX for Power. (¶¶ 49-60.)
30. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed.
31. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that IBM never gave written consent. Disputed to
the extent it implies that IBM did not deceive Santa Cruz and SCO into believing that it would
consent. (¶¶ 61-68.)
32. IBM ALLEGED FACT: 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.)
SCO RESPONSE: Undisputed that IBM never gave written consent and that it
cancelled the JDA. Disputed to the extent it implies that IBM did not deceive Santa Cruz and
Caldera into believing that it would consent and would continue with Project Monterey. (¶¶ 61-68.)
33. IBM ALLEGED FACT: Caldera did not acquire Santa Cruz, which continued in
business, albeit changing its corporate name to "Tarantella". (Ex. 244.)
SCO RESPONSE: Undisputed, except to the extent it implies that SCO did not
transfer to Caldera its SVR4 code and its unfair competition claims against IBM. (¶ 69.)
34. IBM ALLEGED FACT: After the start of this litigation, Caldera changed its
name to "The SCO Group, Inc." (Ex. 113 at 4.)
SCO RESPONSE: Undisputed.
63
D. SCO's Failure of Proof.
35. IBM ALLEGED FACT: 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.
SCO RESPONSE: Disputed. SCO has come forward with more than ample
evidence that IBM engaged in unfair competition. (¶¶ 25-74.)
1
IBM's motion is directed solely at the Project Monterey aspects of SCO's claim and does not affect
SCO's other unfair competition claims. See Part IV infra.
2 The Santa Cruz Operation was historically referred to as “SCO” and many documents in this action use the term “SCO” in reference to that entity. In May 2001, Santa Cruz transferred its UNIX assets to plaintiff, which was then called Caldera International (Caldera). Immediately after the sale, Santa Cruz changed its name to Tarantella. Caldera International remained Caldera after the transaction but later, in 2002, changed its name to The SCO Group, Inc., the plaintiff in this action, in order to leverage the UNIX assets and business it had acquired. The term “SCO” is used herein, as it is in many documents, to refer to the entity in possession of the UNIX assets, although that entity changed from Santa Cruz to The SCO Group, previously Caldera, in May 2001.
3
IBM acknowledges, (Opp. at 1,) that SCO's unfair competition claim includes other factual allegations
but fails to address them. See Part IV infra.
4
SCO agrees with IBM that SCO's unfair competition claim is governed by Utah or New York law, and
we also have not found any material differences between the two for purposes of this motion. Under New
York law, the statute of limitations for unfair competition is 3 or 6 years. Greenlight Capital, supra.
Although we did not find a case on point, under Utah law the statute of limitations for an unfair
competition claim is at least three years. Utah Code § 78-12-25(1) (four years for an action on an
"obligation, or liability not founded upon an instrument in writing"); id. § 78-12-26(4) (three years for
statutory claims); id. § 78-12-25(3) (three years for claims not provided for otherwise).
5
See also, e.g., In re Penn Central Transp. Co., 391 F. Supp. 1404, 1407 (E.D. Pa. 1975); Lewis v.
Hopper, 295 P.2d 93, 95 (Cal.App.1956); Hauer Const. Co. v. City of New York, 85 N.Y.S.2d 42, 44
(N.Y. Sup. Ct. 1948).
6
IBM's brief acknowledges, but does not dispute, SCO's allegations of a fiduciary and confidential
relationship that arose from the Project Monterey joint venture. IBM Memo. at 5, 13, 16. If IBM
attempts to dispute this for the first time in its reply brief, this Court should not allow it. DUCivR 7-1(b)(3); Stump v. Gates, 211 F.3d 527, 533 (10th Cir. 2000). In any event, there is ample evidence from
which a jury could find that Project Monterey gave rise to a fiduciary relationship between the parties.
IBM repeatedly referred to SCO as a partner and even a "tight partner." (¶¶ 23-24.) The project was a
joint venture because the parties agreed to jointly "design and furthe r develop an IA-32 Product and IA-64 Product" as a for-profit enterprise, JDA, preamble, they provided for mutual contributions of property
and other resources, JDA 4.0, 5.1, they agreed to a measure of joint control over the enterprise, JDA
2.0(a), 8.0-8.11, and they required sharing of profits and losses, JDA 11.3, 12.0-12.5. Dundes v.
Fuersich, No. 602314104 2006 WL 2956005, at *9 (N.Y.Sup. Ct. 2006) (Ex. A) ; Harline v. Campbell,
728 P.2d 980, 983 (Utah 1986). Joint venturers and partners owe each other fiduciary duties. Zulawski v.
Taylor, 2005 WL 3823584 at, *4 5 (N.Y.Sup. Ct. 2005) (Ex. K); Hafen v. Strebeck, 338 F. Supp.2d
1257, 1267 (D.Utah 2004). Although the JDA contains a provision disclaiming an intent to form a joint
venture, the courts look to economic realities and disregard labels when the agreement as a whole and surrounding facts show an intent to create such a relationship. Doty v. Elias, 733 F.2d 720, 723 (10th Cir. 1984); In re Shulman Trans. Enter., Inc., 744 F.2d 293, 295 (2d Cir. 1984); American Exp. Finan. Advisors, Inc. v. Topel, 38 F.Supp. 2d 1233, 1241 (D. Colo. 1999). Moreover, a fiduciary relationship arises “in all cases in which influence has been acquired and abused,” even if the business relationship is less than a joint venture. Penato v. George, 383 N.Y.S.2d 900, 905-06 (2d Dept. 1976); Niagara Mohawk Power Corp. v. Stone & Webster Engineering Corp., 1992 WL 121726, at *21 (N.D.N.Y. 1992)(Ex. H) (fact issue whether fiduciary relationship existed between owner and contractor.)
7
SCO actually did not know, and had no reason to know , of IBM's use of the SVR4 code until 2004, in
the course of discovery in this case. (¶¶ 70-72. ) The Court in its July 2005 order commented that it
"appear[ed]" that SCO or its predecessor knew or should have known of this by March 2003, but the issue
here is what they knew or should have known as of March 2001. Moreover, the comment was in the
context of a ruling on SCO's motion for leave to amend its complaint, a matter within the court's
discretion. For statute of limitations purposes, the question of when a plaintiff should reasonably have
discovered the facts sufficient to establish a cause of action and whether a plaintiff acted reasonably under
the circumstances are both fact-intensive inquiries and preclude summary judgment "in all but the clearest
of cases." Hoopiiaina Trust, supra at *11.
8
IBM acknowledges, Opp. at 1, that SCO's unfair competition claim includes other factual allegations
unrelated to Project Monterey but fails to address them. See Part IV infra.
9
The "mere fact that a breach of fiduciary duty is actionable in tort, Apple Records, Inc. v. Capitol
Records, Inc., 137 A.D.2d 50, 55-57, 529 N.Y.S.2d 279 (1st Dept. 1988), does not preclude a cause of
action in contract as well and `if alternative theories can arguably support a claim, and any one of them
carries a limitation period which would keep the claim alive, the claim should be sustained as timely'",
Allen v. First Wallstreet Settlement Corp., 130 A.D.2d 824, 826, 514 N.Y.S.2d 726 (3d Dept. 1987)."
See Frank Management, Inc v. Weber, 145 Misc.2d 995, 549 N.Y.S.2d 317 (N.Y.Sup.Ct. 1989). Thus,
the law favors allowing any viable claims to proceed, this is true despite the fact that the applicable
limitations period may have run on one type of claim but not on others.
10
IBM's brief acknowledges, but does not dispute, SCO's allegations of a fiduciary and confidential
relationship that arose from the Project Monterey joint venture. IBM Memo. at 5, 13, 16. If IBM
attempts to dispute this for the first time in its reply brief, this Court should not allow it. In any event,
there is ample evidence from which a jury could find that Project Monterey gave rise to a fiduciary
relationship between the parties. See note 6, supra.
11In 2004, Utah statutorily clarified its unfair competition law to make certain that it encompasses more
than palming off and misappropriation. The statute specifically provides a damages remedy for the
unlawful, unfair or fraudulent infringement of a copyright or the violation of a software license. U.C.A.
1953 §13-5a-102-4(a)). Even if even if applied only prospectively, IBM is liable under the statute for
SCO's post-2004 damages, because unfair competition is a continuing tort and each sale of AIX for
Power is an independent cause of action. See Part I.A.1 supra. Moreover, the statute may be applied
retroactively, because, as an addition to the previously existing Unfair Practices Act, it clarified existing
law. Dep't of Soc. Serv. v. Higgs, 656 P.2d 998, 1001 (Utah 1982.).
12
IBM acknowledges, (Opp. at 1,) that SCO's unfair competition claim includes other factual allegations
but fails to address them. See Part IV infra.
13
IBM's brief acknowledges, but does not dispute, SC O's allegations of a fiduciary and confidential
relationship that arose from the Project Monterey joint venture. (IBM Memo. at 5, 13, 16.) If IBM
attempts to dispute this for the first time in its reply brief, this Court should not allow it. In any event,
there is ample evidence from which a jury could find that Project Monterey gave rise to a fiduciary
relationship between the parties. See note 6, supra.
14
See Twentieth Century Fox Film Corp. v. Marvel Enterp. Inc., 155 F. Supp.2d 1, 25 (S.D.N.Y. 2001)
(comic book characters); Warner Bros. Inc. v. American Broad. Co., Inc., 720 F.2d 231, 247 (2d Cir.
1983) (Superman character); Durham Indust., Inc. v. Tomy Corp., 630 F.2d 905, 918-19 (2d Cir. 1980)
(Disney characters); Ippolito v. Ono-Lennon, 526 N.Y.S.2d 877, 883 (N.Y. Sup.Ct. 1988) (concert
performance).
64
CERTIFICATE OF SERVICE
Plaintiff, The SCO Group, Inc., hereby certifies that a true and correct copy of the
foregoing Redacted SCO's Memorandum in Opposition to IBM's Motion for Summary
Judgment on SCO's Unfair Competition Claim (SCO's Sixth Cause of Action) was served on
Defendant International Business Machines Corporation on the 27th day of December, 2006, by
the CM/ECF system to:
David Marriott, Esq.
Cravath, Swaine & Moore LLP
[address] Todd Shaughnessy, Esq. Snell & Wilmer LLP [address]
____[/s/ Brent O. Hatch]____
65
|