Novell has already replied to this, by the way, and you can see how they rebut it, but I will amplify. Novell's argument in a simple sentence is that "all Novell needs to show here is that SVRX was more than a 'minor accompaniment' to those licenses, which it plainly was." And, Novell points out, SCOsource had to be about SVRX, and pre-APA SVRX code, to boot, because that is all SCO has ever listed in SCO v. IBM as having been allegedly infringed. How "incidental", then, can it be?

But on top of that, SCO's many arguments are easy to debunk, one by one. So let's get started.

SCO begins by claiming that SCOsource was about UnixWare, not Unix System V. I've already written about the Sun and Microsoft agreements in the article, What SCOsource Was For, which showed that UNIX and UnixWare were not identical, being two separte products, one for licensing and the other a boxed product with a UNIX kernel, and I think it's fairly obvious Sun, at least, had no need for UnixWare. If anything, it needed Xenix, or so they told us, and that came from OpenServer, not Unixware. Open Server and UnixWare are all products based on Unix, but they aren't Unix itself, but rather use it. That's why in the APA, Novell's business was described as "Seller is engaged in the business of developing a line of software products currently known as UNIX and UnixWare."

But what about SCOsource? Darl McBride pointblank said that SCOsource, as of December of 2003, when they started meeting with companies about alleged Unix System V code it claimed to have found in Linux, offering them a SCOsource license, was not about UnixWare or OpenServer, which you can read about in What Was ScoSource For, Part III. That teleconference where Darl made that statement was one full year after the first SCOsource license offering, and not about the same thing at all. Earlier, prior to the announcement about allegedly finding System V code in Linux, SCO tried to sell a license for UnixWare and OpenServer unbundled shared libraries, but that is something altogether different from the later threats and offers of a license to avoid litigation for System V Unix code in Linux, not that SCO ever showed any infringing System V Unix code it owned in Linux. Or that anybody owned, for that matter. They were two separate offerings, and in December, when SCO started to go after companies using Linux, it was about System V code, by Darl's own statement, and not about UnixWare or OpenServer.

To support its argument that SCOsource *was* about UnixWare, SCO claims that older versions of SysV were included in UnixWare deals. This is a losing argument, even if it were true, on several levels. The one I'll mention here is that older versions of SysV and of UnixWare would involve copyrights that didn't pass to SCO from Novell, as the Utah court has already ruled. That argument is more or less an admission, then, that SCO with SCOsource was asking for money for code it had no right to claim. I don't see how that helps them. As Novell has phrased it in its Reply, SCOsource was "an extortion racket based on property SCO does not even own."

But then, in its next argument, SCO tries to persuade the court that when it told Novell about the SCOsource program, Novell didn't object for months, and so it can't complain now. But in doing so, SCO makes an inadvertent admission. Aside from it being not a bit so, that Novell didn't object, SCO adds this remarkable sentence, that it "invited Novell to participate in the program on the grounds that the enforcement of SCO's rights against Linux users might increase or slow the decrease of Novell's legacy UNIX binary-royalty stream of revenue." If SCOsource was all about UnixWare, how could it "increase" Novell's Unix revenue? Novell got royalties on System V, not on UnixWare. Duh. The court has already ruled, by the way, that they were not "binary-royalty" licenses, but SCO never gives up, as you may have observed.

The SCO lawyers seriously goofed when they wrote that, I think. At a minimum, it's an admission that SCOsource was *not* all about UnixWare. After all, why would SCO approach Novell and try to get their permission or offer them to join in if it was all about UnixWare? The approach, to me, says they knew the Sun and Microsoft licenses were about System V, and that would explain why the first publicly announced SCOsource license was called SCO System V License for Linux, because the umbrella was up already. They knew that contractually they had to go to Novell for System V. It was only after Novell declined and opposed that SCO changed the name of the SCOsource license to "UnixWare," which I think reflects a desire not to share the revenues that they knew they owed to Novell contractually, by naming it something that Novell had no right to. But that seems to be an afterthought.

The next ridiculous statement from SCO is that Unix System V or SVRX means Unixware, that they are one and the same:

Second, as noted above, contrary to Novell's core argument that SCO's concerns with the unauthorized use of "Unix System V" technology in Linux could not have pertained to UnixWare, UnixWare is the latest version of UNIX System V, not some entirely new and unrelated product. The APA distinguishes between the two operating systems and the SCOsource Agreements refer to both, but Novell's efforts to try to create some fine distinction between them for purposes of analyzing public statements regarding "UNIX" technology is unavailing. In referring to its "UNIX" or "UNIX System V" or "SVRX" rights, SCO was including the most current version of UNIX System V, UnixWare and OpenServer.

Well. Hardly. Certainly I think one could demonstrate that SCO said all kinds of things that made no sense. And it's possible they were not so clear on the tech, something we've observed many times over the years. But the easiest way to prove UNIX and UnixWare are separate is to show the history of Novell's acquiring/developing UnixWare and Unix System V. When did Novell acquire each? As you will see, it had already developed UnixWare *before* it bought out AT&T's shares in USL and hence acquired System V, so how could they be one and the same thing? My point is that saying UnixWare isn't the same at all as saying System V. SCO would like to unsay what it said, so it pretends they are the same, but they are not. As I say, a simple way to prove that UnixWare and Unix System V are not identical is to look at when Novell got them. It wasn't at the same time or from the same source. First it worked with Univel to develop UnixWare, and after that it bought from AT&T System V by acquiring USL, which happened in stages. I'll show you some press releases to prove it.

When Novell put out a press release in 1993, announcing its purchase of USL from AT&T, it already had developed UnixWare as a USL partner. AT&T owned 77 percent of USL and Novell 5% and other companies the rest, and it bought AT&T, and the others, out. So what it was buying was System V Unix, not Unixware. That distinction mattered then and it still does.

When Novell and AT&T signed an agreement for Novell to buy AT&T's USL, AT&T saw fit to reproduce Novell's press release with some clarification added later, and you'll see that at the time, AT&T owned approximately 77 percent of the outstanding shares of USL, Novell had approximately 5 percent of USL's outstanding stock, and 11 other investors held approximately 18 percent, so Novell was in essence buying them out after having partnered, and earlier having developed UnixWare:

AT&T News Release, 1993-02-16, Novell signs definitive agreement to buy AT&T's UNIX System Labs
Editor's note: This release was issued by Novell Inc.
UNIX System Labs was sold to Novell and is not part of AT&T.

FOR RELEASE TUESDAY, FEBRUARY 16, 1993

Novell signs definitive agreement to buy AT&T's UNIX System Labs

PROVO, Utah -- Novell Inc. (NASDAQ:NOVL) Tuesday announced the signing of a definitive agreement with AT&T for the acquisition of UNIX System Laboratories, developer of the UNIX* operating system.

The definitive agreement has been approved by the boards of directors of both Novell and AT&T, and follows the letter of intent signed by the two companies on Dec. 20, 1992.

Under the terms of the agreement, existing shares of USL common stock will be exchanged for up to 12.3 million shares of Novell common stock in a tax-free merger accounted for as a pu chase. Novell will issue approximately 11.1 million shares of common stock to the current non-Novell USL shareholders.

In addition outstanding USL stock options and other equity incentives will be exchanged for Novell stock, or options, or rights to acquire shares of Novell stock, all in accordance with the terms of the definitive agreement.

Completion of the acquisition still requires regulatory a provals, a shareholder vote and other normal conditions to closing. AT&T owns approximately 77 percent of the outstanding shares of USL. Novell currently holds approximately 5 percent of USL's outstanding stock, and 11 other investors hold approximately 18 percent.

USL develops and markets the UNIX System V operating system, the TUXEDO* Enterprise Transaction Processing System, the C++ Programming Language System and other standards-based system software products to the worldwide computer industry. USL also provides education and management consulting for UNIX systems and related technologies.

Novell Inc. is an operating system software company and developer of network services and specialized and general purpose operating system products, including NetWare*, UnixWare* and DR DOS*. Novell's NetWare network computing products manage and control the sharing of services, data and applications among computer workgroups, departmental networks and across business-wide information systems.

---

* UNIX is a registered trademark in the United States and elsewhere, licensed exclusively through X/Open Company Ltd. DR DOS, NetWare, Tuxedo and UnixWare are trademarks or registered trademarks of Novell, Inc.

Note: In June 1993, Novell Inc. acquired UNIX System Laboratories, Inc. For more details, see our news release. For information about UNIX system, visit Novell's website http://www.novell.com/.

So it was a buyout of AT&T's shares in USL. But if UnixWare was just System V, this press release would make no sense, since you can see that Novell had UnixWare already when it bought out AT&T and got System V. And in the next AT&T press release from 1993, several months later, you will see that UnixWare was developed by Univel, not USL. USL had System V:

AT&T News Release, 1993-06-14, Novell completes acquisition of UNIX System Laboratories
FOR RELEASE MONDAY, JUNE 14, 1993

Novell completes acquisition of UNIX System Laboratories

PROVO, Utah -- Novell Inc. the computer networking company announced the completion of its acquisition of UNIX System Laboratories following a vote of approval Monday by the shareholders of USL.

Novell will exchange 11.1 million shares of its common stock for the outstanding shares of USL stock it does not already own. The tax-free exchange of shares is being accounted for as a pur- chase. As indicated in December 1992 when the transaction was first announced, Novell expects to incur a one-time write-off of purchased research and development of approximately $270 million, based on the valuation of the transaction.

This write-off will be reflected in Novell's financial results for its third fiscal quarter ending July 31, 1993. On a per share basis, this purchased R&D will represent a charge against Novell earnings of up to 85 cents in its third fiscal quarter.

USL has become a wholly owned subsidiary of Novell. Roel Pieper continues as president and chief executive officer of the USL subsidiary, reporting to Raymond J. Noorda chairman of Novell. Pieper also becomes an executive vice president at Novell. The Univel company, formed as a partnership between Novell and USL in December 1991, continues to operate from its headquarters in San Jose, California.

Completion of the acquisition follows the signing of a letter of intent between Novell and AT&T on Dec. 20, 1992. The companies reached a definitive agreement for the transaction on Feb. 16, 1993.

AT&T now holds approximately 9 million shares of Novell common stock, or three percent of the outstanding shares, after exchanging their 77 percent interest in USL for Novell stock. AT&T has indicated its intention to hold its shares of Novell as an investment.

USL, based in Summit, N.J., develops and markets the UNIX* System V operating system, the TUXEDO* Enterprise Transaction Processing System, the C++ Programming Language System and other standards-based system software products to the worldwide computer industry. USL also provides education and management con- sulting for UNIX systems and related technologies.

Univel develops and markets UnixWare*, an easy-to-use UNIX system that is tightly linked to network services provided by Novell's NetWare* system software. UnixWare is an advanced 32-bit operating system for computers using industry standard Intel microprocessors.

Novell Inc. is the computer networking company, developer of network services and specialized and general purpose operating system products, including NetWare, UnixWare and Novell DOS. Novell's NetWare network computing products manage and control the sharing of services, data and applications among computer workgroups, departmental networks and across enterprise-wide information systems.

* UNIX is a registered trademark in the United States and elsewhere, licensed exclusively through X/Open Company Ltd. NetWare and TUXEDO are registered trademarks of Novell Inc. UnixWare is a trademark of Univel.

As you can see by the highlighted parts, Novell already had UnixWare, having codeveloped it with Univel, when it bought System V as part of its purchase of USL. They just are not the same thing, and SCO should know better than to try to say they are. UnixWare is not just the latest System V. They are two entirely separate things, as Novell's history shows very clearly. Hopefully the court will not be confused.

And of course, we need to keep in mind that when Novell sold to SCO, the copyrights to UnixWare didn't transfer anyway. So, methods and concepts are not something SCO could charge for, or old UnixWare shared libraries either. Besides, if you read this 1998 Unixware FAQ, maintained by Evan Leibovitch and Andrew Josey, they explain what was in each version of UnixWare, and the FAQ makes abundantly clear the history of UnixWare, including how Univel fits in:

What is UnixWare? Is it really SVR4 based?

UnixWare is one of SCO's UNIX operating system offerings (transferred from Novell to SCO on Dec 6th 1995), combining UNIX(R) System V Release 4.2 for 80x86 processors (including Multiprocessors) with NetWare client connectivity (and NW Server in UW2.1), DOS Merge, Motif, support and documentation. It provides a graphical user interface based on the X11R5 windowing system, and is capable of running Unix, DOS, and/or Windows programs. The most recent version is known as UnixWare 7.

Some History....

UnixWare, first released in November 1992, was the product of a jointly-owned venture, named Univel, between Novell and Unix System Laboratories (USL, then 77% majority owned by AT&T). In June 1993, Novell completed its acquisition of USL and, by extension, Univel. USL and Univel were folded into the Novell Unix Systems Group (USG, the namesake of an earlier group by the same name at AT&T).

UnixWare 2 and 2.1 were developed by the same team (formerly at 190 River Road, Summit, New Jersey, then Florham Park, NJ) that worked with Sun Microsystems to create UNIX(R) System V Release 4. UnixWare 1.x was based on the UNIX(R) System V Release 4.2 kernel completed by USL in July 1992 , and UnixWare 2.x was based on the UNIX(R) System V Release 4.2MP kernel completed by USL in December 1993.

In September 1995 Novell announced it was pulling out of the UNIX(R) business and that the UnixWare business would transfer to SCO Inc. The transfer completed on December 6th 1995. Future development of UnixWare 2 will be done by SCO now at Murray Hill in New Jersey, USA.

There are so many other ways to debunk this filing, but that should do for now. The bottom line: it is simply not true to say that UNIX and UnixWare are the same thing.

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

Brent O. Hatch (5715)
Mark F. James (5295)
HATCH, JAMES & DODGE, PC
[address]
[phone]
[fax]

Stephen N. Zack (admitted pro hac vice)
BOIES SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

David Boies (admitted pro hac vice)
Robert Silver (admitted pro hac vice)
Edward Normand (admitted pro hac vice)
BOIES SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

Stuart Singer (admitted pro hac vice)
BOIES SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

Devan V. Padmanabhan (admitted pro hac vice)
DORSEY & WHITNEY LLP
[address]
[phone]
[fax]

Attorneys for Plaintiff, The SCO Group, Inc.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

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Table of Contents

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TABLE OF AUTHORITIES

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Plaintiff/Counterclaim-Defendant, The SCO Group, Inc. ("SCO"), respectfully submits this Memorandum in Opposition to the Motion of Novell, Inc. ("Novell"), for Summary Judgment on Its Fourth Claim for Relief.

PRELIMINARY STATEMENT

Novell seeks summary judgment on its fourth counterclaim, concerning SCO's rights under the amended 1995 Asset Purchase Agreement ("APA") with respect to certain agreements SCO executed in 2003 or 2004 with Sun Microsystems, Inc. and Microsoft Corporation (the "Sun" and "Microsoft" Agreements) and several other counterparties as part of its SCOsource program (the "SCOsource Agreements").

SCO recognizes this Court's prior summary judgment ruling as controlling for these purposes and presents its arguments herein accordingly. Even under that ruling, however, Novell is not entitled to any declaration that SCO entered into the Sun, Microsoft, or SCOsource Agreements without authority. The Agreements fall within SCO's right to enter into SVRX licenses and "amendments" of SVRX Licenses "as may be incidentally involved through its rights to sell and license UnixWare," the brand name for the latest version of UNIX System V. Novell also is estopped by its prior conduct and statements from asserting the rights on which it here seeks a declaration (which relief Novell notably did not seek on summary judgment when it filed those general motions last year). Further, there is no need for the Court to get involved in rendering such a declaration at this time.

The linchpin of Novell's argument that the SCOsource Agreements concern only "SVRX" rights — and not UnixWare rights — as those terms are used in the APA is Novell's unsupportable and inaccurate assertion (at 5) that "[f]rom start to finish, SCO never claimed

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SCOsource had anything to do with SCO's UnixWare derivative rights, and any attempt by SCO to recast SCOsource now should fail." From the very beginning SCO was concerned that technology had been taken from its OpenServer and UnixWare UNIX products and improperly used in Linux, and the contemporaneous documents — belying Novell's allusions to any SCO attempt to "recast" its concerns at the time — show that to be true.

Novell cites SCO's general allusions to "UNIX" and "UNIX System V" at the time; UnixWare is the name for the most recent version of UNIX System V, and UnixWare and OpenServer are both "UNIX" and specifically "UNIX System V" operating systems. Prior to this litigation Novell itself acknowledged in its own Guide to UnixWare that UnixWare is a "version of UNIX System V." The documents reflecting SCO's concerns at the outset and pendency of its SCOsource program repeatedly show that SCO was focused on UnixWare and OpenServer technology in Linux and on UNIX in general.

In addition, Novell's motion for summary judgment raises the following questions — and the answers provided in this memorandum:

• Is any contract that "relates" to SVRX an "SVRX License"? No — and the Court has not so held. Instead, the contractual language must constitute a "license" for SVRX releases listed in the APA. In addition, the presence of such language does not render the contract an "SVRX License" in its entirety.

• Are the SCOSource Agreements "SVRX Licenses" that SCO lacked the authority to execute? No. In significant part they are releases of claims that SCO had the right to pursue if it so chose, and therefore had the right to release. Any parts of the agreements that constituted a license are entirely different from the "SVRX Licenses"

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  referenced in the APA, and instead equivalent to the licenses for the use of UnixWare-based binary distributions which SCO had the authority to execute.

• Are the Sun and Microsoft Agreements "SVRX Licenses"? Even under this Court's prior summary judgment ruling, only a tertiary part of one of the five principal components of the Microsoft Agreement is a "license" relating to releases listed in the APA. Only a secondary part of one of the four principal components of the Sun Agreement is such a "license."

• Were the "SVRX License" parts of the Sun and Microsoft Agreements entered into "incidentally" to UnixWare? Yes. SCO had the authority to license UnixWare (the latest version of UNIX System V) with SVRX prior products (the older versions of UNIX System V) listed in the license. That was Novell's practice at the time of the APA and Santa Cruz's and SCO's practice thereafter, at Novell's behest. Other evidence confirms the incidental and secondary nature of the SVRX components of the Sun and Microsoft Agreements.

Contrary to Novell's efforts to avoid or twist the facts and to the main points that underlie Novell's arguments, the following is true:

First, the discussions between SCO and Novell in the fall of 2002 directly undercut — and in fact estop — the relief Novell seeks. Such estoppel arises out of Novell's entire course of performance since 1995. SCO approached Novell, explained the proposed SCOsource program,

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Second, as noted above, contrary to Novell's core argument that SCO's concerns with the unauthorized use of "Unix System V" technology in Linux could not have pertained to UnixWare, UnixWare is the latest version of UNIX System V, not some entirely new and unrelated product. The APA distinguishes between the two operating systems and the SCOsource Agreements refer to both, but Novell's efforts to try to create some fine distinction between them for purposes of analyzing public statements regarding "UNIX" technology is unavailing. In referring to its "UNIX" or "UNIX System V" or "SVRX" rights, SCO was including the most current version of UNIX System V, UnixWare and OpenServer.

If there were any doubt, the record shows that SCO structured the SCOsource Agreements as UnixWare binary licenses and directly based the pricing for those Agreements on such UnixWare licenses. Similarly, the textual and extrinsic evidence demonstrate that the licensing of UnixWare technology, and the multiple provisions that are not "licenses" at all, are

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at the forefront of both the Sun and Microsoft Agreements.

STATEMENT OF FACTS

I. UNIX AND UNIXWARE

1. UNIX is a computer operating system originally developed in 1969 by Bell Labs. (Novell's Amended Counterclaims (Sept. 25, 2006), Docket No. 142, ¶ 6.) Since then, multiple versions of UNIX have been developed as a result of the licensing of the UNIX technology. (Id. ¶ 7; Ex. 1.) UNIX System V (or "SVRX") is the name for the versions of UNIX developed by AT&T and UNIX System Laboratories ("USL") in the 1980s and early 1990s. (Novell's Amended Counterclaims ¶ 7; Ex. 2.)

2. UnixWare is the brand name for the more recent versions of UNIX System V developed and licensed in the early 1990s by USL and Novell, and thereafter by The Santa Cruz Operation, Inc. ("Santa Cruz") and SCO. (Exs. 3, 4.) By way of example, Novell's own UnixWare sales binders include the following descriptions of UnixWare:

• "UnixWare's Competitive Advantages: Most Advanced System V UNIX available on industry standard hardware."

• "Novell's UnixWare 2 is the culmination of more than 25 years of research, development, and field experience. All commercial UNIX system offerings are direct descendants of this effort."

• "Latest implementation of UNIX SVR4.2 MP Technology."

• "As the latest generation of UNIX SVR 4.2 with SVR4.2 MP, UnixWare 2 is certainly a strong candidate for a wide variety of government application needs."

• "UnixWare 2 is a full UNIX System V operating system which has incorporated specific NetWare functionality."

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• "As far as we are concerned, there doesn't seem to be a case to go for another UNIX from anyone else while we have such a cost-effective SVR4 product as UnixWare."

• "Advanced SVR5 SMP operating system."

• "Powerful, scalable, reliable and open UNIX SVR5."

3. Additional evidence confirms that when UnixWare was developed in the early 1990s, it was the latest version of UNIX System V, Releases 4.2 and 4.2 MP and thus included that prior technology, and in turn prior SVRX technology. (Exs. 3, 10.) The product was called UnixWare because it was to be a combination of those latest releases of the UNIX System V source code and some components of Novell's NetWare source code. (Ex. 3.) The first releases of UnixWare contain all or virtually all of the technology included in SVR 4.2 and SVR 4.2 MP, and all of the important technology. (Exs. 3, 4; Ex. 56 ¶ 4; Ex. 87 ¶ 3.)

4. In 1995, under the Asset Purchase Agreement ("APA") between the companies, Novell sold the UnixWare business to Santa Cruz, including all of the source code, licenses, and royalties, as well as intellectual property rights associated with UnixWare. (Ex. 5 §§ 1.1, 1,3 (a)(i); Schedule 1.1(a).) The core members of Novell's UNIX licensing group became employees of Santa Cruz in that company's UNIX licensing group. (Ex. 6 ¶¶ 12-14; Ex. 7 ¶¶ 8-9.)

5. Santa Cruz released several subsequent versions of UnixWare, including multiple versions of each of UnixWare Release 2 and UnixWare Release 7. (Exs. 19, 20, 85, 86.) After SCO acquired the UnixWare business from Santa Cruz in 2001, SCO released subsequent versions of UnixWare Release 7. (Exs. 85, 86.) Under the 2001 transfer of assets, the core

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members of Santa Cruz's UNIX licensing group became employees of SCO in that company's UNIX licensing group. (Ex. 6 ¶¶ 12-14; Ex. 7 ¶¶ 6, 8-9.)

6. All of the releases of UnixWare subsequent to Novell's transfer of the business are also versions of UNIX System V. (See, e.g., Ex. 3; Ex. 4; Ex, 8 at 158; Ex. 9 at 239-43; Ex. 10 at 16.) All of the significant technology from the prior versions of SVRX is included in UnixWare, and UnixWare would not operate without its SVRX components. (Ex. 49 ¶¶ 3, 4; Ex. 56 ¶¶ 3, 4.) UnixWare supports the newest industry-standard hardware and is a high-performance, scalable, and reliable operating system. (Exs. 3, 4; Ex. 49 ¶¶ 3, 4; Ex. 87 ¶ 4.)

II. THE LICENSING OF UNIXWARE

7. AT&T, USL, Novell, and Santa Cruz licensed the source code for UNIX products to Original Equipment Manufacturers ("OEMs") who used the source code to develop their own versions of UNIX that they then distributed in binary format on their hardware. (Novell Memorandum in Support of its Motion for Partial Summary Judgment on its Fourth Claim for Relief (Dec. 12, 2006), Docket No. 175, ¶¶ 18, 20-21.) Such OEMs paid a one-time fee for the internal use of the source code on designated CPUs, a one-time distribution fee, and ongoing royalties for each distributed binary copy of their UNIX version. (Id. ¶¶ 18, 20-21, 23.)

8. In licensing UNIX products, AT&T, USL, and Novell also often licensed, as a matter of standard practice, the same rights with respect to the older products that predated the licensed product. (Ex. 11 ¶ 26; Ex. 12 ¶ 22; Ex. 13 ¶ 12.). Those "Prior Products" were identified as such in the license for each licensed product. (Id.) A licensee who executed a license for SVR 4.2, for example, also often received the same rights to the earlier versions of UNIX on which release 4.2 was built. (Ex. 1 at 33.) Once UnixWare was developed, Novell continued to license

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UnixWare products with the same rights to the SVRX prior products. (See, e.g., Exs. 14 at 27; 15 at 26.)

9. Indeed, after it acquired the UnixWare business from Novell in 1995, Santa Cruz adopted for its UnixWare licenses the same approach that Novell had used for its UnixWare licenses. Santa Cruz did so with Novell's guidance, knowledge and approval. (Ex. 16 at SCO1299955-56, SCO1299962; Ex. 27 at 282-83; Ex. 49 ¶ 9; Ex. 56 ¶ 6.) Under the Statement of Work for the transition of UNIX licensing from Novell to Santa Cruz, the parties agreed that Santa Cruz would follow Novell's licensing approach, except for a change in the name of the licensor from Novell to Santa Cruz. (Ex. 16 at SCO1299955-56, SCO1299962.)

10. As Novell had done, as a matter of standard practice, Santa Cruz also often granted the licensee a license to the older versions of UNIX, including numerous releases of SVRX. (Ex. 17; Ex. 18 ¶ 8.) OEM licensees paid AT&T, USL, Novell, or Santa Cruz licensing fees for the licensed product only; licensees who requested the inclusion of a list of prior products in their UnixWare licenses did not have to pay any additional fees for those products. (See, e.g., Ex. 15 at SCO1039897; Ex. 19 at SCO1042612; Ex. 20 at SCO1040469.)

11. In 1995 and 1996, for example, Santa Cruz licensed UnixWare 2.0 and 2.1 to various licenses. A standard UnixWare 2.0 license included a one-time fee of $375,000 for the right to use the UnixWare 2.0 source code. (Ex. 19 at SCO1042590.) As Novell had done, Santa Cruz included for many UnixWare 2.0 licensees a listing of SVRX prior products at no additional cost. (See, e.g., Ex. 15 at SCO1039897, SCO1039921; Ex. 20 at SCO1040469, SCO1040491; Ex. 21 at SCO0977766.)

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12. The $375,000 list price for a UnixWare 2.0 license with Unisys that licensed the SVRX prior products, for example, was the same as the price for a contemporaneous UnixWare license with Alps that did not list the SVRX prior products. (See, e.g., Ex. 19 at SCO1042612; Ex. 15 at SCO1039897; Ex. 20 at SCO1040469.)

13. AT&T, USL, Novell, and Santa Cruz granted rights to the prior products to facilitate the development by licensees of their versions of UNIX based on the most recent licensed product and as an assurance to the licensee that they had the rights to any of the technology included in that licensed product, including technology previously released in the prior products. (Ex. 49 ¶ 8; Ex. 56 ¶ 6.) Santa Cruz granted customers such rights in UnixWare licenses as recently as 1997 and 1998, when Santa Cruz started licensing UnixWare as a packaged product. (See, e.g., Ex. 17; Ex. 49 ¶ 9; Ex. 56 ¶ 6.)

14. By the late 1990s, Santa Cruz came to license UnixWare to distributors as a "packaged product," or product in binary format that was ready for distribution to end-users without further development. (Ex. 51 ¶ 4; Ex. 56 ¶ 9; Ex. 87 ¶ 6.) The UnixWare licenses with such distributors did not grant rights to the SVRX prior products because distributors merely replicated and distributed the packaged product as is. (Id.)

III. ROYALTIES FROM UNIX LICENSES

15. Novell, Santa Cruz, and SCO received fees and royalties that UnixWare licensees paid for the rights they obtained under their UnixWare licenses. (Ex. 5 § 1.2(b), Schedule 1.2(b).) The APA requires SCO to remit to Novell "SVRX Royalties" as defined in the APA, less a 5% administrative fee of such Royalties. (Id. § 1.2(b).) The APA gave Novell the right to conduct audits of Santa Cruz and SCO regarding the payment of such Royalties. (Id.)

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16. As Novell acknowledges, SCO has the right to enter into amendments of SVRX Licenses and to enter into new SVRX licenses "as may be incidentally involved through its rights to sell and license UnixWare software." (Ex. 5 § 4.16(b); Ex. 22 § J.)

17. The word "incidentally" is not defined in either the APA or its Amendments. Novell's former General Counsel admitted that he has no view "as to what it means for Santa Cruz to license SVRX source code incidentally to UnixWare," and that he thinks the word "incidentally" is "ambiguous" and "not terribly precise." (Ex. 23 at 79.)

18. Similarly, as a company, Novell declined in discovery to take any affirmative position on the meaning of the word "incidentally" in Amendment No. 1. Instead, Novell testified that it "doesn't seem to be a term that needs more explanation" and that Novell "would probably just go to a dictionary and get the language out of. that." (Ex. 24 at 78.) On whether the word incorporates the practice whereby the owner of Unix or UnixWare technology would license "older versions of Unix whenever it licensed the most recent version of Unix," Novell testified that it did not have any "knowledge" or "view" on that "one way or the other." (Id. at 79.) In training sessions that followed the closing of the APA, Novell itself communicated to members of the UNIX licensing group that the inclusion of SVRX prior products in UnixWare licenses was permitted as incidental licensing of SVRX. (Ex. 49 ¶ 11.)

19. Santa Cruz did not remit to Novell any of the fees or royalties that Santa Cruz received from any of the UnixWare licenses that Santa Cruz had acquired from Novell in 1995 or into which Santa Cruz entered after 1995. (Ex. 25 at 224; Ex. 26 at 147.) Novell never asked or suggested to Santa Cruz that it should remit any portion of the fees or royalties that Santa Cruz received under any UnixWare license even where SVRX prior products were listed as part of

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those licenses. (Ex. 13 ¶¶ 9, 10, 12; Ex. 27 at 282-83; Ex. 51 ¶¶ 9, 13.) Novell held an equity position in Santa Cruz until 1999, and a Novell executive was a member of Santa Cruz's Board of Directors for every year between 1995 and 2000. (Exhibit A to Novell Reply Memorandum in Support of its Motion for Summary Judgment on SCO's First Claim for Slander of Title and Third Claim for Specific Performance (May 25, 2007), Docket No, 338, ¶ 47.) Novell never asked or suggested to Santa Cruz that it should undertake to allocate to the SVRX prior products any value of the fees or royalties that Santa Cruz received under any UnixWare license granting rights to such older versions. (Ex. 13 ¶¶ 9, 10, 12; Ex. 27 at 282-83; Ex. 51 ¶¶ 9, 13.) That was true even though Novell new that Santa Cruz was listing SVRX prior products with its UnixWare licenses because Novell had communicated to Santa Cruz that Novell's practice in that regard should be continued. (See ¶¶ 9-11, above.)

20. In 1998, Novell conducted an audit of Santa Cruz to ensure that Santa Cruz was remitting to Novell all of the royalties to which Novell was entitled under the APA and that Santa Cruz was keeping royalties that Santa Cruz was entitled to under the APA. Novell knew at that time that SCO was licensing UnixWare with prior products listed just as Novell had done, because that was discussed and agreed pursuant to the implementation-of Santa Cruz licensing at the time of the transfer. (See ¶¶ 9-11, above.) In the 1998 audit, Novell did not ask Santa Cruz to produce any information regarding the fees and royalties that Santa Cruz received under its UnixWare licensing business. (Ex. 5 ¶¶ 9, 13) In the 1998 audit, Novell did not ask or suggest to Santa Cruz that it should undertake to allocate to the older versions of SVRX any value of the fees and royalties that Santa Cruz received under any UnixWare license granting rights to such older versions. (Id.)

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21. Santa Cruz did not believe that it was under any obligation to remit to Novell any portion of the fees or royalties from any UnixWare licenses, because the thresholds for any such payments pursuant to Schedule 1.2 of the APA had not been satisfied. (Ex. 13 ¶ 15; Ex. 25 at 224-25.) SCO did not remit to Novell any of the royalties that SCO received from any of the UnixWare licenses that Santa Cruz had acquired from Novell in 1995 or into which Santa Cruz or SCO entered after 1995, whether or not those licenses included a list of SVRX prior products. (See ¶¶ 12-13, 19, above.)

22. Until 2003, Novell never asked or suggested to SCO that it should remit any of the fees or royalties that SCO received under any UnixWare license. (Ex. 51 ¶¶ 9, 13.) Even including the audit of SCO that Novell conducted in 2003, Novell never asked or suggested to SCO that it should undertake to allocate to the older versions of UNIX any value of the fees or royalties that Santa Cruz received under any UnixWare license granting rights to such older versions. (Id. ¶¶ 9-10; Ex. 25 at 200-01.)

23. SCO did not believe that it was under any obligation to remit to Novell any portion of the fees or royalties from any of the UnixWare business because the thresholds had not been met (and because the term under which the thresholds applied had expired). (Ex. 13 ¶ 15; Ex. 25 at 224-25.) If SCO had believed that there was any prospect that it would have to pay Novell any part of the payments received under the Sun and Microsoft Agreements for the grant of rights to SVRX technology in those Agreements, SCO would not have included those rights in the Agreements. (Ex. 58 ¶ 3.) Indeed, SCO (like Santa Cruz and Novell) routinely included those rights for free (see ¶¶ 11 - 13, above), and did not regard them as significant components of the Agreements in the first place. (Ex. 56 ¶ 7; Ex. 58 ¶ 3.)

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24. UNIX licensees often distributed and used binary products that included code from multiple versions of SVRX, including UnixWare. (Ex. 49 ¶¶ 22-24; Ex. 51 ¶¶ 5-7; Ex, 56 ¶¶ 18-20.) Novell and its successors required (and allowed) such licensees to pay only one set of royalties for the use or distribution of such a product. (Id.) To identify the proper license under which such a product could be used or distributed and to calculate the appropriate royalty payments required for using or distributing such a product, Novell and it successors employed the "one line of code" rule. (Id.)

25. Under that rule, Novell and its successors determined if there was as little as one lime of code from the latest version of SVRX code contained in a binary product and calculated royalty payments for that entire product under only that latest license. (Id.) Novell and its successors prohibited licensees from parsing out the relative amounts of code. from different versions of SVRX and paying portions of the requisite royalties under multiple SVRX licenses. (Id.)

26. Accordingly, licensees that distributed a UNIX binary.product that contained code from SVR 3.0, SVR 4.0, and SVR 4.2 did not pay any SVR 3.0 or SVR 4.0 royalties for distributing that product, but instead paid only SVR 4.2 Royalties (under the terms and prices of an SVR 4.2 license) for distributing that product. (Id.) Similarly, licensees that used a product that contained SVR 3.0, SVR 4.0, and UnixWare 2.0 did not pay any SVR 3.0 or SVR 4.0 royalties for distributing that product, but instead paid only "UnixWare Royalties" (under the terms and prices of a UnixWare 2.0 license) for use of such a product. (Id.)

27. At the time of the SCO source Agreements, SCO believed that code from UnixWare and OpenServer was being improperly used in Linux. (See ¶¶ 53-67, below.)

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IV. THE UNISYS LICENSES

28. In the 1980s and early 1990s, before UnixWare was released, Unisys Corporation ("Unisys") had obtained SVRX licenses, including a license to SVR 4.0 MP in 1991. (Exs. 28, 29.) Those Unisys licenses each included a license to a list of SVRX prior products. (Ex. 28 at 10-11; Ex. 29 at 21.)

29. In 1995, Novell licensed UnixWare 2.01 to Unisys through a UnixWare license that also granted a license to the list of SVRX prior products. (Ex. 15 at 26.)

30. In 1996, after the APA, Santa Cruz licensed UnixWare 2.1 to Unisys through a license that also granted a license to a list of SVRX prior products. (Ex. 20 at 24.)

31. Under the UnixWare 2.01 license that it had obtained from Novell, Unisys had created an operating system based on UnixWare 2.01 on which it was required to pay binary per-copy fees each time Unisys sold hardware that included that binary operating system. (Exs. 15, 30.) After Novell transferred that license to Santa Cruz under the APA, Unisys continued to pay those fees to Santa Cruz for at least several years. (Ex. 30, 31.) Novell therefore knew Unisys was paying an ongoing UnixWare royalty stream that continued after the APA. (See Ex. 49 ¶¶ 14-16; Ex. 51 ¶¶ 11-13; Ex. 56 ¶¶ 10-12.)

32. Novell did not ask Santa Cruz for those royalties or any portion of those royalties supposedly attributable to the license to the SVRX prior products included therein, nor did Novell even inquire about those royalties in its 1998 audit of Santa Cruz. (Ex. 51 ¶¶ 9, 13.)

33. REDACTED

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REDACTED

34. REDACTED

35. REDACTED

36. Even though Novell itself had granted Unisys the UnixWare 2.01 license including a license to the SVRX prior products, Novell did not audit or request any of the fees reflected in the report, or even any portion of fees supposedly corresponding to the listed SVRX prior products. (Ex. 15; Ex. 51 ¶¶ 3, 9.)

37. Novell did not request or audit such fees even when the question of allocation of fees arose between the parties in 1996. REDACTED

38. REDACTED

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REDACTED

39. In response to the foregoing communications, Novell accepted Santa Cruz's calculation of the royalties payable to Novell under Unisys's SVR 4.0 MP license. (Ex. 49 ¶¶ 20-21.) Novell did not state that Santa Cruz needed to make an allocation of fees for "the UnixWare portion" itself — between UnixWare and the SVRX prior products. (Id.; Ex. 51 ¶¶ 9, 13. ) Before 2003, Novell did not request or audit any fees attributable to the SVRX prior products licensed in UnixWare licenses. (Ex. 49 ¶ 21; Ex. 51 ¶ 9.)

V. OPENSERVER

40. SCO owns OpenServer. (Ex. 34.) OpenServer is the brand name for the version of UNIX System V that Santa Cruz developed in the 1980s. (Ex. 8 at 39-40.) Novell has never owned, or had any license to, OpenServer or its predecessors. (Ex. 49 ¶ 28; Ex. 51 ¶ 14; Ex. 56 ¶ 21.)

41. OpenServer was Santa Cruz's flagship product through the 1990s. (Ex. 36 at 117, 121.) OpenServer customers included and include large corporations such as McDonald's. (Ex. 37 at SCO1265967.)

42. OpenServer is a well-established operating system in the market for small- to medium-sized businesses, and is known for its excellent stability, quality, and security. (Ex. 38 at SCO1687209-10.)

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VI. AMENDMENT NO.2 AND ITS BACKGROUND

43. On April 26, 1996, Novell executed an agreement with IBM purporting to grant it a buyout of its obligations to pay SVRX Royalties and to expand its rights to distribute SVRX source code. (Ex. 39.) Novell purported to agree to this buyout agreement on behalf of Santa Cruz and even signed the agreement "for" Santa Cruz without Santa Cruz's consent. (Id.)

44. Although Novell had retained a 95% interest in the binary royalties that IBM was paying, Santa Cruz objected on the grounds that Novell had no right to license source code rights and could not unilaterally grant such buyouts. (Exs. 40-43; Ex. 44 ¶ 33)

45. REDACTED

46. On October 16, 1996, Novell and Santa Cruz entered into Amendment No. 2. (Ex. 45.) Novell's former General Counsel admitted that "Amendment 2 outlines a procedure that the parties have to follow to enter into buyout agreements subsequent to the execution of

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Amendment 2" and that "the language applies only in the context of a buyout," where the "lead" paragraph "references potential transactions which concern a buyout." (Ex. 23 at 137.)

47. Similarly, as explained by Larry Bouffard, the Novell account manager who conceived and oversaw the Novell-IBM buyout and who later became Novell's worldwide sales director for UNIX, the purpose of Amendment No. 2 was to protect Santa Cruz from any further attempts by Novell to grant unilateral buyouts:

After Santa Cruz learned of the Novell-IBM buyout, Santa Cruz immediately objected. When I visited Santa Cruz's offices, I recall a Santa Cruz representative objecting vehemently to me in person. Novell and SCO proceeded to negotiate Amendment No. 2 to the APA. I understood Amendment No. 2 to preclude Novell from undertaking the precise type of unilateral conduct with respect to the UNIX license agreements that I had undertaken with respect to the IBM-Novell buyout.

48. In its previous motion for summary judgment on its Fourth Claim, Novell stated:

Section B of Amendment No. 2 requires the participation of both Novell and Santa Cruz in any prospective buy-out transaction with any SVRX licensee. It also provides that the newly prescribed procedures for managing future buy-outs would not alter the parties' existing source code rights under the APA. These buy-out provisions are not at issue in this motion since Novell's waiver actions vis-à-vis IBM and Sequent do not effectuate such a transaction.

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(Novell Memorandum in Support of its Motion for Partial Summary Judgment on its Fourth Claim for Relief (Dec. 1, 2006), Docket No. 175, at 32 (emphasis added).)

49. In its Order dated August 10, 2007, this Court concluded (at 85) that "all of the subparagraphs of paragraph B are limited to buy-out transactions." (SCO's position was and is that the procedural subsections of paragraph B (subsections 1-4 and 6) pertain to potential buy-out transactions, and that subsection 5 constitutes a broader statement of the parties' rights, going beyond the procedure for potential buy-outs. Whatever the Court's view of that particular argument, it has concluded that paragraph B is "limited to buy-out transactions.")

VII. THE SCOSOURCE PROGRAM

50. In January 2003, SCO formally announced the creation of a new division, SCOsource, to protect its intellectual property and expand the licensing of its UNIX technology to authorize use in connection with the Linux operating system. (Ex. 46.) SCO's concern was that technology or derivative technology had been taken from SCO's UNIX operating systems, the latest versions of which were UnixWare and OpenServer, and improperly used to enhance Linux. (Ex. 46; Ex. 47 at 2, 4, 8, 12, 14; Ex. 48 at SCO1275739.) In its initial press release on the program, SCO mentioned both UnixWare and OpenServer as implicated. (Ex. 53.)

51. In its early months, the SCOsource division oversaw the filing of SCO's lawsuit against IBM and the execution of the Sun and Microsoft Agreements, as well as SCO's letter to "Fortune 1000" Linux users explaining that "Linux infringes on our UNIX intellectual property and other rights." (Ex. 50.)

52. In addition to the Sun and Microsoft Agreements, SCO entered into SCOsource agreements with REDACTED

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REDACTED

(Novell Memorandum in Support of its Motion for Summary Judgment on its Fourth Claim for Relief (Dec. 21, 2007), Docket No. 482, ¶ 17.)

53. During the program, SCO made public statements regarding the technology in Linux. (Exs. 46, 52-55, 57, 59.) In describing its proposed agreements and the SCOsource program, SCO generally referred to the "UNIX" or "UNIX System V" technology it believed was in Linux. (Id.) In making its statements, SCO intended to convey and did convey that both "UnixWare" and "OpenServer" technology might have been improperly included in Linux (Ex. 8 at 61-62, 63, 70, 75; Ex. 46; Ex. 53.)

54. Novell acknowledged, prior to this litigation, that UnixWare is a UNIX System V operating system. In the 1995 Novell's Guide to UnixWare 2, Novell says that the Guide "provides Novell's authorized guidance to its remarkable UNIX System V Release 4.2 product." (Ex. 60.) The Introduction explains that "[t]he UnixWare 2 version of UNIX System V is showcased in this book" and that "UnixWare is the brand name for Novell's UNIX System V product." (Id. at xxiii-xxvi.)

55. In January 2003, when it announced the SCOsource program, SCO focused on both UnixWare and OpenServer technology in delineating its concern for "UNIX" technology in Linux. SCO CEO Darl McBride explained that "SCO is the developer and owner of SCO UnixWare and SCO OpenServer, both based on UNIX System V technology" and that "SCO

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owns much of the core UNIX intellectual property, and has full rights to license this technology."' The press release goes on to state that "[t]he System V for Linux license will provide access to SCO's UNIX System Shared Libraries," explaining such a license will be provided where "[i]n the past, SCO's UnixWare and OpenServer license agreements did not allow these UNIX libraries to be used outside of SCO's operating systems. With this announcement, customers can now license these libraries from SCO for use with Linux without having to license the entire SCO operating system." (Ex. 46.)

56. In February 2003, SCO created a "SCO System V for Linux Sales Guide." The document repeatedly refers to SCO's concern that "UnixWare" and "OpenServer" technology has been improperly used in Linux. (See, e.g., Ex. 47 at 2, 4, 8, 12, 14.) In referring generally to "SCO System V," SCO thus was including both OpenServer and UnixWare.

57. The February 2003 Sales Guide further underscored the point in its section on "Frequently Asked Questions about SCO System V for Linux":

1. Why is SCO creating the SCO System V for Linux product?

SCO has a large amount of intellectual property in its shared libraries that are required to run UNIX applications on top of Linux. We are simply asking vendors, developers, and customers who make use of these libraries to pay a reasonable software-licensing fee to SCO in order to use these libraries.

2. What are these SCO shared libraries called? How can they be identified?

In SCO OpenServer as an example, there is a directory named "/shlib" which stands for shared libraries. This is the directory that is copied into Linux and allows UNIX applications to then be run on Linux. The director may be called /shlib on Linux, but it can also appear as /emul/osr5.shlib. UnixWare libraries, which are located in directories like /usr/lib And /lib in UnixWare, would be in similarly named directories under /emul/uw7.

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58. Other SCO documents further confirm that in referring to System V and/or UNIX in a variety of contexts, SCO included UnixWare and OpenServer. In a December 2002 press release discussing SCOsource, SCO stated: "SCO's shared libraries are frequently used by customers to allow UNIX applications to run on the Linux OS. In the past, SCO's UnixWare and OpenServer license agreements never allowed these UNIX libraries to be separated from the operating systems." (Ex. 53 at SCO1270121 (emphasis added).) In a December 2002 slide presentation, in describing the proposed "SCO System V for Linux" deliverable, SCO identified "SCO's shared UNIX Libraries from OpenServer and UnixWare for use with Linux." (Ex. 48 at SCO1275739 (emphasis added).)

59. SCO's July 2003 press release regarding the SCOsource Agreements conveyed both that the program consisted of offering counterparties UnixWare licenses and that SCO's references to "UNIX" and "UNIX System V" reflected that fact. The first paragraph states:

The SCO Group today announced that it has received U.S. copyright registrations for UNIX System V source code, a jurisdictional pre-requisite to enforcement of its UNIX copyrights. The company also announced it will offer UnixWare licenses tailored to support run-time, binary use of Linux for all commercial users of Linux based on kernel version 2.4.x and later. SCO will hold harmless commercial Linux customers that purchase a UnixWare license against any past copyright violations, and for any future use of Linux in a run-only, binary format.

60. The contemporaneous documents demonstrate that the "SCOsource Linux Licensing Program" was designed and executed to be a UnixWare binary license. REDACTED

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REDACTED

61. In addition, SCO charged licensees the same per-CPU prices for a SCOsource Agreement as it did for a UnixWare business edition binary license. (Compare Ex. 62 at SCO149255 with Ex. 63 at SCO 1551873.)

62. Chris Sontag is the former SCO executive who oversaw the SCOsource program with Mr. McBride. (See, e.g., Ex. 8 at 71-72.) Mr. Sontag repeatedly testified that, in describing the scope of the program, SCO always intended to include UnixWare as technology that had been improperly contributed to Linux. (Id. at 61-62, 63, 70, 75.) Mr. Sontag further testified that those public statements corresponded to SCO's intent to include UnixWare technology within the scope of the SCOsource, Sun, and Microsoft Agreements themselves. (Id.)

63. Mr. Sontag explained with respect to SCOsource, for example, that "when you're licensing intellectual property, you're licensing the most recent extantiation of that intellectual property. In my view that would be the last version of UnixWare at the time. And as part of

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that, we would also be providing a license to all the precedent of that intellectual property." (Id. at 30-31; accord id. at 40-43 (Mr. Sontag offers the same testimony with respect to the language of a January 2003 press release in particular).)

64. Mr. Sontag explained that "one of the underlying purposes of SCOsource" was "to license the most recent versions of our intellectual property," which he identified as UnixWare and OpenServer. (Id. at 32.) He further explained that "a standard practice of SCO and all of its predecessors, when licensing the UNIX intellectual property, was to license all the previous versions when you provide that license." (Id.) He explained that "[g]iven that it's part of the UnixWare and OpenServer intellectual property," then older UNIX System V technology "is part of what would be licensed" under the program. (Id. at 32-33.)

65. Mr. Sontag explained, with reference to a January 2003 press release, that the "SCO System V for Linux licenses" was a reference to "UnixWare OpenServer [sic] run-time libraries being made available to Linux users who wanted to be able to incorporate those libraries into their Linux operating system to allow for better application compatibility of those UNIX applications on top of a Linux operating system." (Id. at 44-45.)

66. With reference to the "Fortune 1500" letter that SCO sent as part of the SCOsource program, Mr. Sontag testified regarding the references to "UNIX" and "UNIX System V" in the letter that "we felt that the overall description of UNIX as owned by SCO applied to both UnixWare and OpenServer, and all of the preceding technologies that went into them." (Id. at 61.) He explained that the references to "UNIX System V" in the document are "just a label for our overall UNIX intellectual property ownership," that "the way I view that we are using the term 'UNIX System V' or 'UNIX' is also encompassing UnixWare and OpenServer." (Id. at 61-

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62; accord id. at 62-63.) Mr. Sontag gave the same testimony regarding the similar, general references in subsequent SCO press releases and letters. (Id. at 69-70, 75-78.)

67. Mr. Sontag explained that SCO used a general reference to "UNIX" or "UNIX System V" rather than a reference to all of the previous names for types of UNIX, including the brand names "UnixWare" and "OpenServer," for "brevity" and because SCO "[d]idn't believe it was necessary" to make the longer reference. (Id. at 75, 78.)

68. SCO's Intellectual Property Compliance License Agreement for Linux with Questar Corporation ("Questar"), executed by Questar on December 19, 2003, and by SCO on January 16, 2004, is typical of the other SCOsource agreements. (Ex. 64.) To the best of SCO's knowledge, Questar does not distribute the Linux operating system and has neither developed any version of UNIX nor sold any version of UNIX. (Ex. 49 ¶ 28.).

69. Questar understood the release in the Agreement to be for any claims SCO might have against Questar for using any SCO intellectual property in Linux. (Ex. 65 at 9-10.) Questar and SCO intended that SCO's release pertained only to Questar's use of any SCO intellectual property in Linux, not separate from or in operating systems other than Linux. (Id. at 19-20, 44.)

70. Questar neither understood nor intended that it could use however it wanted any of the SCO intellectual property that was in Linux. (Id. at 49-50.) Questar has no view as to whether SCO has released any claims for any source code in Linux taken from any particular release of UNIX. (Id. at 13-14, 43-44

71. In 2005, SCO discontinued the SCOsource program. (Ex. 66 ¶ 2.)

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VIII. "SVRX LICENSES" AND "CLAIMS" UNDER THE APA

72. Novell transferred "SVRX Licenses" to Santa Cruz under the APA and retained certain rights with respect to such Licenses. (Ex. 5 § 4.16(b).) The Court noted in its August 10 Order that there is some ambiguity in the APA's attempt to define "SVRX Licenses"; the Court concluded that "SVRX Licenses are all licenses relating to the software releases listed in Item VI" and "the natural meaning of SVRX License includes any license to the listed SVRX releases." Novell and Santa Cruz also entered into a Technology License Agreement ("TLA") with the APA. (Ex. 67.) In the TLA, Santa Cruz licensed back to Novell the trade secrets, know-how, and methods and concepts in the UNIX and UnixWare source code that Novell had transferred to Santa Cruz under the APA. (Ex; 5 § l.6; Ex. 67 § II.A; Novell's Memorandum in Support of Novell's Motion for Summary Judgment on SCO's First Claim for Slander of Title and Third Claim for Specific Performance (Apr. 20, 2007), Docket No. 286, at 31.)

73. Novell also transferred to Santa Cruz the following assets (among others): "All of Seller's claims arising after the Closing Date against any parties relating to any right, property or asset included in the Business." (Ex. 5 Schedule 1.1(a), Section II.)

74. The rights, property, and assets included in the Business included "all versions of UNIX and UnixWare and all copies of UNIX and UnixWare (including revisions and updates in progress" (id., Section I), "all technical, design, development, installation, operation and maintenance information concerning UNIX and UnixWare, including source code" (id.), and "All copies of UNIX and UnixWare, wherever located, owned by Seller" (id., Section III). Novell also transferred to Santa Cruz the following assets (among others): "All of Seller's claims arising after the Closing Date against any parties relating to any right, property or asset

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included in the Business." (Ex. 5, Schedule 1.1(a), Section II.) Santa Cruz, in turn, transferred all such claims to SCO. (Ex. 88 § 1 (vi)-(vii).) In its Order dated August 10, 2007, this Court also concluded (at 55) that SCO received "ownership" rights. SCO therefore owned any claims arising after 1995 for the unauthorized use of any intellectual property from the UNIX or UnixWare source code.

IX. NOVELL AND THE SCOSOURCE PROGRAM

75. In late 2002, SCO and Novell engaged in several telephone conversations concerning SCO's plans to protect its intellectual property in Linux through agreements for Linux users. (Exs. 68-70.) SCO asked Novell, whom SCO of course knew was a predecessor-in-interest in the UNIX business, to "perform due diligence on UNIX intellectual property" before SCO launched the SCOsource program. (Ex. 70.) Specifically, SCO asked for documents "to understand its IP rights" for purposes of "IP tracking" and for "documents that help give the history of SCO's rights to UNIX." (Exs. 68, 69.)

76. SCO did not ask Novell for permission to enter into the contemplated agreements for Linux users, explaining that it was going to license its UNIX intellectual property to those who were using Linux. (Exs. 69, 70.) Novell did not tell or suggest to SCO that such agreements were SVRX Licenses under the APA, that Novell needed to approve them, or that SCO needed to remit revenues from those agreements to Novell. (Exs. 68-71; Ex. 72 at 185-188.) In fact, Novell internal emails enumerate Novell's responses to SCO's requests for "documents" or "due diligence" without any reference to or discussion of any asserted rights to dictate the terms of the contemplated agreements or to any payments thereunder. (Exs. 68, 69.) Novell was firm that it

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was not interested in providing the requested information to SCO and that it had no "interest" in participating whatsoever in SCO's proposed program. (Exs. 70, 71.)

77. In his November 20, 2002, email to Jim Lundberg and Josepha LaSala, Novell Associate General Counsel Greg Jones recounted his conversation of earlier that day with Darl McBride, the CEO of SCO, in which Mr. McBride asked for "Novell documents that help give the history of SCO's rights to UNIX." (Ex. 69.) Mr. Jones reported that in response he "advised Darl that: 1. Novell carefully considers any request for information in support of a third party's litigation activities; and 2. As he expressed a specific interest in agreements between Novell and UNIX System Laboratories, to the extent any such documents are not publicly available through EDGAR, they would probably be subject to confidentiality agreements." (Id.)

78. In his December 4, 2002, email to several Novell employees, Mr. Jones reported on his follow-up conversation with Mr. McBride of earlier that day, in which "Darl reiterated his request for Novell's assistance" with "due diligence." (Ex. 70.) Mr. Jones reported that he and another Novell employee, David Wright, had declined the request by offering four reasons enumerated and specifically described in the email. None of those reasons were remotely related to the parties' rights under the APA. (Id.)

79. Indeed, as in the email of November 20, 2002, Mr. Jones did not report that SCO asked Novell for permission to enter into the contemplated SCOsource agreements, or that Novell had told SCO that such agreements would be SVRX Licenses under the APA, that Novell needed to approve them, or that SCO would be obligated to remit revenues from those agreements to Novell. (Exs. 69, 70.) In his deposition, Mr. Jones confirmed that he had not told SCO anything other than some of the points enumerated in the foregoing internal emails. (Ex. 72 at 185-88.)

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80. During his conversations with Novell in late 2002, Mr. McBride pointed out to Mr. Jones that SCO's efforts to enforce its intellectual property in Linux would indirectly help the sale of the various UNIX flavors that compete with Linux in the marketplace. Mr. McBride explained that a boost in the sale of such UNIX products would potentially increase the declining SVRX Royalty stream that SCO remitted to Novell from contracts that licensed out the older products. (Ex. 70; Ex. 73 at 243-44.)

81. Novell clearly considered the nature and scope of the program SCO had described — as reported in a Novell internal email of December 4, 2002, for example, Mr. Jones and Mr. Wright responded to Mr. McBride by explaining that "any increase" in revenues to Novell "would not necessarily occur and the amount would likely not be significant to Novell." (Ex. 70.)

82. Novell concedes that its contacts with SCO in 2002 "at least suggested to us [Novell]" that "SCO's intention" was to "collect license revenue from vendors for licenses associated with SVRX code." (Ex. 74 at 86-87.) During this time, moreover, Novell had an active interest in becoming directly involved in Linux. Mr. Jones explained to his colleagues on December 4, 2002, for example, that during his and Mr. Wright's conversation with Mr. McBride that day, "We did not mention in any way Novell's. own interest in becoming more active in the Linux area in a more direct manner." (Ex. 70.)

83. In its Fourth Claim in its Amended Counterclaims, among other requests for declaratory relief, Novell seeks a declaration "that SCO had no authority to enter into the Sun and Microsoft SVRX Licenses, as well as the Intellectual Property Licenses with Linux end users and UNIX vendors." (Novell's Amended Counterclaims ¶ 123.)

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X. THE MICROSOFT AGREEMENT

84. On April 30, 2003, SCO and Microsoft entered into a "Release, License and Option Agreement" (the "Microsoft Agreement"). (Ex. 75.) Although it had previously licensed earlier versions of UNIX, Microsoft was not a UNIX (either UnixWare or OpenServer) licensee at the time of the Agreement. (Ex. 11 ¶ 35.)

85. REDACTED

86. REDACTED

87. REDACTED

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90. REDACTED

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91. REDACTED

92. REDACTED

93. REDACTED

94. REDACTED

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REDACTED

XI. THE SUN AGREEMENT

95. On February 25, 2003, Sun and SCO entered into a "Software Licensing Agreement" (the "Sun Agreement" or "2003 Sun Agreement"). (Ex. 80.) At that time, Sun was a licensee of the older UNIX technology and had developed its own version of UNIX, called Solaris. (Ex. 49 ¶ 25.) Sun had never obtained a license to UnixWare; instead, in 1994, Sun had entered into a Software License and Distribution Agreement with Novell. (Id.; Ex. 81.)

96. In the 1994 agreement, REDACTED

97. REDACTED

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REDACTED

98. REDACTED

99. REDACTED

100. REDACTED

101. REDACTED

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102. REDACTED

103. REDACTED

A driver, also known as a device driver, is a file that contains information needed by a program to operate a device such as a hard disk or Internet connection. (Ex. 49 ¶ 26; Ex. 87 ¶ 8.) Without the drivers that work with a particular operating system, a person or company in effect cannot use the operating system for any conventional tasks. Without the drivers for a hard disk or internet connection, for example, the operating system cannot be used for any task that requires a hard disk or an internet connection. (Id.) With respect to a business, the drivers are thus a prerequisite for the operating system to have any utility for conventional business purposes. (Id.) REDACTED

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104. REDACTED

105. Sun's public statements reflect its view that the Sun Agreement primarily concerned the drivers. In 2003, for example, current Sun CEO Jonathan Schwartz stated with respect to the 1994 and 2003 Agreements:

We took a license from AT&T initially for $100 million as we didn't own the IP. The license we took also made clear that we had rights equivalent to ownership. When we did the deal with SCO earlier this year we bought a bunch of drivers and when we give money to a company oftentimes we get warrants, which is part of the negotiations. I have warrants in 100 different companies, we have a huge venture portfolio.

106. REDACTED

107. REDACTED

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REDACTED

108. REDACTED

109. REDACTED

XII. STAND-ALONE LICENSES FOR OLDER UNIX TECHNOLOGY

111. It has been many years, in some cases more than two decades, since SCO or its predecessors-in-interest (including Novell) have entered into stand-alone licenses for the older UNIX (including SVRX) technology to which SCO has granted licenses as prior products in UnixWare licenses such as the Sun and Microsoft Agreements. (See ¶¶ 112-113, below; Ex. 49, Attachment A, B.)

112. With respect to some versions of UNIX, such as UNIX/32V Time-Sharing System, Version 1.0, the product has not been separately licensed since 1982. (Ex. 49, Attachment A, B.)

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UNIX System V, Releases 1 and 2 have not been separately licensed since the late-1980s. (Id.) UNIX System V, Releases 3 and 4 have not been separately licensed since the late 1980s or early 1990s. (Id.)

113. As separate operating systems, the older versions of UNIX are not marketable to consumers because those earlier versions do not take advantage of hardware enhancements made to new processors and peripherals adopted by computer manufacturers. (Ex. 49 ¶ 5; Ex. 56 ¶ 5; Ex. 87 ¶ 5.) The current version of UnixWare includes the important parts of the prior versions of UNIX coupled with modifications that take advantage of improvements made to computer systems by hardware manufacturers. (Id.) As a practical matter, purchasers would not have the option to purchase the hardware on which the older versions of UNIX had run because computer manufacturers have adopted the newer hardware. (Id.) Given the market realities, it would not be practical to run an older version of the UNIX operating system on a newer system. (Id.)

ARGUMENT

I. LEGAL STANDARD ON SUMMARY JUDGMENT

"Summary judgment should not be granted unless the evidence, viewed in the light most favorable to the party opposing the motion, shows there are no genuine issues of material fact and the moving party is due judgment as a matter of law." Blackhawk-Cent. City Sanitation Dist. v. Am. Guar. & Liab. Ins. Co., 214 F.3d 1183, 1188 (10th Cir. 2000). "Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). "The evidence of the non-movant is to be believed, and all justifiable inferences are

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to be drawn in his favor." (Id.) This Court has often recognized these principles.¹ The Tenth Circuit also has often cited and applied them.²

II. NOVELL IS NOT ENTITLED TO ANY DECLARATION ON THE ALLEGED MERITS OF ITS FOURTH CLAIM

A. An "SVRX License" Is Not Any Contract That Relates to SVRX.

An agreement must be construed as a whole, Nish Noroian Farms v. Agric. Labor Relations Bd., 35 Cal. 2d 726, 735 (1984), and interpreted practically to give effect to every provision, Cal. Civ. Code § 1641. Extrinsic evidence is admissible to support interpretations to which the language is reasonably susceptible and to demonstrate the parties' intent under ambiguous provisions. Dore v. Arnold Worldwide, Inc., 39 Cal. 4th 384, 391 (2006).

The Court noted in its August 10 Order that there is some ambiguity in the APA's attempt to define "SVRX Licenses"; the Court concluded that "SVRX Licenses are all licenses

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relating to the software releases listed in Item VI" and "the natural meaning of SVRX License includes any license to the listed SVRX releases." (¶ 72.) Novell ignores plain language in the APA and in the Court's Order in arguing (at 8) that "licenses that excuse a company's purported past and future infringement of SVRX copyrights are 'SVRX Licenses' within the meaning of the APA" and (at 9) any "litigation-avoidance agreement" must be a "license." The mechanism by which the SCOsource Agreements and relevant portions of the Sun and Microsoft Agreements "excuse" those counterparties' possible infringement is a "release," and there is a plain difference in how releases as opposed to "SVRX Licenses" must be treated under the APA.

Among the assets Novell transferred to Santa Cruz were all "claims arising after the Closing Date against any parties relating to any right, property or asset included in the Business." (¶ 73.) The rights, property and assets included in the Business included all copies of the UNIX and UnixWare source code and any trade secrets, know-how, and methods and concepts in the UNIX source code. (¶ 74.) In its Order dated August 10, 2007, this Court also concluded (at 55) that SCO received "ownership" rights. (Id.) SCO therefore owned any claims arising after 1995 for the unauthorized use of any intellectual property from the UNIX or UnixWare source code. There is no language in the APA even suggesting that SCO could not waive such claims. In addition, the terms of the 1995 Technology License Agreement ("TLA") defeat Novell's argument that "SVRX Licenses" includes even any "license" relating to the SVRX releases. In the TLA, Santa Cruz licensed back to Novell the trade secrets, know-how, and methods and concepts in the SVRX source code that Novell had transferred to Santa Cruz under the APA. (¶ 72.) The TLA thus is a license relating to the SVRX releases listed in the APA. If Novell's interpretation were correct, then under Section 4.16(b) of the APA Novell could have

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breached the TLA but then simply required Santa Cruz or SCO to waive the breach. Novell has never asserted that its waiver rights extend to the TLA, and the Court concluded in its summary judgment order that SCO's claim for Novell's breach of the TLA may proceed in part. The TLA alone thus demonstrates that not any contract relating to SVRX was intended to constitute an SVRX License.

B. The SCOSource Agreements Are Not "SVRX Licenses".

1. The Origins of the SCOsource Program.

The linchpin of Novell's argument that the SCOsource Agreements concern only "SVRX" rights and not UnixWare rights as those terms are used in the APA is Novell's unsupportable and inaccurate assertions that (at 2) "SCO has never claimed SCOsource had anything to do with SCO's UnixWare derivative rights," that (at 5) "[f]rom start to finish, SCO never claimed SCOsource had anything to do with SCO's UnixWare derivative rights, and any attempt by SCO to recast SCOsource now should fail," and that (at 6) "there can be no debate that SCOsource is, fundamentally, a program to license Novell's SVRX rights."³ It follows that if Novell is wrong about those assertions, it is wrong about its characterization of the SCOsource program and the concomitant SCOsource Agreements. And it is.

Contrary to Novell's arguments, SCO was concerned that technology had been taken from OpenServer and UnixWare and improperly used in Linux, and the contemporaneous

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documents — belying Novell's allusions to any SCO attempt to "recast" its concerns at the time — show that to be true. (¶¶ 50-70.) Novell cites SCO's general allusions to "UNIX" and "UNIX System V" at the time, but UnixWare and OpenServer are both "UNIX" and specifically "UNIX System V" operating systems. (¶¶ 2, 3, 54.) Indeed, prior to this litigation Novell acknowledged in its own UnixWare Guide that UnixWare is a "version of UNIX System V." (¶ 54.) The documents reflecting SCO's concerns at the outset and pendency of SCOsource specifically and repeatedly show that SCO was focused on UnixWare and OpenServer technology in Linux. (¶¶ 50-67.)

SCO's July 2003 press release regarding the SCOsource Agreements, for example, conveyed both that the program comprised UnixWare licenses and that SCO's references to "UNIX" and "UNIX System V" reflected that fact. The first paragraph states:

The SCO Group today announced that it has received U.S. copyright registrations for UNIX System V source code, a jurisdictional pre-requisite to enforcement of its UNIX copyrights. The company also announced it will offer UnixWare licenses tailored to support run-time, binary use of Linux for all commercial users of Linux based on kernel version 2.4.x and later. SCO will hold harmless commercial Linux customers that purchase a UnixWare license against any past copyright violations, and for any future use of Linux in a run-only, binary format.

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2. SCO's Right to Release Its Claims.

In the SCOsource Agreements, SCO releases any claims against Linux users for the unauthorized use in Linux of any intellectual property from UNIX or UnixWare. (¶¶ 68-70.) Where SCO had the right to pursue such claims under the APA, including possessing "ownership" rights (¶¶ 72-74), it also had the right to release them.⁴ The primary question is not whether releases and licenses are the same or different in some academic sense, but rather whether the parties to the APA intended a release of the claims to which SCO had the rights to be equivalent to a license of technology. As a matter of contract interpretation, courts have emphasized that "[i]t is important to differentiate between the Agreement's release and license provisions." Dogloo. Inc. v. Doskocil Mfg. Co., 893 F. Supp. 911, 920 (N.D. Cal. 1995). The plain text of the APA shows that they did not so intend. In addition, a release is not the same as a license. In contrast to a release, for example, the granting of a license does not preclude lawsuits for accrued damages for past infringement. See, e.g., Schering Crop. v. Rousell-UCLAF SA, 204 F.3d 341, 345 (Fed. Cir. 1997).⁵

Further, to the extent there is licensing of rights in the SCOsource Agreements, that portion of those Agreements is entirely different from the "SVRX Licenses" that Novell transferred in 1995. Whereas the transferred SVRX Licenses gave the licensees the rights to use

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3. The Parties' Course of Performance.

The question of whether parts of the Agreements at issue constitute "SVRX Licenses" further exposes ambiguity in the meaning of that term. Novell's argument that the SCOsource Agreements constitute "SVRX Licenses" contradicts the parties' course of performance. The California Supreme Court has emphasized the "familiar rule that when a contract is ambiguous, a construction given to it by the acts and conduct of the parties with knowledge of its terms, before any controversy has arisen as to its meaning, is entitled to great weight, and will, when reasonable, be adopted and enforced by the court." Universal Sales Corp., Ltd. v. Cal. Press Mfg. Co., 128 P.2d 665, 671-72 (Cal. 1942) (citations omitted); accord Crestview Cemetery Ass'n v. Dieden, 356 P.2d 171, 176-77 (Cal. 1960); Hernandez v. Badger Constr. Equip. Co., 28 Cal. App. 4th 1791, 1814-15 (1994).

The court in Universal Sales emphasized that "a practical construction placed by the parties upon the instrument is the best evidence of their intention." 128 P.2d at 672; accord Crestview, 356 P.2d at 176-77, The court in Universal Sales reasoned:

Parties are far less liable to have been mistaken as to the intention of their contract during the period while harmonious and practical construction reflects that intention, than they are when subsequent differences have impelled them to resort to law, and one of them then seeks a construction at variance with the practical construction they have placed upon it.

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UNIX licensees often distributed and used binary products that included code from multiple versions of SVRX, including UnixWare. Novell and its successors required such licensees to pay only one set of royalties for the use or distribution of such a product. To identify the proper license under which such a product could be used or distributed and to calculate the appropriate royalty payments required for using or distributing such a product, Novell and it successors employed the "one line of code" rule. (¶ 24.) Under that rule, Novell and its successors required licensees to identify the latest version of SVRX code contained in a binary product — even if there was as little as one line of code from that version — and calculate royalty payments for that entire product under only that latest license. (¶ 25.) Novell and its successors prohibited licensees from parsing out the relative amounts of code from different versions of SVRX and paying portions of the requisite royalties under multiple SVRX licenses. (Id.)

Accordingly, licensees that distributed a UNIX binary product that contained code from SVR 3.0, SVR 4.0, and SVR 4.1 did not pay any SVR 3.0 or SVR 4.0 royalties for distributing that product, but instead paid only SVR 4.1 Royalties (and thus SVR 4.1 prices) for distributing that product. (¶ 26.) Similarly, licensees that used a product that contained SVR 3.0, SVR 4.0, and UnixWare 2.0 did not pay any SVR 3.0 or SVR 4.0 royalties for distributing that product, but instead paid only "UnixWare Royalties" (under the terms and prices of a UnixWare 2.0 license) for use of such a product. (Id.)

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When SCO started and while it pursued the SCOsource program, it believed that UnixWare code was being improperly used in Linux. (¶ 27.) Accordingly, consistent with the parties' course of performance, payments for the use of Linux were to be calculated as UnixWare royalties (and UnixWare royalties only) under Novell's "one line of code" rule. Indeed, the contemporaneous documents — drafted before SCO entered into any of the SCOsource Agreements — demonstrate that the "SCOsource Linux Licensing Program" was designed and executed to be a UnixWare binary license, and the pricing of the SCOsource Agreements was exactly the same as the per-CPU pricing for SCO's UnixWare binary licenses. (¶¶ 60-61.) Novell thus improperly asks the Court to abrogate Novell's own "one line of code" rule — that would require all payments for the use of Linux to be calculated as "UnixWare Royalties" only — and instead characterize the SCOsource payments as SVRX Royalties.

In addition, UnixWare is simply the brand name for the latest version of UNIX System V; UnixWare encompasses the SVRX operating systems. (¶¶ 1-3.) Accordingly, in order to prove that SCO lacked the authority to enter into the SCOsource Agreements, Novell would have to demonstrate that SCO afforded Linux users the right to use SVRX technology that was not included in any version of UnixWare and was included in Linux. Novell fails to adduce any evidence even suggesting any such category of technology.

It bears emphasis, moreover, that Novell's own conduct belies its claim that these Agreements constitute "SVRX Licenses." SCO asked Novell, as a predecessor-in-interest in the UNIX business, to "perform due diligence on UNIX intellectual property" and to assist and participate in the program before SCO launched the SCOsource program. (¶¶ 75-82.) SCO did not ask Novell for permission to enter into the contemplated agreements, because it did not

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believe there was any need to do so. Just as importantly, despite several opportunities to do so, Novell did not claim that such agreements were SVRX Licenses, that Novell needed to approve them, that SCO did not have the authority or right to enter into such agreements, or that SCO needed to remit revenues from them. Nor did SCO even suggest that Novell would receive any fees paid under the contemplated Agreements. (¶¶ 76-82.) Instead, after deliberation, Novell simply stated that it had no "interest" in participating in the program and that Novell would not receive any certain or direct financial benefit from the payments SCO received. (¶¶ 76-81.)

C. The Microsoft and Sun Agreements Are "SVRX Licenses" Only in Part.

1. The Microsoft Agreement.

Novell argues otherwise (at 7), but this Court has not held that the Microsoft Agreement is an "SVRX License" in its entirety. The question of what portion of the Agreement constitutes an "SVRX License," and of its comparative importance to the other components of the Agreement, is an issue this Court has not resolved and has been set for trial.

REDACTED

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In addition, Novell has made no showing of any SVRX technology, let alone the prior SVRX products, in any Microsoft product. Novell has previously asked the Court to draw inferences from SCO's public assertions regarding intellectual property in Linux — which statements in any event clearly concerned UnixWare and OpenServer — but that does not bear on what technology may or may not be included in Microsoft's proprietary products. To the contrary, REDACTED

REDACTED

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2. The Sun Agreement.

REDACTED

REDACTED

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Novell therefore is not entitled to its requested declaration as it pertains to the SCOsource Agreements; Sections 2 and 3 of the Microsoft Agreement; or Sections 10, 12, and 13 of the Sun Agreement, because those parts of the agreements are not SVRX Licenses.

D. The Microsoft and Sun Agreements Licensed SVRX Products "Incidentally" to UnixWare.

With respect to the limited parts of the Agreements that do constitute, in part, an SVRX License — Section 4 of the Microsoft Agreement and Section 4 of the Sun Agreement — SCO had the authority to enter into those types of SVRX Licenses. Novell acknowledges that under Amendment No. 1 to the APA, SCO has the right to enter into amendments of SVRX Licenses and to enter into new SVRX licenses "as may be incidentally involved through its rights to sell and license UnixWare software." (¶ 16.)

1. The Meaning of "Incidentally".

The word "incidentally" is not defined in either the APA or its Amendments. Novell's former General Counsel admitted that he has no view "as to what it means for Santa Cruz to license SVRX source code incidentally to UnixWare," and that he thinks the word "incidentally" is "ambiguous" and "not terribly precise." (¶ 17.) Similarly, as a company, Novell declined in discovery to take any affirmative position on the meaning of the word "incidentally" in Amendment No. 1. Instead, Novell testified that it "doesn't seem to be a term that needs more explanation" and that Novell "would probably just go to a dictionary and get the language out of that." (¶ 18.) On whether the word incorporates the practice whereby the owner of UNIX or UnixWare technology would license "older versions of Unix whenever it licensed the most recent version of Unix," Novell testified that it did not have any "knowledge" or "view" on that "one way or the other." (Id.) Indeed, in its motion, Novell makes no effort at all to define what

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"incidentally" means. Instead, Novell assumes that whatever the term means, there cannot be "incidental" licensing here.

"'Incidental' obviously means depending upon or appertaining to something else as primary; something necessary, appertaining to, or depending upon another which is termed the principal, something incidental to the main purpose." Kelly v. Hill, 104 Cal. App. 2d 61, 65 (1951). The dictionary definition (to which Novell alluded) explains that "incidental" means a "minor accompaniment" or something of a "minor" or "subordinate nature." The American Heritage Dictionary of the English Language (4th ed. 2000).

In licensing UNIX products, AT&T, USL, Novell, and Santa Cruz also often licensed the same rights to the older UNIX products, identified as the "Prior Products." (¶ 8.) Once UnixWare was developed, Novell and Santa Cruz continued to license UnixWare products with the same rights to the prior UnixWare and/or SVRX products. (¶¶ 9-10.) The rights to the prior products were clearly subordinate to the rights to and utility of the most recent version of the software. (¶¶ 11-13.) Their significance was minor, including because the most recent version of the software was built upon and incorporated prior-product technology. (¶¶ 1-3, 11-13.) The only reasonable conclusion — and certainly on summary judgment a reasonable conclusion — to draw from the context in which the APA as amended uses the phrase "incidentally," from the fact that UnixWare is based on and derivative of UNIX System V, Release 4, and from the fact that Novell itself had an established practice of licensing prior SVRX technology with its UnixWare licenses, is that the word refers to that practice. Novell fails even to propose any alternative interpretation.

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2. The Parties' Course of Performance.

In the audit of Santa Cruz that Novell conducted in 1998, Novell sought only information for stand-alone SVRX licenses, and did not ask Santa Cruz to produce any information regarding the fees and royalties that Santa Cruz received under prior product SVRX licenses (that is, its UnixWare licenses that included incidental licenses to prior SVRX technology) or even SVRX prior product licenses that Novell had signed and transferred to Santa Cruz. (¶ 20.) Novell did not ask or suggest to Santa Cruz that it should undertake to allocate to the older versions of UNIX any value of the fees and royalties that Santa Cruz received under any UnixWare license granting rights to such older versions because there was no fee paid for that portion of the

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license. (Id.) The same is true of Novell's 2003 audit of SCO, even in the face of imminent litigation between the companies. (¶ 22.)

Novell has argued that SCO's UnixWare license with Unisys suggests that SCO had previously allocated monies to Novell from such licenses, but the facts concerning Novell's own selected example show the exact opposite. Correspondence from Santa Cruz to Novell indicated the parties' agreement that Santa Cruz would not pay Novell any portion of the royalties from the 1995 UnixWare license with Unisys in which Novell itself had incidentally licensed to Unisys the same SVRX prior products; Novell received only the binary royalties that Unisys owed under its other, stand-alone 1991 SVRX license. (¶¶ 28-39.) Novell never asked Santa Cruz or SCO for any portion of the UnixWare royalties that Santa Cruz had informed Novell that Santa Cruz was retaining. (Id.) The parties have always treated all royalties from UnixWare licenses as SCO's, even when there was also an incidental license of SVRX included in that UnixWare license. (¶¶ 9-13, 19-20.) Such course of conduct and practice should control here.

In addition, UNIX licensees often distributed and used products that included code from multiple versions of SVRX, including UnixWare. Novell and its successors required such licensees to pay only one set of royalties for the use or distribution of such a product, as per Novell's own "one line of code" rule. (¶¶ 24-26.) As such, Novell and its successors evidenced the incidental nature of SVRX code, when that code was distributed or used in combination with UnixWare. Indeed, Novell and its successors prohibited licensees from parsing out the relative amounts of SVRX code and paying portions of the requisite royalties under SVRX licenses, instead allowing licensees to pay only UnixWare royalties for a product that contained SVRX code combined with any amount of UnixWare code. (Id.)

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All of this evidence belies Novell's newly minted, post hoc argument (in its trial brief) that a supposed "primary benefit" of Novell's right to approve new SVRX Licenses was to allow the parties to work out a fair apportionment of licensing revenue and to structure licenses to clarify the parties' rights. There is no evidence of any such rationale in the APA or in the parties' conduct, and when SCO approached Novell in 2002 to discuss SCOsource, Novell said nothing about any of its supposed rights, about any obligation on SCO's part to await Novell's approval; or about any need to structure the contemplated agreements in any particular way and Novell affirmatively represented to SCO that Novell had no interest in the program and did not want to participate. (¶¶ 75-82.)

3. The Licensing of SVRX Prior Products.

It has also been many years, in some cases more than two decades, since SCO or its predecessors-in-interest have entered into separate licenses for the older UNIX (including SVRX) technology. (¶¶ 111-13.) That fact shows that such versions lack value independent of the most recent version of UNIX. As separate operating systems, the older versions of UNIX are not marketable to consumers because those earlier versions do not take advantage of hardware

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enhancements made to new processors adopted by computer manufacturers, which are critical to any company's practical use for an operating system. (¶ 113.)

The evidence also shows that Santa Cruz and SCO never attributed any independent value or price for the licensing of SVRX prior products. All of the licensees who entered into SVRX prior product licenses with Santa Cruz and SCO paid the same price as those who did not receive such licenses. (¶¶ 10-12.) The $375,000 list price for a UnixWare 2.0 license with Unisys that licensed the SVRX prior products, for example, was the same as the price for a contemporaneous UnixWare license with Alps that did not list the SVRX prior products. (¶ 12.)

4. The Microsoft Agreement.

REDACTED

That fact alone shows that UnixWare was the predominant technology at issue in the Agreement.

In addition, REDACTED

The license to the SVRX prior products was consistent with Novell's and SCO's prior practice; it appertained to, and was dependent on and subordinate to, the UnixWare license. (¶¶ 8-13.)

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In addition, REDACTED That assertion serves to underscore SCO's foregoing arguments. In 1995, for example, Novell and Unisys entered into "Fully Executed Agreements for the UnixWare 2.01 Software." (¶ 29.) The attached "Schedule for UnixWare Release 2.0 and UnixWare Release 2.0 International Edition" lists the "Prior Products" for which Unisys had obtained a license under its UnixWare license. (Id.) Only one of the at least 23 software versions in the Schedule — the number is actually much larger, because the last six entries in the list are for `'all prior releases" of multiple UNIX releases — was for a UnixWare release. Yet it is undisputed that the license constituted a "UnixWare" license and that Santa Cruz and SCO never paid, and Novell never sought, any payments allegedly made for such SVRX prior products. (¶¶ 19-23, 31-39.)

REDACTED

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REDACTED

5. The Sun Agreement.

REDACTED

A driver, also known as a device driver, is a file that contains information needed by a program to operate a device such as a hard disk or internet connection. Without the drivers that work with a particular operating system, a person or company in effect cannot use the operating system for any conventional tasks. Without the drivers for a hard disk or internet connection, for example, the operating system cannot be used for any task that requires a hard disk or an internet

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connection. With respect to a business, the drivers are thus a prerequisite for the operating system to have any utility for conventional business purposes. (¶ 103.)

REDACTED

In summarizing the Sun Agreement in 2003, for example, Sun's current CEO described the purchase as one in which Sun "bought a bunch of drivers," with no mention of any rights to SVRX prior products granted in the Agreement. (¶ 105.)

In addition, REDACTED

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REDACTED

Amendment No. 2. Novell also argues, incorrectly, that SCO breached Amendment No. 2 to the APA by failing to consult with Novell in connection with the Sun Agreement. Under Section B of Amendment No. 2, the parties must follow certain procedures for their joint management of "any potential transaction with an SVRX licensee which concerns a buy-out of any such licensee's royalty obligations." The Sun Agreement amended and restated the 1994 Sun agreement under which Novell granted Sun its buyout. Novell, asserts that the 2003 Sun Agreement falls within the scope of Section 5 because it "concerns" a buyout.

Novell's argument takes the merely introductory language to Section B out of context and defies the plain language of the substance of the Amendment. The language at issue in the Amendment applies to an agreement that itself grants a royalty buyout. (¶¶ 43-49.) (SCO disputes that Paragraph B.5 somehow applies solely to buyouts, or to transactions concerning past buyouts.) Paragraph B.4, for example, states that "Prior to either parties' unilateral determination as to the suitability of any potential buyout transaction, the parties will meet face to face and analyze the potential merits and disadvantages of the transaction." (Emphasis added.) Paragraph B.6 provides that "The parties agree that no member of Novell's sales force

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will receive a bonus, commission, quota attainment credit, or other type of sales incentive as a result of the buy-out of an SVRX licensee." (Emphasis added.) Paragraph C, moreover, provides as follows:

Novell may execute a buy-out with a licensee without any approval or involvement of SCO, and will no longer be bound by any of the requirements stated in Section B above, if: (I) SCO ceases to actively and aggressively market SCO's UNIX platforms; or (II) upon a change of control of SCO as stated in schedule 6.3(g) of the Agreement.

At a minimum, the foregoing language and conclusions of this Court shows that Section B of Amendment No. 2 is ambiguous as to its application beyond actual buyouts. With respect to extrinsic evidence on that issue, Novell ignores the circumstances that led to the execution of Amendment No. 2. The parties entered into Amendment No. 2 after Santa Cruz objected to

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Novell's unilateral attempt to grant IBM a buyout of its binary-royalty obligations. After the issue had arisen, in the summer of 1996, Santa Cruz repeatedly addressed with Novell "this issue of future buyout transactions." (¶¶ 43-45.) Santa Cruz stated its position as follows: "Any future discussion with a third party of a buyout would be handled solely by SCO, with help from Novell Corporate Development if required by SCO. The Novell Sales organization would play no role. If Novell and SCO mutually agreed, SCO would take action to conclude the transaction." (¶ 45 (emphasis added).) Santa Cruz explained that its position "pertains to any future buyout concerning binaries. (Id. (emphasis added).)

Larry Bouffard, the Novell account manager who conceived and oversaw the Novell-IBM buyout, explains that the purpose of Amendment No. 2 was to protect Santa Cruz from any further attempts by Novell to grant unilateral buyouts. (¶ 47.) Novell's former General Counsel admitted at deposition that "Amendment 2 outlines a procedure that the parties have to follow to enter into buyout agreements subsequent to the execution of Amendment 2" and that "the language applies only in the context of a buyout," where the "lead" paragraph "references potential transactions which concern a buyout." (¶ 46.) Accordingly, the extrinsic evidence confirms that the language in Paragraph B of Amendment No. 2 pertaining to buyouts is reasonably read to pertain only to actually royalty buyouts, not to any agreement that merely relates to a prior buyout.

III. ESTOPPEL PRECLUDES THE RELIEF NOVELL SEEKS.

The equitable doctrine of estoppel is based on a foundation of conscience and fair dealing. Where a company acts in a way that causes another company to believe a certain state of things, and induces that second company to act on that belief, the first company cannot assert

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a contrary position or a different state of things at a later date. Feduniak v. Cal. Coastal Comm'n, 148 Cal. App. 4th 1346, 1359 (2007); see also Cal. Evid. Code § 623.

The defense of such estoppel is, by its very nature, fact intensive. As a result, "equitable estoppel ordinarily presents an issue of fact," and summary judgment is almost never appropriate. Shamrock Dev. v. City of Concord, 656 F.2d 1380, 1386 (9th Cir. 1981)⁷ Summary judgment is not the place for the necessary factual determinations on equitable defenses. See Jacobsen v. Deseret Book Co., 287 F.3d 936, 949 (10th Cir. 2002) (reversing district court's holding that "the facts regarding laches and equitable estoppel are to be determined by the court" on summary judgment).

SCO has produced extensive evidence to show that Novell by its words and deeds caused Santa Cruz and SCO to believe that in licensing UnixWare to third parties, Santa Cruz and SCO was entitled to license SVRX technology with UnixWare, just as was Novell's practice. (¶¶ 8-10, 19-39.) If SCO had believed that there was any prospect that it would need to seek Novell's prior approval for the grant of rights to SVRX technology in the Sun or Microsoft Agreements, SCO would not have included those rights in the Agreements. (¶ 23.) Indeed, Santa Cruz did not regard those rights as significant components of the Agreements in the first place, offering similar rights at no charge to licensees since 1996. (Id.)

62 (69)

Novell has previously argued that SCO must prove an affirmative "waiver" by Novell and that it cannot be held to a standard of "estoppel by silence" because it was entitled to rely on its fiduciary. Novell's "waiver" argument misapprehends the law of estoppel and the factual assertions underlying the argument ignore Novell's affirmative right to audit Santa Cruz and SCO and the fact that Novell did undertake such audits of both companies without even suggesting the rights it now claims. "Waiver is distinguishable from estoppel in that it involves voluntary, intentional relinquishment of a known right either by affirmative acts or knowledgeable non-action." Britamco Underwriters, Inc. v. Nishi, Papagjika & Assocs., 20 F. Supp. 2d 73,77 n.2 (D.D.C. 1998); see also K. Bell & Assocs. v. Lloyd's Underwriters, 827 F. Supp. 985, 989 (S.D.N.Y. 1993) (explaining