Update: I'd say this is the most interesting part so far, on page 11:

Novell was free to seek in discovery whatever input it thought relevant from SCO, Sun, and Microsoft. Novell noticed but cancelled its proposed deposition of Microsoft, and then took only a short deposition of Sun which Novell reserved its rights to continue but never did.

I wonder why. Of course, it's SCO saying it. So who knows how close to correct that information is. But it definitely jumps off the page. I'd be curious to know the date of the cancelled deposition.

I think IBM will likely find the part about how System V has no independent value of particular interest. If it has no value, why did SCO sue IBM over System V? There certainly can be no doubt that the SCO v. IBM case is about System V, not UnixWare.

Update 2: Groklaw member gvc offers this very clear breakdown of SCO's tortured logic:

SCO's brief is laden with logical fallacies. I don't have time to go through all of them at this time, but here's one:

Unixware = sysv + stuff

Sysv is worthless as a standalone product, therefore the value of Unixware lies in the stuff.

An anonymous commenter found a case cited by SCO relating to ratification:

Haven't read the case but found it just by googling the phrase. I'm sure SCO is trying to use it out of context. Case is YAHOLA SAND & GRAVEL COMPANY v. MARX, Supreme Court of Oklahoma.

43. In Yarnall v. Yorkshire Worsted Mills, 370 Pa. 93, 87 A.2d 192, 193, 30 A.L.R.2d 939, 941, the court used language we deem applicable here. The court there said: "A client ratifies his attorney's act if he does not repudiate it promptly upon receiving knowledge that the attorney has exceeded his authority. In Baumgartner v. Whinney, 156 Pa.Super. 167, 171, 39 A.2d 738, 740, that court said, 'True, an attorney has no power, in the absence of express authority, to compromise or settle his client's claim. North Whitehall Township v. Keller, 100 Pa. 105. But a client may ratify his attorney's acts; and "an affirmance of an unauthorized transaction may be inferred from a failure to repudiate it": Restatement, Agency, § 94. Indeed, a client makes his attorney's act his own if he does not disavow it the first moment he receives knowledge that his attorney has transcended his authority. Bredin v. Dubarry, 14 Serg. & R. 27; Filby v. Miller, 25 Pa. 264; Andersen Coal M. Co. v. Sloan, Howell & Co., 46 Pa. Super. 320; Smuckler v. Di Napoli, 62 Pa.Super. 570.' Here there is no allegation of any repudiation of the stipulation until twenty months after appellant was acquainted with its content. "In addition to his failure to repudiate, appellant accepted the benefits of the settlement with full knowledge of its terms. It is a fundamental principle of the law of agency that such action is an election to ratify the unauthorized act and that by such election the principal is bound. Neel v. Crittenden, 353 Pa. 201, 204, 205, 44 A.2d 558; Blumberg v. Board Street Trust Company, 329 Pa. 471, 198 A. 27; Presbyterian Board v. Gilbee, 212 Pa. 310, 314, 61 A. 925, 926, where this Court said, 'It is repugnant to every sense of justice and fair dealing that a principal shall avail himself of the benefits of an agent's act and at the same time repudiate his authority'; Restatement, Agency, Sections 98, 99; cf. Gum v. Felton, 341 Pa. 96, 17 A.2d 386."

To which Groklaw member LEXLAW comments:

So -- as usual, the case cited by SCO/BSF(above) holds an entirely different principle than what SCO/BSF infers that it holds.

In the case above, the principal received the benefit (a settlement) directly from an opposing party in litigation, working in conjunction with his agent (his lawyer). Then later in time, the principal tried to disavow the settlement, presumably so that he could continue his litigation against the opposing party, and the principal claimed that he didn't know and approve the settlement. The ruling says, in effect, your approval is implied, you took the money, the money didn't come from nowhere, and clearly your attorney must have informed you, we're going to infer that he did based on your behavior (keeping the money and thus impliedly ratifying the settlement). Based on the Judge's ruling, it's clear that in this case the plaintiff didn't show any credible evidence that the agent/lawyer 'withheld' information, and the plaintiff took the money, which was prima facie evidence that the plaintiff knew about the settlement and its value.

In our case here, the agent (SCO) clearly HID the information about the license/covenant not to sue, so we KNOW that Novell was not informed. This is a fact already in the record. Also, Novell DIDN'T get the money at all -- SCO still has it (and spent it). As a result, Novell never had the chance to decide whether to keep the money and ratify yet, as its never gotten the money. So there has been no behavior by Novell that indicates ratification. That's a decision that Novell will make when it can and when it has to, which hasn't occurred yet.

So -- BSF's case is INAPPOSITE to the facts here.

Typical, of course.

LEXLAW

What I notice that I think proves SCO wrong in stating that SVRX has no value is this section, about the Microsoft deal:

Contrary to Novell's argument, moreover, there is no reasonable basis for inferring from Sections 3 and 4 that the "SVRX" component of Section 4 must be valuable. The restricted UnixWare license under Section 3 gave Microsoft the chance to review the code and determine if it wanted to exercise the fuller license in UnixWare, and to OpenServer. From a sales perspective, knowing that Microsoft was not prepared to commit to the full UnixWare or OpenServer licenses up front, SCO was able to maximize the prices for the two licenses by offering a tiered license that would permit Microsoft to review the code.

What interested Microsoft, in other words, was not UnixWare or OpenServer. It wanted the source. And the source is predominantly System V, as SCO itself has acknowledged. As for the drivers, all the ones SCO has listed that we have seen in any litigation context, as Novell points out, are pre-APA code. An anonymous commenter noticed something along the same lines:

Is it me, or does SCO *admit* on the top of p.18 that the UnixWare license is *incidental* to the SVRX license.

"... the material that IBM improperly contributed to Linux from AIX (derived from SVR3) and Dynix/ptx (derived from SVR4) operating systems, a UnixWare license alone gives the SCOSource licensees the right to use that material in Linux, because a UnixWare licensee has the right to use the System V prior products and their derivatives."

So, SCO admits to licensing UnixWare *primarily* for the purpose of licensing SVRX code.

That is hardly an indication that the SVRX license was 'incidental' to the UnixWare license. In fact, it seems, at face value, to be an admission to the contrary.

Jesse Weinstein has made a start for us in doing the text version, and I have now finished it:

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

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

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

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

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

Attorneys for Plaintiff, The SCO Group, Inc.

_________________________________

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

_______________________________

THE SCO GROUP, INC., a Delaware
corporation,

Plaintiff/Counterclaim Defendant,

vs.

NOVELL, INC., a Delaware corporation,

Defendant/Counterclaim-Plaintiff.

______________________________

TRIAL BRIEF ON BEHALF OF THE
SCO GROUP, INC.

FILED IN REDACTED FORM
[ORIGINALLY FILED UNDER SEAL]

Case No. 2:04CV00139

Judge Dale A. Kimball

Magistrate Brooke C. Wells

TABLE OF CONTENTS

TABLE OF AUTHORITIES.........................i

INTRODUCTION.................................1

ARGUMENT.....................................4

I. NOVELL BEARS THE BURDEN OF PROOF..........4

II. NOVELL IS NOT ENTITLED TO ANY DECLARATION......7

A. The SCOSource Agreements Are Not Royalty-Bearing "SVRX Licenses".........7

1. The Origins of the SCOsource Program.............7

2. SCO's Right to Release Its Claims.................7

B. The Microsoft and Sun Agreements Are "SVRX Licenses" Only in Part.....8

1. The Microsoft Agreement...................8

2. The Sun Agreement.........................10

C. The Microsoft and Sun Agreements License SVRX Products
"Incidentally" to UnixWare.....................11

1. The Meaning of "Incidentally".....................11

2. The Licensing of System V Prior Products..........12

3. The Sun and Microsoft Agreements..................13

D. SCO Has Complied with Amendment No. 2..............14

III. SCO DOES NOT OWE NOVELL ANY SIGNIFICANT AMOUNT OF
ALLEGED "SVRX ROYALTIES"........................16

A. Novell's Burden of Proof......................16

i

B. The System V Prior Products Have No Significant Independent Value.....17

C. In the SCOsource Agreements, the UnixWare Licenses Alone Give the
Licensees the Right to Use Linux......................17

D. In the Microsoft Agreement, the UnixWare and OpenServer Licenses
Give Microsoft All of the Rights It Sought................18

E. In the Sun Agreement, the UnixWare License and OpenServer Drivers
Give Sun All of the Rights It Sought...................21

F. If Novell Ratifies the Microsoft and Sun Agreements, SCO Is Entitled To
SVRX Royalties Under Section 1.2(3)(iii) of the APA as Amended........22

IV. ESTOPPEL PRECLUDES ANY RELIEF FOR NOVELL................25

CONCLUSION............................................27

ii

[Table of Cases, to be done]

i

[Table of Cases, to be done continued]

ii

Plaintiff/Counterclaim-Defendant, The SCO Group, Inc. ("SCO"), pursuant to the Court's Order dated January 15, 2008, respectfully submits its trial brief, summarizing arguments and evidence SCO will present at trial.

INTRODUCTION

As the plaintiff here, Novell seeks relief on four of its counterclaims, concerning SCO's rights and obligations under the amended 1995 Asset Purchase Agreement ("APA") with respect to certain agreements SCO executed in 2003 and 2004. The agreements comprise SCO's 2003 agreements with Sun Microsystems, Inc. and Microsoft Corporation (the "Sun" and "Microsoft" Agreements) and the other agreements SCO entered into as part of its SCOsource program (the "SCOsource Agreements").

SCO recognizes this Court's prior summary judgement ruling as controlling for these purposes and presents its arguments herein accordingly. In this trial, Novell pursues its Sixth ("Constructive Trust/Restitution/Unjust Enrichment"), Seventh ("Breach of Fiduciary Duty"), and Eighth ("Conversion") Claims (collectively, Novell's "claims for money") based on its alleged entitlement to "SVRX Royalties" for "SVRX Licenses" under the APA. Novell does not pursue, however, any claim for any alleged damages arising out of any alleged breach of any provision of the APA. Novell also seeks a declaration that SCO lacked the authority to execute all of the Agreements, based on allegations that SCO lacked such authority and that Novell has never ratified or approved the Agreements.

It bears emphasis that Novell has made no claim for royalties under the explicit provisions of the APA regarding royalties for sales of UnixWare. Under those provisions, at Section 1.2(b) and Schedule 1.2(b), SCO was obligated to remit UnixWare royalties to Novell

1

The Agreements gave the counterparties rights regarding UnixWare, OpenServer and System V. Even under the Court's prior summary judgment ruling, Novell must prove both that SCO lacked the authority to enter into the Agreements and that those Agreements contain "SVRX Licenses" with some non-de minimis value. SCO had the authority to execute these Agreements, and Novell cannot recover any significant payments made thereunder, principally because any SVRX component of the Agreements was incidental and very minor compared to the rights to UnixWare, and in some cases OpenServer as well. SCO was obligated to remit UnixWare royalties to Novell only if certain thresholds were met prior to the end of 2002, the agreements were all executed after 2002, and in addition the thresholds were never met.

The Question of Authority SCO had the specific authority to enter into SVRX Licenses and "amendments" of SVRX Licenses "as may be incidentally involved through its rights to sell and license UnixWare." The following questions, and answers, arise:

• Are the SCOSource Agreements simply "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. To the extent the Agreement contain licenses in addition to releases, those license include UnixWare binary licenses that give licensees all of the rights they needed with respect to the use of Linux.
• Are the Sun and Microsoft Agreements "SVRX Licenses"? Under this Court's prior summary judgment ruling, only a tertiary part of one of the five principal components

2

of the Microsoft Agreement is an "SVRX License." 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 these Agreements entered into "incidentally" to UnixWare? Yes. SCO had the authority to license UnixWare with System V prior products listed in the license, which is the practice the word "incidentally" encompasses. In addition, the UnixWare and OpenServer components of these agreements gave Sun and Microsoft all the rights they sought or needed.

The Question of Apportionment of Value. In determining any "SVRX Royalties" paid for any "SVRX Licenses" in the Agreements, the questions are whether those licenses add anything to the other rights the counterparties had obtained, and whether any such rights have any significant value relative to those other rights. The following questions, and answers, arise:

• Does Novell claim any right to SCO's UnixWare Royalties? No. Novell acknowledges, as it must, that SCO was entitled to retain all UnixWare royalties, where Novell's own documents state that in 1995 it transfered its "existing ownership interest in UNIX System-based offerings and related products." And UnixWare licenses at the time always included a license to prior products.
• Do the System V prior products have any significant independent value? No. It has been many years since the sale of any stand-alone licensees for the prior System V technology were made. Indeed, the older versions of UNIX are not marketable to consumers. In licensing UnixWare with the System V prior products, where the license to such prior products did not even constitute an independent license, Novell and SCO never attributed even an incremental value or price to those products.

3

• What is the importance of the UnixWare (and OpenServer) components relative to any SVRX license in the Agreements? Overwhelming. UnixWare is the latest release of System V. The value of any SVRX license in the Agreements depends on what rights such a license provides that the UnixWare license does not provide. SCO's evidence shows that the UnixWare licenses alone give the licensees all the rights they sought or needed.

Novell's claims for "SVRX Royalties" also turn on whether Novell has ratified and approved the Agreements. Novell says it never has. Where it also claims to be SCO's principal, it follows that Novell has no right to the fruits of the Agreements. "It is repugnant in every sense of justice and fair dealing that a principal shall avail himself of the benefits of an agent's act and at the same time repudiate his authority."

If Novell chooses to approve the Agreements after trial and the Court allows it, moreover, SCO keeps all source code right-to-use fees under any new SVRX licenses in the SCOsource Agreements -- that is, almost all of the alleged SVRX Royalties at issue. Indeed, the literal effect of ratification makes Novell's approval "relate back" to the time of execution of the Agreements. And any contrary interpretation of the APA would create an unenforceable penalty provision, where Novell does not even allege that is suffered any damages from the fact that SCO did not seek Novell's approval for the Agreements prior to their execution.

ARGUMENT

I. NOVELL BEARS THE BURDEN OF PROOF

A counterclaim-plaintiff bears the burden of proving the elements of its claims. See Cal. Evid. Code § 500. In addition, Novell has taken the opportunity to put on its case first at trial, and the party going first has the burden of proof. See Anheuser-Busch, Inc. v. John Labatt Ltd.

4

Novell's claims concern the interpretation of the APA. Novell's claims for money turn on the assertion that SCO failed to remit "SVRX Royalties" to Novell, where the definition of "SVRX Royalties" turns on the meaning of "SVRX Licenses" under the APA. Novell's request for a declaration also turns on what conduct the word "incidentally" encompasses. The resolution of those issues has nothing to do with SCO's status as a fiduciary. Novell therefore bears the burden of proof just as it would on its claim for breach of contract. SeeSander/Moses Prods., Inc. v. NBC Studios, Inc., 142 Cal. App. 4th 1086, 1094-95 (2006); see, e.g., Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F. 3d 79, 101-02 (3d Cir. 2001) (declining to shift burden of proof on claims turning on contract interpretation where, as here, the parties were not in a fiduciary relationship when the contract was negotiated and executed).

On whether any "SVRX License" in the Agreements has any distinct value, Novell argues for a general "fiduciary" exception, but the Comments to Section 500 of the California Code make clear that there cannot be "any one general solvent for all cases." Instead, the shift in the burden between fiduciaries arises from the premise that a trustee has gained some advantage over its beneficiary in a transaction between them, in which case the court will presume that the beneficiary did not receive even-handed treatment. SeeDelos v. Farmers Ins. Group, Inc., 93 Cal. App. 3d 642, 656 (1979). On its face, that exception has no application here, where the

5

The burden may otherwise shift where "the defendant's wrongdoing makes it practically impossible for the plaintiff to prove the wrongdoing." Nat'l Council Against Health Fraud, Inc. v. King Bio Pharms., 107 Cal. App. 4th, 1336, 1346 (2003). Novell has not alleged that SCO committed any wrongdoing by including multiple components in the Agreements, or that such conduct has made it even "practically" impossible for Novell to try to assign value to any alleged SVRX License. Nor has Novell even made allegations sufficient to satisfy a necessary element reflected in the precedent -- namely, that SCO had money it believed was Novell's but mixed with other amounts anyway. Indeed, Amendment No. 1 (through its use of the "incidentally" language) shows that the parties to the APA expressly contemplated SCO's authority to enter into agreements that "commingle" incidental SVRX licenses and UnixWare licenses.

It also is irrelevant that, in the first instance, the terms of some of the Agreements were available to SCO but not Novell. See Sargent Fletcher, 110 Cal. App. 4th at 1672-73 (surveying the precedent establishing that courts "have refused to shift the burden of proof in other cases where plaintiffs lacked access to information, even though the information was more readily available to the defendant"). Novell was free to seek in discovery whatever input it thought relevant from SCO, Sun, and Microsoft. Novell noticed but cancelled its proposed deposition of Microsoft, and then took only a short deposition of Sun which Novell reserved its rights to continue but never did. As this Court observed in its Order of August 10, 2007, Novell has "obtained the information it needs to demonstrate its damages" under its claims. (Id. at 98.)

6

A. The SCOSource Agreements Are Not Royalty-Bearing "SVRX Licenses"

1. The Origins of the SCOsource Program.

Novell's main argument is that "from start to finish" the SCOsource Agreements concerned only "SVRX" rights and SCO never claimed SCOsource had anything to do with UnixWare. It follows that if Novell is wrong about that core assertion, it is wrong about its characterization of the SCOsource program and the Agreements.

Contrary to Novell's argument, SCO clearly was concerned -- and exclusively concerned at the outset of the program -- that technology had been taken from OpenServer and UnixWare and improperly used in Linux. The contemporaneous documents -- belying Novell's allusions to any SCO attempt to "recast" its concerns today -- show that to be true. Novell cites SCO's general references to "UNIX" and specifically "UNIX System V" at the time, but UnixWare and OpenServer are both "UNIX" and specifically "UNIX System V" operating systems. Indeed, Novell acknowledged in its own UnixWare Guide that UnixWare is a "version of UNIX System V." The documents reflecting SCO's concerns at the outset and pendency of the SCOsource program specifically and repeatedly show that SCO was focused on UnixWare and OpenServer (both System V) technology in Linux. In referring to "SCO System V for Linux" in a January 2003 press release regarding SCOSource, for example, SCO was referring exclusively to the UnixWare and OpenServer libraries that SCO believed were being improperly used with Linux.

2. SCO's Right to Release Its Claims.

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."

7

SCO therefore was entitled to release, at minimum, whatever claims it was entitled to bring concerning its "ownership" rights to the UNIX or UnixWare source code, and under the SCOsource Agreements released only those claims. There is no language in the APA even suggesting that SCO could not waive such claims. Novell argues that SCO could not have the right to release claims concerning SVRX source code because the Court has found that Novell owns the SVRX copyrights, but that argument is a red herring. Novel's position means only that, under the Court's ruling, the SCOsource Agreements in fact did not release any such copyright claims. It follows that the only value to be attributed to the releases in the SCOsource agreements pertains to claims that SCO did have the right to release and therefore did release as part of its SCOsource Agreements, and for which SCO was entitled to have the money.

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

1. The Microsoft Agreement.

Section 2. Section 2 makes no reference to SVRX. In Section 2.1, SCO releases any claims it -- and not Novell -- might have had against Microsoft regarding any SCO intellectual property, including all claims that were assigned under the APA. Section 2.1 is not a license.

8

In addition, to the extent a release for any System V technology in any Microsoft product is a "license" for such technology, Novell has made no showing of any System V technology in any Microsoft product. If the Court were even to try to infer what Microsoft's concerns were, in Paragraph B of Amendment No. 3 to the Agreement, Microsoft reveals its concern that (in the language of Exhibit A) it was "components or features" in "SCO UnixWare 7, Release 7.1.3" (the then latest release) that might be present in Windows, and that therefore Microsoft sought to obtain rights to use. Section 2 is not an SVRX License to which Novell has any right or claim.

Section 3. Section 3 is an option, which Microsoft exercised, to license UnixWare and certain components or features thereof (Exhibit A) and components that do not pertain to any particular operating system (Exhibit B). The UnixWare license that Microsoft obtained is not a SVRX license under any interpretation of the APA. Even if -- as Novell argues, and contrary to fact -- there were any evidence that Microsoft purchased the UnixWare license in part to enable it to later purchase the System V rights in Section 4, that still would not mean that Section 3 is an SVRX License. Novell does not address this section.

Section 4. Section 4 is an option -- which Microsoft exercised -- to expand the Section 3 UnixWare license, and also to license SCO's valuable OpenServer technology, as well as System V prior products. Even under this Court's prior summary judgment ruling, only a small part of Section 4 constitutes an "SVRX License".

9

Section 4. Section 4 is a license to UnixWare and previous versions of UNIX System V, most of which Sun already had a license to use under its 1994 agreement with Novell, as well as to the drivers for UnixWare and OpenServer. Of the 30 UNIX System V products identified in Section 4, at least 13 are not in Schedule 1.1(a) of the APA.¹ Accordingly, by definition, those are not "SVRX Licenses." Even under this Court's prior summary judgment ruling only some other small part of Section 4 constitutes an "SVRX License."

Section 10. Section 10 is an indemnification provision. It concerns the prospect that Sun might face lawsuits regarding Section 4 licensed technology and requires SCO to provide comfort to Sun in such scenarios. Novell does not address this section and thus offers no explanation for how this indemnification of Sun's activities by SCO alone -- and not Novell -- could constitute an SVRX License, and there is no evidence that Sun has faced any such lawsuits (let alone ones that concerned any prior System V technology).

Section 12. Section 12 is a release of any claim that SCO may have with respect to the Section 4 licensed technology or any derivatives thereof. Section 12 therefore is a release of claims that SCO had the right to pursue or release. It is not a "license" -- including because the Agreement already included "licenses" in other provisions.

Section 13. Section 13 provides that if SCO grants redistribution rights to any or all of the Section 4 licensed technology on terms more favorable than those granted to Sun under the Agreement, then SCO shall offer Sun the same terms and conditions. What particular rights the section gives Sun a right to purchase is hypothetical in that it depends on SCO granting "more

10

---------

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

C. The Microsoft and Sun Agreements License
SVRX Products "Incidentally" to UnixWare.

With respect to the limited parts of the Agreements that are SVRX Licenses under this Court's prior summary judgment ruling, SCO had the authority to enter into those licenses. 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."

1. The Meaning of "Incidentally".

The word "incidentally" is not defined in either the APA or its Amendments. Novell admitted that it has no view "as to what it means for Santa Cruz to license SVRX source code incidentally to UnixWare." 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 admitted that it did not have any "knowledge" or "view" on that "one way or the other."

Under either of the two principle meanings of the word "incidentally," SCO had the authority to execute the Agreements. First, the general definition of the word provides as follows: "'Incidental' obviously means depending upon or appertaining to something else as primary, something necessary, appertaining to, or depending upon another which is termed the

11

2. The Licensing of System V Prior Products.

Novell itself had licensed older UNIX technology with its UnixWare licenses. In fact, Santa Cruz followed Novell's specific direction in using the same approach that Novell had used, which licensed older versions of UNIX with UnixWare, and Santa Cruz did not remit to Novell any royalties from any such UnixWare licenses, including those it had acquired from Novell. In training sessions that followed the closing of the APA, Novell itself communicated to members of the UNIX licensing group that the inclusion of System V prior products in UnixWare licenses was permitted as incidental licensing of System V. And consistent with that understanding, Novell, for its part, never asked Santa Cruz to account for any UnixWare royalties, where Novell knew that Santa Cruz was following the same approach of listing System V prior products in the UnixWare licenses that Novell had used and even where Novell knew and received confirmation from Santa Cruz that former Novell licensees such as Unisys were continuing to pay royalties under their UnixWare licenses that included licenses to System V prior products.

This evidence (among other such evidence) belies Novell's newly minted, post hoc argument that a supposed "primary benefit" of Novell's right to approve new SVRX Licenses

12

The only 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 earlier System V releases, and from the fact that Novell itself had an established practice of licensing prior System V technology with its UnixWare licenses, is that eh word refers to that practice. Novell fails even to propose an alternative interpretation.

3. The Sun and Microsoft Agreements.

Under both definitions of the APA's provision regarding licensing of SVRX technology "incidentally," SCO therefore had the authority to license System V rights in these Agreements, where SCO had regularly licensed System V prior products with its UnixWare licenses and the overwhelming value of these Agreements lies in the UnixWare components thereof. The relatively minor System V rights afforded in the Agreements were provided as a matter of course, consistent with the prior practice of providing System V rights with licenses to the most recent version of System V (here, UnixWare), and the value of the rights afforded in the Agreement lay in UnixWare. (See Parts II.D & E, below.)

13

Under Section B of Amendment No. 2 to the APA, the parties must consult with each other on "any potential transaction with an SVRX licensee which concerns a buy-out of any such licensee's royalty obligations." Novell argues that SCO lacked the authority to execute the Sun Agreement because SCO did not consult with Novell and because, Novell argues, the Agreement "concerns" Sun's 1994 buyout with Novell. Novell's argument is mistaken.

First, the Sun Agreement did not "concern" the 1994 buyout within the meaning of Amendment No. 2. Novell 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. (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 will receive a bonus, commission, quota attainment credit, or other type of sales incentive as a result of the buy-out of an SVRX license." (Emphasis added.) Paragraph C, morever, 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 platform; or (II) upon a change of control of SCO as stated in schedule 6.3(g) of the Agreement.

(Emphasis added.) This language makes clear that "Section B" concerns "a buy-out with a licensee." All the foregoing language, taken together, shows that Section B does not apply

14

Second, the only buyout at issue in the Sun Agreement pertains to the potential UnixWare royalties Sun would have had to pay, and SCO had the right unilaterally to enter into such buy-outs. With respect to rights Sun did not already have, the Agreement gives Sun the right to make binary distributions based on UnixWare and the four immediately prior versions of System V (4.1 ES/3B2, 4.1 C2/3B2, 4.1 ES, 4.2, and 4.2 MP) -- none of which are "SVRX" releases under the APA. If any of the technology on which Sun were to base any binary distribution were included in UnixWare, under the "one line of source code" rule, Sun would pay a UnixWare royalty for that distribution. UnixWare incorporates the vast bulk of the technology in those prior releases, and all of the technology with commercial value. Accordingly, to the extent any significant value in the Agreement can be attributed to the foregoing buyout, it pertained to royalties that SCO indisputably had the right to buy-out on its own.

15

A. Novell's Burden of Proof.

In determining any "SVRX Royalties" paid for any "SVRX Licenses" in the Agreements, the questions are whether those licenses added anything to the other rights the counterparties had obtained, and whether any such rights have any significant value relative to those other rights. Notwithstanding its burden, Novell does nothing more than ask the Court to presume that the main value of the agreements lay in "SVRX" rights -- drawing inference upon inference and supposing that the UnixWare and OpenServer rights must have been of little consequence.

In sharp contrast, rather than asking the Court to make its best guess, SCO has direct and concrete evidence that demonstrates that the exact opposite is true -- that the System V prior products have no significant independent value, and that the UnixWare and OpenServer components of the Agreements give the licensees all of the rights they sought. (See Parts B-E, below.) In addition, SCO shows that even with respect to any "SVRX Royalties," there may be a sweeping category of such Royalties that SCO retains. (See Part F, below.)

Novell's burden of proof takes on particular importance in light of the main inference Novell asks the Court to draw. That is, Novell asks why any rights to earlier releases of System V would have been included in the agreements if they had no value -- as if by posing the question Novell meets its burden. It does not. The opposite inference could be equally drawn from the face of the agreements -- if the UnixWare, OpenServer, and many other rights were included in the agreements, they must have had value. Unlike Novell -- and without even having the burden to do so -- SCO shows that Novell's proposed inference is wrong.

16

It has 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 System V technology. Such products or releases 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 (among other reasons) those earlier versions do not take advantage of hardware enhancements made to new processors adopted by computer manufacturers, which are critical to any company's practical use for an operating system.

SCO will offer the only evidence of any value given to System V prior products -- which was none, or a purely de minimus value. Giving weight to the fact that the licenses to the prior products were not even independent licenses, Santa Cruz and SCO never attributed any independent value or price for the licensing of System V prior products. All of the licensees who entered into System V prior product licenses with Santa Cruz and SCO paid the same price as those who did not receive such licenses. The $375,000 list price for a UnixWare 2.0 license with Unisys that licensed the System V prior products, for example, was the same as the price for a contemporaneous UnixWare license with Alps that did not list the System V prior products.

C. In the SCOsource Agreements, the UnixWare Licenses Alone
Give the Licensees the Right to Use Linux.

Novell argues that the only material that SCO ever alleged had been improperly contributed to Linux is "SVRX" material. That argument is wrong -- SCO was indeed concerned that technology had been taken from OpenServer and UnixWare and improperly used in Linux. (See Part II.A.1, above.) Novell's argument is also beside the point. As to the material that IBM

17

D. In the Microsoft Agreement, the UnixWare and OpenServer
Licenses Give Microsoft All of the Rights It Sought.

The evidence shows that only part of Section 4 of the Microsoft Agreements is an "SVRX License." (See Part II.B.1, above.) In addition, any part of Section 4 that is found to be an "SVRX Licenses" has no distinct or significant value. The same is true of Section 2, to the extent Novell claims part thereof is an SVRX License.

Section 2. Section 2.2 is a license of SCO's intellectual property for Microsoft's products which does not pertain to any particular technology. In addition, if Microsoft's products did contain any UNIX technology as of 2003, the UnixWare license alone gives Microsoft the right to use that technology. It is also important to note that Amendment No. 3 of the Agreement reflects Microsoft's concern that it was "components or features" in "SCO UnixWare 7, Release 7.1.3" that might have been present in Windows. As to Section 2.1, it is not a license; it is a release because it releases those claims SCO has the right to bring. In addition, if (contrary to

18

REDACTED

Section 3. Section 3 is clearly an option to purchase a UnixWare license and a UnixWare license, not an SVRX License. The section bears directly on any assessment of Section 4 because Microsoft could not take the Section 4 license to UnixWare and OpenServer without having first taken the Section 3 license, and because the UnixWare license in Section 3 is one with limitations that were subsequently lifted in Section 4. Only with the full and complete UnixWare license under Section 4 would it naturally follow that, under the longstanding practice of the owners of the UNIX technology, Microsoft would have rights to the System V prior products. REDACTED

Section 4. Once Microsoft had taken its Section 3 license to UnixWare, it had the right to take the Section 4 license to UnixWare, OpenServer, and System V prior products.

REDACTED

Rather than address the substance of the Microsoft Agreement, as SCO will do in detail at trial, and ignoring the assets "identified as non-deliverable," Novell simply argues that 28 of the 34 software versions licenses in Section 4 are System V releases. That argument 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." The attached "Schedule for UnixWare Release 2.0 and UnixWare Release 2.0 International Edition" lists the "Prior

19

Contrary to Novell's argument, moreover, there is no reasonable basis for inferring from Sections 3 and 4 that the "SVRX" component of Section 4 must be valuable. The restricted UnixWare license under Section 3 gave Microsoft the chance to review the code and determine if it wanted to exercise the fuller license in UnixWare, and to OpenServer. From a sales perspective, knowing that Microsoft was not prepared to commit to the full UnixWare or OpenServer licenses up front, SCO was able to maximize the prices for the two licenses by offering a tiered license that would permit Microsoft to review the code.

20

The evidence shows that only part of Section 4 of the Sun Agreement is an "SVRX License." (See Part II. B.2, above.) Indeed, Novell does not appear to contend that either Section 10 (an indemnification provision) or Section 13 (a most-favored-nation provision) is an SVRX License. Novell has not specifically addressed Section 12 (a release), but by its other arguments appears to reserve the right to argue that it is an SVRX License. No part of Section 4 or 12 that is found to be an "SVRX Licenses" has any distinct or significant value.

Section 12. Section 12 is not a license; it is a release. In addition, if (contrary to the facts and law) Section 12 were regarded as a license, then it would follow that the UnixWare component alone of the "license" protected Sun from suit with respect to the use of any technology from UNIX System V or its derivatives.

Section 4. Section 4 is a license to UnixWare and System V prior products, as well as to the drivers for UnixWare and OpenServer. The license to UnixWare is very valuable. The UnixWare license permits Sun to develop Intel-compatibility for Solaris, which is something Sun had not succeeded in doing, where it had never taken a UnixWare license. The UnixWare license alone also gives Sun the right to use all System V prior products.

The licenses to the UnixWare and OpenServer drivers are also very valuable. Only with the drivers can Sun actually use UnixWare for any conventional tasks or purposes, which Sun needs to do in order to assess how applications run on UnixWare and thereby develope Intel-compatibility for Solaris. Without the drivers, for example, Sun cannot use UnixWare for any task that requires a hard disk or an internet connection. In short, the drivers enable Sun to

21

F. If Novell Ratifies the Microsoft and Sun Agreements, SCO is Entitled
To SVRX Royalties Under Section 1.2(e)(iii) of the APA as Amended.

If the Court finds that Microsoft or Sun entered into distinctly valuable SVRX Licenses, there can be no question that the vast majority of what the companies paid for such licenses are source code right to use fees attributable to new SVRX licenses. Under the APA, SCO is entitled to retain 100% of "source code right to use fees attributable to new SVRX licenses approved by Seller pursuant to Section 4.16(b) hereof." Under its own version of the facts, as explained in SCO's memoranda in support of its pending Motion for Judgment on the Pleadings, if Novell wants to recover any SVRX Royalties, it must ratify and approve the Agreements. "It is repugnant in every sense of justice and fair dealing that a principal shall avail himself of the benefits of an agent's act and at the same time repudiate his authority." Yahola Sand & Gravel Co. v. Marx, 358 P.2d 366, 372 (Okla. 1960) (citing authority, quotations omitted).

If Novell decides to ratify and approve the Sun and Microsoft Agreements after trial, and if the Court permits it to do so, then SCO is entitled to retain the source code right-to-use fees paid thereunder for any new SVRX licenses. Indeed, the literal effect of ratification makes Novell's approval "relate back" to the time of execution of the Agreements. Restatement (Third) of Agency § 4.02, comment b (2006). Novell's only basis for contesting SCO's right to retain all of those fees would be that Novell did not give its approval to the "new SVRX licenses" prior to their execution. Such an interpretation would fail as a matter of law because it renders the provision an unenforceable penalty.

22

"California law prohibits enforcement of contractual penalties." Applied Elastomerics, Inc. v. Z-Man Fishing Prods., Inc., 521 F. Supp. 2d 1031, 1044 (N.D. Cal. 2007). "A penalty need not take the form of a stipulated fixed sum; any provision by which money or property would be forfeited without regard to the actual damage suffered would be an unenforceable penalty." Freedman v. The Rector, 37 Cal. 2d 16, 21-22 (1951); accord Baypoint Mortgage v. Crest Premium Real Estate Investments Retirement Trust, 168 Cal. App. 3d 818, 829-30 (1985). The California courts "have consistently ignored form and sought out the substance of arrangements which purport to legitimate penalties and forfeitures." Garrett v. Coast & S. Fed. Sav. & Loan Ass'n, 9 Cal. 3d 731, 737 (1973); accord Baypoint, 168 Cal. App. 3d at 829-30 (citing authority). "Whether an amount to be paid upon breach is to be treated as liquidated damages or as an unenforceable penalty is a question of law." Harbor Island Holdings, LLC v. Kim, 107 Cal. App. 4th 790, 794 (2003). "The agreement itself.... can be sufficient to show that it contains contractual penalties and not liquidated damages." Z-Man, 521 F. Supp. 2d at 1045.

23

"A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties." Cal. Civ. Code § 1643. Accordingly, if a contractual provision constitutes an unenforceable penalty but can be otherwise interpreted so as to make it lawful, the

24

IV. ESTOPPEL PRECLUDES ANY RELIEF FOR NOVELL

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 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.

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 continue to license System V technology with UnixWare, just as was Novell's practice. If SCO had believed that there was any prospect that it would need to seek Novell's practice. 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 System V technology in the Sun or Microsoft Agreements, SCO would not have included those rights in the Agreements. 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 it bought the business in 1995.

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

25

In addition, Novell by its words and deeds caused SCO to believe that it was authorized to enter into the SCOsource Agreements. Beginning in the fall of 2002, through several discussions, Novell knew that SCO was planning to enter into agreements to license the rights to use existing UNIX technology (including System V) in Linux; and that until litigation had arisen, Novell never asked or suggested to SCO that it was obligated to seek Novell's approval for such contracts or that SCO did not have the right to enter into such agreements or that SCO would have to remit any and all revenues to Novell -- as it now claims. 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." Novell was emphatic with SCO that Novell had "no interest" in the program.

26

CONCLUSION

SCO respectfully submits, for the reasons set forth above and on the basis of the evidence to be presented at trial, that the Court should conclude that Novell is not entitled to any declaration or to recover any significant amount of "SVRX Royalties".

DATED this 23rd day of April, 2008.

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

BOIES, SCHILLER & FLEXNER, LLP
Stuart H. Singer
Edward Normand

DORSEY & WHITNEY LLP
Devan V. Padmanabban

By: ___[signature]___

27

CERTIFICATE OF SERVICE

Plaintiff/Counterclaim-Defendant, The SCO Group, Inc., hereby certifies that a true and correct copy of the foregoing Trial Briaf, in redacted form, was served on this 24th day of April, 2008, via CM/ECF to the following:

Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon
ANDERSON & KARRENBERG
[address]

Michael A. Jacobs
Matthew I. Kreeger
MORRISON & FOERSTER
[address]

By: /s/ Edward Normand

28

¹ The 13 are 4.1 ES/3B2, 4.1 C2/3B2, 4.1 ES, 4.2, 4.2MP, 4.0 DRP (both SPARC and x86), 4.0 MNLS, 4.0 SPARC, 386 3.2 v. 2.1, 386 3.2 DRP, 3.1 DRP, 80386 3.0, and 3.0 DRP.