While I was sleeping (for 12 hours straight), Chris Brown followed up to make sure we got the transcript, which was delayed, and Steve Martin did the HTML already for us. You'll find links to each side's closing arguments in the index, if you want to jump straight to them. And I see more donations. When I say I couldn't do Groklaw without the community's support, I truly mean it. Thanks guys!

Update: Here's the docket entry on the last day of the trial:

534 - Filed & Entered: 05/02/2008
Bench Trial - Completed
Docket Text: Minute Entry for proceedings held before Judge Dale A. Kimball: Bench Trial completed on 5/2/2008. Court opened at 9:05 AM with all parties present. Testimony of one witness heard and evidence was rec'd. Deposition of Andrew Nagle was published. SCO rested its case. Closing arguments were presented by Mr. Acker and Mr. Singer. The Court took the matter under advisement. All exhibits were reviewed and approved by counsel. Court adjourned at 12:00 PM. Attorney for Plaintiff: Stuart Singer, Edward Normand, Mauricio Gonzalez, Jason Cyrulnik, Brent Hatch; Attorney for Defendant: Michael Jacobs, Eric Acker, David Melaugh. Court Reporter: Becky Janke. (kmj)

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

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

________________________________
THE SCO GROUP, INC., a Delaware
corporation,

Plaintiff and Counterclaim-
Defendant,

vs.

NOVELL, INC., a Delaware
corporation,

Defendant and Counterclaim-
Plaintiff.
________________________________

Case No. 2:04-CV-139 dak

BEFORE THE HONORABLE DALE A. KIMBALL

DATE: MAY 2, 2008

REPORTER'S TRANSCTIPT OF PROCEEDINGS

TRIAL TRANSCRIPT

VOLUME IV

Reporter: REBECCA JANKE, CSR, RMR

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A P P E A R A N C E S

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I N D E X

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P R O C E E D I N G S
* * *

THE COURT: Good morning.

ALL ATTORNEYS: Good morning.

THE COURT: You may call your next witness.

MR. NORMAND: Yes, Your Honor. James Nagle. Before that, could I raise some evidentiary issues?

THE COURT: Sure.

MR. NORMAND: I have spoken with Ms. Jones and with opposing counsel, Your Honor, about this. You will recall with Mr. Broderick, yesterday, I did some handwritten markups on the pages of the Sun and Microsoft agreements, and I wanted to admit the markups of those pages as evidence.

MR. MELAUGH: We have no objection, Your Honor.

THE COURT: All right. They are admitted. What numbers?

MR. NORMAND: They are SCO Exhibit 185-A.

THE COURT: 185-A?

MR. NORMAND: Yes, sir.

THE COURT: So the originals stay, and then the additional will be the markup, right?

MR. NORMAND: Just one page from the original,

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Your Honor, yes.

THE COURT: All right. 185-A is received.

(SCO Exhibit 185-A received in evidence.)

And is that it?

MR. NORMAND: And SCO, 237-A.

THE COURT: Thank you.

(SCO Exhibit 237-A received in evidence.)

Thank you.

MR. NORMAND: Thank you.

THE COURT: Come forward and be sworn, please, right here in front of the clerk.

ANDREW NAGLE,

the witness hereinbefore named, being first duly cautioned and sworn or affirmed to tell the truth, the whole truth, and nothing but the truth, was examined and testified as follows:

DIRECT EXAMINATION MR. NORMAND:

Q. Good morning, Mr. Nagle.

A. Good morning.

THE COURT: Hang on a second.

THE CLERK: Please indicate your name and spell it for the record.

THE WITNESS: Andrew Nagle. Last name is N-a-g-l-e.

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THE COURT: Go ahead.

Q. What is your current employment, Mr. Naglel?

A. I am employed by the SCO Group. I am the Senior Director of Product Development with the SCO Group.

Q. And what are your responsibilities in that capacity?

A. I manage the engineering staff that is responsible for maintaining the operating system and mobility products that SCO has on the market.

Q. And what kind of operating systems are those?

A. Unixware and OpenServer.

Q. And how much experience do you have working with UNIX-based operating systems?

A. I joined the organization that is now the UNIX Development Organization in 1984. I held a variety of engineering and management and project management positions between 1984 and 2002. In 2002, I became a product manager and took a more customer-focusing position. And then, in January of this year, I moved back to engineering and became -- took over as senior director of all the development at SCO.

Q. What is your educational background?

A. I have Bachelor's Degree in Electrical Engineering and a Bachelor's in English from the

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University of Delaware. I have a Master's in Electrical Engineering and a PhD in Electrical Engineering from Carnegie Mellon University.

Q. Mr. Nagle, what is the relationship between the initial releases of UnixWare and the immediately prior System V releases?

A. The System V releases that pre-date UnixWare for what would have been for UnixWare 1, would have been System V Release 4.2. 4. -- the existing System V Release 4.2, in order to create UnixWare, was largely taken lock, stock and barrel to create UnixWare 1, which was a product of a joint venture between Novell and USL at the time. There were some Novell Netware features added and then some user interface and cosmetic changes made, and that resulted in the UnixWare 1 product. So it was largely the same.

Q. And that's probably on the monitor in front of you, as well?

A. I see it here.

Q. Do you recognize this demonstrative?

A. I do.

Q. And You helped me create this, correct?

A. I did.

Q. And what does it represent?

A. This depicts the relationship of the System V

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Release 4 operating system as it evolved into UnixWare 2. I previously spoke about UnixWare 1 and its relation to System V Release 4.2. This shows that UnixWare V Release 4 was further then developed by the engineering staff at USL to be capable of multiprocessing. This became the System V Release 4.2 MP. Release MP is short, of course, for multiprocessing. And then this 4.2 MP Release was taken pretty much lock, stock and barrel as the 4.2 Release was for UnixWare 1. 4.2 became the foundation of UnixWare 2.

Q. Would UnixWare operate without the code from the earlier releases of System V?

A. No.

Q. Could you describe, in general, what kind of work Santa Cruz, and then SCO, did with UnixWare after it acquired the UNIX business in 1995?

A. We developed the UnixWare releases beyond the capabilities that we brought in with UnixWare 2.1. We had a staff of over a hundred engineers for several years working on the features of UnixWare 2 and beyond. We enhanced it with cooperation from industry partners to harden the operating system and build in what we called data center acceleration features. With UnixWare 7, by the time we were then owned by the Santa Cruz operation, we combined it with features from OpenServer to provide a

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better product that would meet the Santa Cruz Operations market.

Generally speaking, we invested to improve it to increase its value in the marketplace.

Q. Mr. Nagle, do you recall what system calls are?

A. I do.

Q. Could you briefly describe for us what they are.

A. When one talks about an operating system, one distinguishes between user level and kernel level. Kernel level is what talks most closely to the processor, and the operation at kernel level is generally privileged. The users are not permitted to execute kernel level code directly. When a user level program needs to communicate with the hardware, it executes a trap or a software interrupt in order to get attention from the kernel to service its needs.

The system call is what is used to transfer information back and forth between user and kernel level.

Q. That sounds simple. How do the SVR 4 system calls compare to the system calls in UnixWare 1?

A. I'm sorry. Restate?

Q. How do the SVR 4 system calls compare to the system calls in UnixWare 1?

A. They are one and the same.

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Q. Have you heard of Streams?

A. I have.

Q. What is Streams?

A. Streams is a subsystem in System V Release 4 that is used in processing information in the input-output area of the operating system to communicate with hardware devices and internet calls and other such things.

Q. Do you use Streams in SVR 4?

A. Yes.

Q. Do you use Streams in UnixWare 1?

A. Yes.

Q. Have you heard of ELF?

A. I have.

Q. What is ELF?

A. ELF is a file format that was defined at the time that we introduced dynamic linking to UnixWare -- I'm sorry -- to System V Release 4. The ELF and dynamic linking in System V Release 4 are closely related. One is -- we need both in order to function on System V Release 4. So, does that answer your question?

Q. It does.

A. Okay.

Q. Is ELF in SVR 4?

A. Yes.

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Q. Is ELF in UnixWare 1?

A. Yes.

Q. Have you heard of memory allocation?

A. I have.

Q. What is memory allocation?

A. Memory allocation is the procedure that is used by a user level program to gain exclusive access to the memory in a -- so that it can function and record its data in memory and then, at some point or another, it needs more or less memory. It can call to the operating system for more. It can give back to the operating system. The memory allocation routines in an operating system would handle all of those functions.

Q. How does the memory allocation in SVR 4 compare to the memory allocation in UnixWare 1?

A. It's the same.

Q. Have you heard of a file system?

A. Yes.

Q. What is the file system in an operating system?

A. File systems in UNIX actually span a variety of technologies because file systems are used as an interface to many different subsystems. The primary use of a file system is to be able to read and write from a hard drive.

Q. How does the file system in SVR 4 compare to

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the file system in UnixWare 1?

A. The file system in System V Release 4.2 is the same as the file system in UnixWare 1.

Q. Mr. Nagle, do you have any idea how the Sun Solaris operating system was developed?

A. I know, at the time we developed System V Release 4, Sun announced support for System V Release 4 and entered into an agreement whereby there was some joint development between then AT&T and Sun. There were features that came into System V Release 4 from Sun. I know that today Sun's operating system, called Solaris, is based on System V Release 4, as a result of that early cooperation with AT&T.

Q. And how do you know that?

A. I know that because the engineers that report in to me tell me that the affinity between the SCO operating system of UnixWare and Sun is actually quite close, that the ELF technology is similar, that moving an application between the two operating systems is fairly straightforward.

Q. Would it be fair to say that knowledge of how Solaris was developed, general knowledge of how Solaris was developed, has been part of your employment for the last couple decades?

A. In the sense that I track the developments in

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the industry and was aware, certainly, of the early cooperation between Sun and AT&T. That early cooperation, I should say, started what was then referred to as the UNIX Wars because others took opposition positions to the AT&T/Sun cooperative agreement with SVR 4. So, it was widely known that Sun used SVR 4.

Q. Do you recognize this demonstrative, Mr. Nagle?

A. I do.

Q. And what this is demonstrative meant to depict?

A. This shows that the Solaris operating system has a basis with System V Release 4 and that Sun also took technology from the BSD UNIX and other non-UNIX technology in order to create its Solaris operating system. No doubt they also brought forward technologies from their previous release, which was known as Sun LS.

Q. Now, are the SVR 4 system calls in Solaris --

A. Yes.

Q. -- to the best of your knowledge?

A. Yes, to the best of my knowledge.

Q. Is Streams from SVR 4 in Solaris?

A. To the best of my knowledge, yes.

Q. How about ELF?

A. Yes.

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MR. NORMAND: No further questions, Your Honor.

THE COURT: Thank you, Mr. Normand.

Mr. Melaugh, you may cross examine the witness.

MR. MELAUGH: Thank you, Your Honor. May I approach?

THE COURT: You may.

CROSS EXAMINATION BY MR. MELAUGH:

Q. Good morning, Mr. Nagle.

A. Hello.

Q. I'd like to discuss one of the graphics you discussed during your direct testimony. If you could take a look at demonstrative number 1, please. So I want to walk through this with you to make sure I understand this graphic. First up, I want to understand this graphic accurately represents your understanding; is that correct?

A. Yes.

Q. And this is a square and two circles. And the square, is UnixWare 2.0?

A. It's a rectangle.

Q. A rectangle. You're right. And the two circles are SVR 4.0 and SVR 4.2 MP, correct?

A. Yes.

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Q. And part of the circles are in the square, and part of the circles are outside the square?

A. Yes.

Q. And the part that's inside -- the part of the circles that's inside this rectangle is meant to indicate that that SVR 4 and 4.2 code is inside UnixWare 2.0, correct?

A. Yes.

And the part that's outside is meant to indicate that that code is no longer in UnixWare 2.0?

A. Yes.

Q. And if I wanted to determine what, of UnixWare, is unique to UnixWare 2.0, which is to say it's not in SVR 4.0 or 4.2, what I'd look at is this area of the rectangle that's outside these squares?

A. Yes.

Q. Now let's take a look at the second graphic. Again, we've got roughly the same square on -- rectangle and circles on the right side; is that right?

A. Yes.

Q. And it represents the same things as it did in the last slide?

A. Yes.

Q. And this time there's an arrow from SVR 4.0 to the circle; is that right?

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A. Yes.

Q. And the circle is pointing to Solaris?

A. Yes.

Q. Which is meant to indicate that there's SVR 4.0 code that's moved into Solaris?

A. Yes.

Q. And Solaris is Sun's operating system?

A. Yes.

Q. I notice there's not an arrow from the UnixWare rectangle to Solaris; is that right?

A. Yes.

Q. So I take it, then, it's your understanding that there is no code unique to UnixWare 2.0 that's in Solaris?

A. That's something I don't know. I do know that the SVR 4 code made its way into Solaris, according to its heritage and the development relationship that I was aware of. I don't, frankly, know what Sun did or didn't do with the UnixWare technology that they licensed from us in 2003.

Q. We can agree, though, that that's what this graphic suggests, though?

A. Yes.

Q. Let's go back to the first slide. Now, I notice you don't have any numbers here aside from the

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4.0, the 4.2 and the 2.0. How many lines of code are in this top part of the circle, and how many lines of code are in this bottom part of the circle?

A. I don't know.

Q. You don't know because you haven't actually gone through every line of code in here, in this bottom slide, to make some sort of determination as to whether it's commercially valuable or not, have you?

A. I have not.

Q. You are just assuming that, because the code isn't in UnixWare anymore, this SVR 4.0 and 4.2 code isn't valuable anymore?

A. It's more than an assumption. I'm aware of the development and development practices and the requirements process that was used to make decisions about what to retain and what to leave out.

Q. Again, though, this isn't something that you can answer on a line-by-line basis?

A. Correct.

Q. How many lines of code, roughly, are there in SVR 4.0?

A. I don't know.

Q. Is it more than a million?

A. Almost certainly.

Q. Is it more than 2 million?

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A. Probably.

Q. More than 5 million?

A. I don't know.

Q. So, probably somewhere between 2 and 5 million, can we agree on that?

A. No. We can't agree on that. It could be more than five.

Q. Okay. It could be more than five. Now, I realize that you've just testified that you haven't gone through every line of code, but let's just take this graphic. From my eye, it looks as though I would say 15 or 20 percent of the circle's volume is below the line and outside of the UNIX 2.0?

A. The size of the circles and the rectangle were not meant to convey anything about the relative size of the technology in those circles. It was merely meant to convey the overlap that we talked about already.

Q. I see. As far as you know, these circles could be positioned farther down?

A. They could be, but -- yes, I guess they could be.

Q. So --

A. If it was meant to convey the actual percentages of code left behind, then we'd have to redesign the graphic, I suppose.

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Q. Well, I think that's what SCO may have intended to convey here, that there's a lot of code from SVR 4.0 still in 2.0 and not as much outside of 2.0. Is that what you regard this graphic as intending to convey?

A. I'll concede that we intended that this graphic would convey that there was a small percentage that was left out.

Q. But you don't know, in fact, what percentage was left out?

A. I don't.

Q. And it could be larger than this graphic suggests?

A. It could be.

Q. Based on your experience, would you -- can we estimate what percentage has been left out? Is it more than 10 percent that's in this bottom section?

A. Based on what I know of the development practices between System V Release 4 and then leading to 4.2 and leading to 4.2 MP, the general trend during that period was to add features, not to leave things out, so I'd be surprised if it was more than 5 percent, frankly.

Q. And another thing I don't understand about this graphic, if code is changed, did you put it in this part or did you put it in the part below?

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A. If code is changed and the feature enhanced, then I would regard that as remaining with the operating system.

Q. So, let's take a specific example, ELF.

A. Okay.

Q. That's one of the examples you discussed?

A. Yes.

Q. And that's something that is in both 4.0 and UnixWare 2.0?

A. Yes.

Q. And do you know whether there were any changes at all made to the lines of code that make up ELF between 4.0 and UnixWare 2.0?

A. I don't know for sure. I can speculate reasonably that adding features for multiprocessing could have resulted in some additions to the ELF and dynamic linking subsystem.

Q. And the same is true with the differences between 4.2 and 2.0. You don't know, one way or the other, whether every line of code that was in ELF in 4.2 is the same in UnixWare 2.0?

A. Correct.

Q. Is it fair to say, though, that given the total volume of code we're talking about here, millions of lines of code, that this lower portion here could be

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hundreds of thousands of lines of code?

A. It's possible.

Q. Let's talk for a moment about OpenSolaris. You do know what OpenSolaris is, correct?

A. Yes, I do.

Q. It's a Sun operating system?

A. Yes.

Q. It's essentially an open-sourced version of Solaris?

A. Yes.

Q. And given that Solaris is based on SVR 4.0 and open source -- and OpenSolaris is based on Solaris, you would expect there to be SVR 4.0 code in OpenSolaris, correct?

A. Yes.

Q. In fact, isn't it fair to say that you would expect there to be a significant volume of SVR 4.0 code in OpenSolaris?

A. Yes. There could be.

Q. So you have this notion of commercial value, both in the title of this slide and in the bottom of the slide. I'd like to talk about that with you. Doesn't the very fact that code is in an operating system give it commercial value?

A. Not necessarily. If there's code in an

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operating system that doesn't help you to sell the operating system, it's a feature that nobody uses, for instance, then it's hard to assign that commercial value. If it's a feature that somebody -- that the sales force advertises particularly or is a deciding factor for someone to purchase an operating system, that clearly has commercial value.

Q. When we are stumbling over the word "commercial value," doesn't the fact that code is in the operating system imply that it has some sort of monetary value?

A. I would just refer to my previous answer. It has monetary value if customers will pay for it.

Q. For example, let's say I have an operating system and it's got a million lines of code in it and there's 900,000 of them out there actively selling, as you suggested. Those are features that I'm actively selling. And there's another hundred thousand that's like this bottom position of the circles, and someone comes to me and says: You know, listen. I own those hundred-thousand lines of code. You've got to take them out of the operating system.

At that point, this bottom part of the circle starts to become pretty valuable, doesn't it?

A. Not necessary. If it's code that is not critical to the operating -- operation of the operating

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system, it might easily be removed and then no one would be the wiser. I can think of examples where we did that.

Q. You've spent something on the order of 20 years in computer programming and engineering; isn't that right?

A. I have.

Q. And it's your testimony that it would be a trivial matter to take hundreds of thousands of lines of code out of an operating system?

A. That's not what I said. I said that there could be features that have no particular commercial value that are carried along in an operating system that customers are not willing to pay for that, if we were approached by a third party who happened to have a claim on those lines, and we were told those lines can no longer be distributed with your operating system, we might be able to remove those and still sell the operating system with the remainder.

It's not clear that every single line of code without commercial value is vital to the function of the operating system.

Q. We can agree, though, that as a matter of man-hours and engineering effort, it's not a trivial undertaking to take hundreds of thousands of lines of code out of an operating system; isn't that right?

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A. It depends on the subsystem. There would be some that would be easier than others, but there are others that would be difficult.

Q. Let's talk about OpenSolaris again. OpenSolaris is released under a license that allows the public to see the OpenSolaris code, isn't that right?

A. Yes.

Q. If I wanted to, I could go to Sun's web site, download the OpenSolaris code and look at it myself?

A. Yes.

Q. And it's Sun's 2003 SCOsource license that gave Sun the right to expose SVRX source code to the public; isn't that right?

A. It's my understanding that it gave Sun the right to expose the UnixWare code as well.

Q. But it gave -- the answer is: Yes, it gave Sun the right to expose to the public the SVR 4.0 code that you have admitted is in OpenSolaris.

Isn't that right?

A. That's correct.

Q. And you and I can agree, can't we, that the right to release code under an open source license, the right to say to the public that you can come and download this code as you will, that's something that has market value, doesn't it?

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A. That's a debatable point, I would have to say. There are those who would say that the ability to expose code for people to download and review at-will does have market value, that -- and certainly Sun hoped that it had market value. Sun hoped to garner a better position in the marketplace by publishing their code. There are others that would say that it has no particular market value, that, in fact, protected code has as much market value or more than open source code.

So, I will concede that it might have market value but, that it absolutely does, I would probably side on the -- with those that would say that it has less market value than others.

Q. Do you recall giving a deposition in this action, Mr. Nagle?

A. I do.

Q. In fact, it was just a couple weeks ago, with me, wasn't it?

A. It was.

MR. MELAUGH: Your Honor, I would like to publish an excerpt from Mr. Nagle's April 16, 2008 deposition. It's page 26, lines 24 to 27.

THE COURT: Yes. Go ahead.

Q. So the question asked to you:

"Okay, so to be clear, though, you think the

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right to release source code that was conveyed to Sun in the 2003 license is something that has market value?

Answer: Yes."

Q. Is that your testimony, Mr. Nagle?

A. Yes.

Q. Were you being accurate and truthful at that time?

A. Yes.

Q. So we can agree, can't we, that the right to release source code that was conveyed to Sun in the 2003 license is something that has market value, can't we?

A. Yes.

MR. MELAUGH: Thank you. I have no further questions.

THE COURT: Thank you, Mr. Melaugh.

Redirect, Mr. Normand?

MR. NORMAND: Your Honor, I'd like to publish another portion of Mr. Nagle's deposition transcript. This is, in my my transcript at least, at page 24, line 15, to page 25, line 8

THE COURT: Go ahead.

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REDIRECT EXAMINATION BY MR. NORMAN

"Question: Would you agree with me that the right we have just discussed, the right to release code into OpenSolaris, is a right that has commercial value?

Objection: Vague and ambiguous. Calls for speculation.

Answer: That's a subject that gets a lot of debate, whether providing open source has commercial value, just the fact of posting open source, so that it is available to be read without payment. So, in that sense, does it have commercial value? No. You don't pay to be able to read it if somebody exposes it. Does it have market value? Well, possibly, because it allows a company to position themselves as open, and it allows them to position themselves as willing to cooperate with the community."

Does that constitute commercial value? That's a debatable point. So, market value, I'll grant. Commercial value, direct commercial value, where you actually pay for the right to see some of that stuff? I doubt it."

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UnixWare?

A. Every line of code from SVR 4.0 in UnixWare?

Q. Yes.

A. Most likely not.

Q. Is every line of code from SVR 4.2 MP in UnixWare, every line of code?

A. Highly probable, yes.

Q. Is the vast majority of the code from SVR 4 in UnixWare?

A. Yes.

Q. And the vast majority of the code from SVR 4.2 MP is in UnixWare?

A. Absolutely.

Q. Is this graphic meant to depict that?

A. Sir, can you be specific? Is the graphic meant to depict?

Q. What we just discussed?

A. Yes.

MR. NORMAND: Thank you, Your Honor.

THE COURT: Thank you.

Any recross Mr. Melaugh?

MR. MELAUGH: No, Your Honor.

THE COURT: Thank you, Mr. Nagle. You may step down.

I assume this witness may be excused?

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MR. NORMAND: Yes, Your Honor.

MR. SINGER: Your Honor, that concludes our case.

THE COURT: Thank you.

We'll proceed with closing arguments. Now, according to the --

MR. JACOBS: Excuse me, Your Honor. Would you prefer to clean up on the exhibits that still need to be admitted before or after closing?

THE COURT: After.

MR. JACOBS: Okay. Mr. Acker will do the closing argument for Novell.

THE COURT: According to the schedule, you've indicated SCO goes first?

MR. SINGER: I think the schedule, at one point, discussed SCO going first. And, in finishing, we are happy to proceed in either manner.

MR. ACKER: I prefer to go first. We have been acting as plaintiffs, if that makes some sense.

MR. SINGER: That's fine with us.

THE COURT: Go ahead, Mr. Acker.

MR. ACKER: Your Honor, I think it makes some sense here to get back to basics, so I want to start with the APA. And what we're really talking about here is Schedule 6, Exhibit 1.1 A to Exhibit 1 in this case. And

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what this is, is a listing in the APA of the code to which SCO has to remit royalties to Novell. No doubt about that.

So there's three questions that the Court is faced with. One is: How much of the Sun and Microsoft agreements relate to this SVRX code which is in schedule 121-A-6 because the Court has determined, as a matter of law, that SCO breached its fiduciary duties to Novell by failing to account for and remit the appropriate royalty payments to Novell for the SVRX portions of the 2003 Sun and Microsoft agreements. So, as to those two agreements, the decision for the Court is simply: How much of the money that SCO got from those agreements is Novell entitled to?

The second question for the Court is: Are there others of the other SCOsource licenses SVRX licenses. And, if so, what percentage of those royalties is Novell entitled to under the APA?

And, finally, the third question the Court must address is: Was the licensing of SVRX code in any of the licenses merely incidental to the license of UnixWare? If not, then Novell is entitled to a declaration that SCO improperly failed to seek Novell's permission before entering into those agreements.

So, what are the facts? Well, let's go back to

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2002 when Darl McBride and Chris Sontag first came to SCO. The financial situation of SCO was horrible. How do we know that? Darl McBride told us. This is his testimony at transcript 231, lines 3 through 232, 10:

"Q. And at that time when you joined Caldera, it was not in great financial shape, correct?

A. That is correct.

Q. In fact, the company was in somewhat of a turnaround situation. Would that be accurate?

A. Yes.

Q. The company had not been profitable for the fiscal year ending October 31, 2002, right?

A. Yes.

Q. And, in fact, the company had suffered a net loss of over $24 million for that year, right?

A. I don't remember exactly, but it wasn't in good shape. I know that.

Q. And when you first came to Caldera, you met with the top dozen or so managers of the company and asked them what they would do if they were running the company?

A. Yes.

Q. And during those conversations, one of the managers, John -- I believe his name is Terpstra?

A. Terpstra.

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Q. Terpstra told you that he believed that the UNIX intellectual property exists inside of Linux, right?

A. Yes. That's correct.

Q. And one of your take aways or your findings from your meetings with managers was although the prior management or regime had been focusing on marketing Linux. Most of the company's revenue was coming from UNIX, correct?

A. Yes. That's correct.

Q. And you believed that the course of action had to change in the company in order to become profitable, had to turn its attention to protecting its UNIX assets, right?

A. That was clearly one of the key strategies that a we identified, yes."

That's how Mr. McBride was going to solve the problems with SCO in late 2002 and 2003. He was going to market the UNIX assets. And how do we know that? Again, because he told us. Here's testimony at page 236 in the transcript, 4 through 15:

"Q. Well, isn't it true that when you arrived in Caldera in late 2002, you realized that the revenues from the branches UnixWare and OpenServer were, in your words, marching south and dying off, correct?

A. They were under severe competition from

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primarily Linux, but also from others. But, yes, they had been going south for a number of years.

Q. And, because the revenues from the branches UnixWare and OpenServer were marching south and dying off, your strategy was to focus on maximizing the value of the trunk, correct?

A. In part, that's correct."

So, what is it Darl McBride decides to do? He decides to -- I'm losing my business in OpenServer and UnixWare, so I have to turn back to the core technology, to the trunk, and I have to mine that resource in some fashion. Mr. Sontag told us about what they hoped to achieve with SCOsource. And Mr. Sontag's testimony at page 79, lines 14 to 24?

"Q. And you and others hoped that the SCOsource campaign would become an important revenue generator for the company, correct?

A. Of course.

Q. In fact, you thought it would generate billions, right?

A. We viewed the UNIX asset held by SCO to be a very valuable asset and had potential to generate significant revenues.

Q. That included billions, right?

A. Potentially, yes".

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So, 2002, the end of the fiscal year, in October, financials are terrible. Mr. McBride decides: We better start SCOsource and save the company. Again, Chris Sontag talking about the trunk and what they were hoping to do with SCOsource. His testimony at page 91 in the transcript, 18 through 23:

"Q. But you wanted to mine this entire body of intellectual property, right? That was the plan? ?

A. That was my understanding of the intellectual property body that we had rights to license.

Q. Going back to 1969, right?

A. Correct."

And what was that body of intellectual property that they hoped to mine? This is the tree that Mr. McBride spoke about and Mr. Sontag spoke about it, and it's the centerpiece of the SCOsource plan. Instead of focusing on the branches, which are the derivative operating systems, OpenServer and UnixWare, they are going to mine the trunk. They are going to mine the core UNIX IP, the trunk of the tree, and there has been much testimony about what exists in that trunk.

But Mr. McBride, again, in his own words, told us what that trunk consists of because that is the basis of SCOsource. Again his testimony, page 265, line 6 to 13:

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"Q. Let me understand your testimony. So, when you're talking about the UnixWare and the OpenServer licensing revenue in the Q -- "

Again, this quarterly statement.

"-- you're talking about the branches of the tree, correct?

A. Yes.

Q. But when you're talking about the Sun and Microsoft and SCOsource licensing, you're talking about the trunk, the core UNIX IP, correct?

A. That's the way I would depict it."

Mr. McBride's own words what SCOsource was about was licensing and mining the trunk of the tree. So, Mr. Sontag is put in charge of the program and Mr. Petersen is his deputy. The next thing they need, of course, is lawyers because we are not talking about a regular sale of product here, Your Honor. This is not a regular Hunsaker-driven sale of UnixWare OpenServer to folks who are going to use it. This is a licensing campaign, and we need litigators to support that.

And as Mr. Hunsaker put it, I think very nicely, that you have to pay us so you can run Linux and you can be clean with SCO. And here was his testimony. Mr. Hunsaker:

"Q. Are you familiar with the SCOsource program?

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A. Yes.

Q. And can you generally describe what the SCOsource program was?

A. This program was put in place to provide a licensing mechanism for Linux customers that were perhaps unknowingly using our intellectual property, our UNIX technology, and it provided a way to make them whole or clean, if you will."

Mr. Petersen, who was the deputy, second in charge of SCOsource, echoed these comments. Here's his testimony about what SCOsource was:

"Q. And after you were assigned to SCOsource, you soon met with lawyers, including Darl McBride's brother, Kevin McBride, to map out the strategy for the SCOsource campaign, correct?

A. Yes. I was involved in that, yes.

Q. So you come on in, in October, and immediately you're meeting with lawyers, including Mr. McBride's brother, in order to map out how SCOsource is going to work, right?

A. Yes.

Q. And that included working out a litigation strategy, right?

A. There was some discussion of litigation at that point, I think, yeah."

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If these licenses and this program is about selling operating systems to customers, why do you need lawyers? Why do you need litigators? You need lawyers, you need litigators because this is about not selling product to customers to run that operating system, it's about a licensing scheme, Your Honor, in which litigation is going to be a focal point.

Mr. Hunsaker made this clear in his e-mail, July 31, 2003. This is immediately after a conference call including Mr. Hunsaker, Mr. McBride and Mr. Sontag, and they talked about this SCOsource program. And what Mr. Hunsaker says at the bottom could not be more telling, despite his repeated efforts yesterday to try and make the SCOsource program into a sale of UnixWare. These are his own words, contemporaneously, at the time, before litigation:

"There is no connection between UnixWare and OpenServer and the SCO UNIX IPC license whatsoever."

There is no connection whatsoever. His own words.

"They are independent. Simply put, the license allows users of Linux to run legally."

It's not about selling products. And then finally, Mr. Hunsaker's own notes, which have been a discussion amongst the executives at SCO, talking about

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what really what SCOsource is. This is in December of 2004, a year after the program has been in place, and it makes painfully clear exactly what the program is:

"What is our business model for SCOsource

and SCOx? SCOsource. Take 15 thousand penguins

--"

When they are talking about penguins there, Your Honor, they are talking about Linux users.

THE COURT: I think it says 1500.

MR. ACKER: 1500.

"Take 1500 penguins --"

they are talking about Linux users.

"-- create a room in Lindon, line them up and place the company brand on each one of them. We then send out a letter within the next few weeks which takes our code claims and demonstrates to customers what we have found to date. We let the end user know that, quote, if they want to be safe, they need to remove the offending code from Linux in order to continue to use it legally. Once you have cleaned up your systems, you will be clean."

And the only code they refer to is pre-APA code. This is not about a sale of UnixWare OpenServer. It's a licensing campaign to get money from Linux users,

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the 1500 penguins. Again, the CEO's own words make this clear in a letter that Mr. McBride wrote in May of 2003 to 1000 companies across the United States. He tells, in the first line:

""SCO holds the rights to the UNIX operating system software originally licensed by AT&T to approximately 6,000 companies and institutions worldwide, the UNIX licenses."

He doesn't say: SCO holds the right to UnixWare. Would you like to buy an operating system? He says: We have the core IP.

And then he tells -- in the fifth paragraph, he talks about his beliefs that UNIX developers have taken that IP in the past and put it into Linux.

"Many Linux contributors were originally UNIX developers who had access to UNIX source code distributed by AT&T and were subject to confidentiality agreements, including confidentiality of the methods and concepts involved in software design. We have evidence that portions of UNIX System V software code have been copied into Linux and that additional other portions of UNIX System V software code have been modified and copied into Linux."

He sends it out to a thousand companies across

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the United States and says: We think our core IP is in your operating systems if you're running Linux. And then what does he say he's going to do? He says he's going to sue you.

"We believe that Linux infringes on our UNIX intellectual property and other rights. We intend to agressively protect and enforce these rights. Consistent with this effort, on March 7, we initiated legal action against IBM."

So, what he's telling those folks is: Get in line, penguins. Get your license or you're going to get sued. That is SCOsource. Again, Mr. Petersen, the second in command, yesterday told the Court clearly what SCOsource is. Here's what he said:

"Q. But the focus of the SCOsource program was to -- 1000 letters went out from Mr. McBride to Linux users all over the country, correct?

A. That was one of the aspects of that program.

Q. And in that letter, Mr. McBride told those users of Linux: Hey, we think our IP is in Linux. Correct?

A. That's correct.

Q. And he told them: You better take a license from us or you're going to get sued. Correct?

A. I don't remember exactly how he said that, but,

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yes, that was the impression.

Q. And that was the SCOsource program, right?

A. Yes."

It's in this context that the Sun and Microsoft deals were executed, Your Honor, and there's no question that the Sun and Microsoft deals are SCOsource licenses. So let's take a look at those licenses themselves. The Sun license was executed in February, 2003. And it really, I don't believe, given the evidence here, could be disputed that it amended or restated the earlier 1994 Sun and Novell license. And how do we know that? Well, the contract says so in the first two lines:

"Whereas Sun and UNIX system laboratories, Inc., Novell, are parties to a software license and distribution agreement dated January 1, 1994; whereas Sun and SCO desire to amend and restate the original agreement by the execution of this agreement."

It could not be more clear that what the Sun agreement was doing in 2003 is restating the earlier agreement, the SVRX agreement between Sun and Novell. In fact, Mr. Sontag, in negotiating this agreement, was pretty up front about this. When you compare the first page of the second license, the 2003 license, it lists the technology on the right with the earlier list of

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technology that was licensed on the left in the earlier agreement. They are identical. He had a hard time admitting it on the stand, but when he was asked follow-up questions, he gave this testimony about it, these two versions of software:

"Q. And you know what happened was, in the 2003 deal, for the first page of attachment 1, you simply took the old attachment 1 from the earlier deal and made a copy of it, right?

A. I suspect that's the case."

It amended and restated the earlier agreement. And, in addition to the -- the set of identical pages there, there's a second page to the 2003 that lists a total of seven new pieces of software. For five of those, Your Honor, the ones that are highlighted are listed on the schedule in the APA to which Novell is entitled to royalties.

And there's no question, Your Honor, that Mr. McBride admitted the 2003 Sun license allowed Sun to open source its Solaris product, OpenSolaris. Here's the evidence. He was asked:

"Q. And SCO does not have a problem with what Sun did in open sourcing Solaris after the execution of the 2003 Sun licensing deal, right?

A. Correct.

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Q. And you would agree, wouldn't you, that what Sun has done with its OpenSolaris products is, it has the right to package that Sun obtained -- it has the right to package what Sun obtained from SCO in its 2003 license?

A. That's what I said.

Q. And it's true, isn't it, that Sun's OpenSolaris is a derivative of UNIX System V?

A. Yes, it is."

So, there's 30 pieces of software that's listed on that first page that's identical to both contracts. Under the first contract, they couldn't open source it. They couldn't allow it to be open sourced, but after the second deal, they could. There's no doubt about that. So then the question becomes, and the dispute has been: Is there market value to that?

SCO would have you believe there's not. The problem with that is that their own employees, four employees, tell you different. This is John Maciaszek's testimony yesterday -- or yesterday afternoon -- yesterday morning:

"Q. It is true that Solaris was developed before the 1995 Asset Purchase Agreement, correct?

A. Yes.

Q. And it would not surprise you if you found substantial code predating the Asset Purchase Agreement

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in Sun Solaris?

A. No. It wouldn't surprise me if there were code in the prior release, no.

Q. And at any particular point in time, an OEM licensee could stop taking additional releases of UNIX or UnixWare and develop it on its own path?

A. That's correct.

Q. And, in fact, some OEMs did that, correct?

A. Yes.

Q. For example, Sun Solaris, correct?

A. Yes.

Q. They -- insofar as their code refresh, if you will, from any of the UNIX businesses was concerned, it was frozen in time as of the last schedule attached to their software agreement, correct?

A. I would have assumed, yes. I think it was 4.0, but I'm not positive.

Q. And that code as to Sun, the older code, that is the UNIX code --"

Or the trunk of the tree, Your Honor.

"-- on which then, as of that date and going forward, unless they were to sign a new license, they were building their variance on, correct?

A. Yes.

Q. And, I would assume there would be code from

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other sources as well. But, yes."

So, what Sun has done is they have taken 4.0, which is listed on the APA, they have made that the base of their Solaris operating system and they have stopped taking refreshers, or they have stopped taking new code.

And Mr. Maciaszek continued:

"Q. You are right. I didn't actually ask that quite precisely enough. In so far as the UNIX code is concerned, once they're frozen in time as of their latest schedule, that is the UNIX code on which they were relying, correct?

A. Correct.

Q. And as to Sun in that case, that UNIX code has substantial value, doesn't it?

A. Well, you'd to have ask Sun that. I mean, I can't answer that question."

And here's the telling part, Your Honor. Mr. Jacobs asks Mr. Maciaszek, who I submit was a very credible witness:

"Q. And if you went to them and say -- after the Asset Purchase Agreement, went to them in 1996 and you said; you know what, we want to strip out all of that UNIX System V Release 4 code from Sun Solaris. What do you think their reaction would have been?"

And the answer, and he got a chuckle from the

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gallery:

"A. It wouldn't have been favorable."

Sun has built their operating system on that code, Your Honor. For them to go in and rip it all out, it has huge commercial value to them, and Mr. Maciaszek confirmed that:

"Q. Because it would have been a substantial injury to their business, would it not, sir?

A. Yes."

In addition, Mr. Patterson(sic), when he realized what it was that Sun was able to do with the new license, when he saw this article in August of 2003, he wrote an e-mail to his boss, Chris Sontag and said:

"Hey, Chris, it looks like Sun intends to use its broader license to protect its Linux customers. That is fine, but I hope they don't decide to go after the rest of the market. I doubt they would, but I think they could actually sell an equivalent license to ours."

So, I asked Mr. Sontag about this -- or Mr. Patterson about this:

"Q. And then you wrote: That's fine, but I hope they don't decide to go after the rest of the market. Do you see that?

A. Yes.

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Q. What did you mean when you wrote that?

A. Well, I knew that Sun had broader rights and that they could sublicense some of those rights. And I was wondering whether they were going to -- whether that was their interpretation, what they were talking about here was their Linux stuff, their Linux program. And I wondered whether they would try to take that and do anything more than that.

Q. You were worried that they were going to provide indemnity to all of these Linux users out there, right?

A. I didn't know if they could or not, but I wondered if whether that was an issue.

Q. And that was a concern for you as a deputy at SCOsource, correct?

A. Yes."

And here's the key, Your Honor:

"Q. And that would have been a commercial -- that would have commercial value for Sun if they could provide indemnity to customers that were using their OpenSolaris product, right?

A. It would.

Q. It would be valuable, extremely valuable, right?

A. Yes.

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Q. And it would seriously undermine the SCOsource program, correct?

A. It could, yes."

No doubt that, in the 2003 agreement, Sun got the ability -- it contained the ability to open source their product. Jay Petersen, the deputy of SCOsource, tells this Court that that has substantial commercial value to Sun because they can now indemnify their customers. There undoubtedly is commercial value in that license, Your Honor.

And then there has been much testimony and argument about -- of whether or not a grant to the latest version of UnixWare is going to solve some problem. And that's really SCO's position. Well, we're going to give you the grant that we gave you in the Sun license, the latest grant, and it's going to cover all of the problems because all of the code that's in the latest grant is also in the earlier releases.

Well, we just heard testimony here this morning from Mr. Nagle that they don't know. Nobody knows. No one sat down and compared the two. There's no evidence before this Court that there is unique code in the Sun Solaris system. If there's not unique code in the Sun Solaris system that is not also in UnixWare, there is no evidence before this Court that if you get a license to

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UnixWare and you open source Sun Solaris, that you're going to be protected, that you're not going to get sued, that you're not going to be one of the penguins.

And I asked Mr. Sontag about this:

"Q. Now it's true, isn't it, that not all of this pre-APA SVRX software is in the current version of UnixWare, correct?

A. Probably not, but I would suspect, you know, that anything that is valuable and important would still be in the current version of UnixWare."

And we have heard that over and over from three or four witnesses, that they think it would be, that they suspect it would be. Mr. Hunsaker told you that of course, it would be. But there's no evidence that it is.

"Q. But you have never done a line-by-line comparison to determine what portions of this software, the legacy SVRX software, is actually in the current version of UnixWare, correct?

A. I have not.

Q. And you're not aware of anyone else having done that analysis, correct?

A. I'm not aware of that analysis.

Q. And Sun didn't do that analysis as far as you know, correct?

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A. Not that I know.

Q. And you're not aware of any expert for SCO doing that analysis?

A. I'm not aware.

Q. And you're not aware of any technician or technical person or engineer of SCO doing this analysis, correct?

A. No, I'm not."

John Maciaszek was also asked about this.

"Q. Now, you talked about the development practices of the UNIX operating system. You testified that modifications were added over time with each successive release. Do you recall that testimony?

A. Yes.

Q. And isn't it a fact, sir, that modifications also included deletions of code over time?

A. That is correct. Substitutions as well."

And what we're talking about is the development of Sun Solaris, based on that pre-APA.

"Q. And I think in answer to a question from Mr. Singer that was driving at a somewhat similar point, you said --"

And this is important, Your Honor.

"-- whatever is in UnixWare is in UnixWare. Do you recall that?

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A. Yes.

Q. And in order to know whether any particular code from a prior release has been carried forward all the way to the present day, you would actually have to look at the code and compare it, wouldn't you?

A. To be definitive, yes.

Q. And it's quite possible the code from, say, UNIX 4.0, pick your release, has been deleted over time and is not in the current version of UnixWare?"

Again, this is their witness, Your Honor.

"A. That's correct. It could have been deleted or it could have been substituted or enhanced.

Q. And the same is true, for, say, UNIX System IV, pick your release, and, say, SCO UnixWare 2.1?

A. That's correct."

So for SCO to argue there is no value in Sun having the ability to open source Solaris in 2003, after that agreement was signed, simply defies logic and ignores the testimony of their own current and former employees.

So, how does SCO respond? What have we heard the last three days? What's the mantra? It's just about UnixWare. This is the sale of the products that's just about UnixWare, and every time we sell UnixWare, we give you everything in the past. That's what we've always

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done. That's the guts of their defense. I'll give you several reasons, Your Honor, why it's refuted by the evidence.

One. There is no question this is not a routine software license, neither Sun nor Microsoft or the others. This is part of the SCOsource campaign. So you can't take that out of that context and apply to it a sale of a regular operating system. Mr. Hunsaker made that clear in his e-mail, and he made that clear in his testimony. This is not a regular sale of an operating system.

Two. And this is critical here. The practice followed here is inconsistent with what Mr. Broderick said was the current legacy software licensing practice at SCO. Do you remember Mr. Sontag went on and on about we always license all the prior code whenever we license something, and then we showed him a couple licenses. And two of them had just these two releases in them. This is Exhibit 69 and 70. We showed him two sets of those.

And he said: Well, you know, maybe I was wrong and I didn't hear right, but as I understand it, that's the current practice now. We changed it. We used to license -- we used to just list everything as a matter of course, but now we're just listing the last two UnixWare releases.

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And Mr. Maciaszek highlighted that and said: Yeah, that's part of the sales technique. We just want the license to say UnixWare.

Mr. Sontag said that we wanted those contracts to be shorter, but Mr. Maciaszek said it was what the sales guys wanted, which is that we just want UnixWare on the license.

Okay. So that's the practice as of five years ago. Well, we've seen the lists. They don't just list UnixWare. They list 30 other prior pieces of software. Their own evidence and their own explanation is that that's the practice now. We just list the UnixWare. But that's not what happened in Sun, and that's not what happened in Microsoft.

Reason 3. The standard legacy SVRX license program does not allow a licensee to open source the legacy software. In other words, you can look at it, but you can't build on it. You can't make a derivative work of it, and you certainly can't open source the source code. And how do we know that? Because their own witness told us that. William Broderick:

"Q. Let me make sure I understand your testimony. If I wanted to make a derivative work of UNIX System V Release 3.2, that is not something I could do under supplement 87?"

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And, again, supplement 87 was a listing. They had a list of prior SVRX software that included Release 3.2. And he said:

"A. That's correct.

Q. And so if I wanted to use --

A. Well, let me clarify that. If you wanted to create a derivative work of UnixWare 2.1 --"

Which is actually being licensed in that supplement.

"-- that included some of the prior product, you could do that. But if you just looked at the prior products --"

In other words, you just looked at that list of legacy software.

"-- It's not the same as having a full source license for that product, so there is no right, by virtue of the prior products, that you can distribute a stand-alone UnixWare 3.2 derivative work."

So what they're telling this Court is: As a matter of course, we list everything, and because of that, you can distribute it. You can open source it. But that's not what their own witnesses say, and that's not what the practice is. The evidence simply does not hold up to it.

Reason 4. Ms. Acheson, yesterday, the CFO of

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SCO made it clear that when she receives revenues from UnixWare, she books it as UnixWare. This is what she said:

"Q. How did you book the revenues from Novell's UnixWare licenses?

A. As UnixWare and then what the release was. In this case, it would have been booked as UnixWare 1.1 or UW 1.1."

So, if this really was a UnixWare license where you're selling UnixWare -- that was what these licenses were -- that money, the Sun and Microsoft money, would have been booked as UnixWare revenue, but we know it wasn't. We know it wasn't because the filings of the SEC expressly do not book it as UnixWare revenue. They book it as SCOsource licensing revenue. No doubt about that.

And Mr. McBride said he would never make a mistake in an SEC filing, so we asked him about it:

"Q. The products revenue in your Q includes UnixWare licensing revenue, correct?

A. Which means it was a product. It was a branch."

The branch of the tree.

"Q. And that did not include -- that line item from products revenue did not include the Sun and Microsoft revenue, correct?

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A. No, it did not."

If this was a sale of UnixWare product, a traditional sale of UnixWare product, which is the legacy software, it would have been booked as UnixWare revenue.

Reason 5. Sun already had a license to all of the legacy software. There was no reason for that to be included in the legacy list or for them to get an additional list that included that software but for one reason, because they wanted to expand the confidentiality agreement, Your Honor. That's what the Sun 2003 license was about.

Reason number 6. In this very action in this Court, SCO has claimed that it suffered hundreds of millions of dollars of damages due to Novell's challenge to the ownership of the copyrights, the pre-APA copyrights. And yet, what they would have you believe now is that it's worthless. They come into Court and they say: You have challenged our title to those copyrights. We've been damaged hundreds of millions of dollars. You have stopped our SCOsource program.

That was the guts of this entire case, until now, when they have to explain why they're licensing SVRX revenue to Sun and Microsoft that all of a sudden -- and then they say, oh, no, no, no. No value, none. Negligible. Incidental.

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And item 7, Your Honor, and perhaps most important, is SCO's position now is inconsistent with the position its general counsel took in 2003 in responding to Novell's request to see the Sun and Microsoft licenses. Mr. LaSala's testimony:

"Q. So, over the -- and then, at some point, the Sun and Microsoft agreements are produced in discovery. That happens. I'll just set the chronology. That happens in the winter of 2006. So, up until that point, did SCO ever comply with your request under these letters that it supply Novell with the Sun and Microsoft agreements?

A. No.

Q. Did it ever comply with the request, pursuant to the audit provisions of the Asset Purchase Agreement, that Novell be allowed to audit SCO's compliance with the Asset Purchase Agreement as it related to the Sun and Microsoft agreements?

A. No.

Q. Did SCO ever tell you, in any communications outside litigation pleadings, in the last year and a half or so, that its theory was these agreements were not SVRX licenses as to which it owed you a payment obligation because the SVRX was only incidental?"

Back in 2003, when six different letters were

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written from Novell to SCO and asked: Do you want to see the licenses? No, no, no, no. Did they ever say it was incidental back then? No.

Well, what did they say? Well, I asked Mr. McBride: How are we supposed to understand what your position was back in 2003? And we asked him.

"Q. So, if we wanted to understand what it was with SCO's response to Novell's request to see the Sun and Microsoft agreements, we have to look at what Mr. Tibbitts said in his letters back to Novell, correct?

A. Again, that would be the place I would go."

So, let's go there. This is the letter of November 21 from Mr. Bench to SCO, asking again for the Sun and Microsoft licenses:

"We have completed significant portions of the audit but are still lacking critical information and documentation necessary to finish the audit."

And, again, he asked specifically for the Microsoft agreements. He references Section 4.16(b) of the APA, which has the language. And he expressly says -- uses the word "incidental," and asks about amendment number 1 in November, 2003.

What does Mr. Tibbitts write back on February 5, 2004? Does he say: Well, the SVRX licenses were

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incidental. It was a negligible part of the contract. It had no commercial value.

Did he say that in 2003, before the litigation strategies were developed? No. Here's what he says:

"In your letter, you assert that SCO unilaterally amended and modified SVRX licenses with Sun Microsystems and Microsoft. You claim this characterization is based on public statements by SCO but do not identify where SCO made these alleged statements. By your citation to paragraph 4.16(b) of the APA and Section B of amendment number 2, it appears you are concerned about the proper flow of royalty revenues to Novell under the APA. This is curious to us as we are well aware, as you are well aware, Sun Microsystems bought out its license from Novell in 1994."

And here's where he gives what the plan of attack is in 2004:

"To the limited extent Novell may have some rights under paragraph 4.16 of the APA to protect its revenue streams from SVRX licenses that were in existence at the time of the APA, those rights do not extend to the new contract with Sun. The Microsoft agreement is a new

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agreement, not covered by the APA."

So, they don't say those licenses are only licensing SVRX incidentally, they say those are new agreements. And this Court has already determined that that defense won't fly, so we see a new one. And I asked Mr. McBride if that really was the company's position back in 2003.

"Q. So, was it SCO's position back in 2003 that the reason that Novell was not entitled to these licenses is because these were licenses that were entered into after the date of the APA, correct?

A. Yes."

That was then. New defense now. So, if the SVRX license grant here truly was incidental to the grant of the most recent version in the Sun agreement, why didn't SCO produce the license in 2003 and just explain it. Why didn't Mr. Tibbitts say so in his letter? Why didn't SCO declare its $10,000,000 payment from Sun as UnixWare revenue? Because the incidental argument is an after-the-fact trial strategy, Your Honor. It's nothing more.

The Microsoft deal. We are asking for the royalty of Section 2 and Section 4 of the Microsoft deal. Section 2 is a fully paid-up license. Microsoft, as Mr. Sontag told this Court, was concerned. Its engineers

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were concerned that some of the UNIX core IP had made its way into Microsoft products and so he wanted this release and license for all of SCO's IP and for all of Microsoft's products. And for that they paid a million and a half dollars.

And the position now appears to be: Well, they were really just asking about a UnixWare Release. They really weren't that concerned about the old technology SVRX, although there is no analysis about what exists in the Microsoft products. But, given the saber rattling of Mr. McBride, who knows what the accusation would be?

And so we asked Mr. Sontag what it was that SCO was concerned about. And he's the one that talked to Sun during the negotiations part, to Microsoft, what they were concerned about.

"Q. And so Microsoft was concerned that there might be some of SCO's intellectual property in their products, right?

A. Yes, potentially.

Q. And so, at Section 2, they wanted a release that included releases for all of SCO's IP and all of Microsoft's products, right?

A. Yes.

Q. And during negotiations, they expressed concern that they may have inadvertently used SCO's IP in their

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products, including SVRX code, right?

A. Potentially, yes.

Q. So, part of what Microsoft wanted in the negotiation around Section 2 was the license that protected them against potential claims relating both to UnixWare and to older SVRX technology, right?

A. That was the license that we provided to them.

Q. So the license that was provided to them included both protection against violation of UnixWare and also older UnixWare technology, right?

A. Older UnixWare technology -- "

Again, Mr. Sontag, head of Scosource.

"-- yes.

Q. And for this release in license, Microsoft paid you $1 1/2 million, right?

A. Yes.

Q. And none of that money was provided to Novell, correct?

A. No, it was not."

That's their witness telling you that that release and license in Section 2 relates to SVRX, Your Honor.

Section 4. And here we're talking about the $8 million payment in addition to the quarter-million dollar

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payment up front in order to be able to exercise this right. And what is the software that was being provided in Section 4 of the Microsoft license? Here it is, Exhibit C. Remember in Section 3 of the license, they got the UnixWare license? Exhibit C expanded that UnixWare license but also provided all of this prior SVRX software.

Again, this is totally inconsistent with what they now tell you is their practice to only include prior UnixWare releases in their licenses. And here it is. And they would have this Court believe that this Section 4 grant has nothing to do with SVRX, that it's unrelated, that it's incidental. What Section C does is grants expansive rights to A, B and C, including rights to sublicense the software, rights that were never ever granted in prior legacy grants in other licenses.

And this includes the vast majority of which is listed in Exhibit C is older SVRX. It's the trunk of the tree. It's what SCOsource is seeking to mine. And, again, SCO's defensive claim of incidental licensing is the same one made here, and it should be rejected for the same reasons. This is not a standard product license. The license in legacy software here is inconsistent with what they tell you their practice has been. Expansive rights were granted here beyond what were granted before

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in legacy software.

The revenue from this deal also was never reported anywhere as UnixWare revenue in any SEC filing. SCO's position is inconsistent with the position it took in 2003 in the damages they wanted in this case, and it's inconsistent with Mr. Tibbitts' letter. And, again, their claim that the granting of this software has no commercial value is undermined again that -- by the fact that when they came into this courtroom and they asked for hundreds of millions of dollars, they said that this is why, because we claim that we owned the copyrights to this software. And that damaged them hundreds of millions of dollars. Now, when there's a grant to it, they say it's worthless.

The other SCOsource licenses. So, what SCOsource is, is the Sun, the Microsoft license and 23 other smaller licenses that we went through with Mr. Sontag. And these 23 other licenses were granted to Linux users for the privilege of avoiding becoming one of the penguins, for the privilege of avoiding being sued by SCO. And the total paid here is 1.156 million.

And here's an example. Everyone's Internet paid, I believe, a half a million dollars for this license. And virtually all the licenses were identical to this.

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And Mr. Sontag was pretty up front about what they granted, the SCO IP. What's that mean? SCO IP means SCO UNIX-based code. It's at paragraph 1.10. It's UNIX System IV or UnixWare, UNIX System IV or UnixWare. They are not granting UnixWare, Your Honor. They are mining the trunk of the tree. There is no division anywhere of this revenue between UnixWare and UNIX System V. Simply, as Mr. Hunsaker put it, it's a chance to run Linux and be clean with SCO for all of its IP. And this is the plan of SCOsource to save the company. This, too, is revenue that should have been passed to Novell.

So, wrapping up, Your Honor, there's no dispute that both the Sun and Microsoft deals, there is a grant -- there are grants of UnixWare rights. I mean, the documents clearly show that. And we have done our best to provide to the Court what we believe to be a reasonable breakdown based on the terms of the agreements themselves and the evidence this Court has heard in the last three days.

We have conceded the $7 million in Section 3 of the Microsoft deal because that clearly is just a UnixWare license. But as Mr. James made clear, and the fiduciary law side in our trial brief also establishes, it's SCO's burden to provide an equitable division of the SVRX and SCO UnixWare. And it shouldn't be done here and

700

now. It should have been done in 2003, when we sent them six different letters asking for the licenses. Not now, after years of litigation. Now, any jump balls go to Novell.

But, even now, they don't provide any apportionment. It simply says we get nothing. And I think what's telling about that, and telling about that attitude, is Mr. McBride's testimony in this courtroom the other day, in the face of this Court's finding that the Sun and Microsoft licenses are SVRX licenses, its express finding, as a matter of law, that they are SVRX licenses.

And this is what Mr. McBride said:

"A. So, my view of those two licenses -- "

He's talking about the Sun and Microsoft licenses.

"-- was that Novell had no more standing to ask us to produce those licenses to them than the court reporter here has the standing to ask for those. So, it didn't make any sense that we would send it to them."

"Q. So, it's your position that the court reporter here in this courtroom today has the same standing to ask for those licenses as Novell did in 2003?

A. For the UnixWare licenses with Sun and Microsoft, absolutely correct."

701

Your Honor, Novell here seeks for the Sun license, $9,143,809. That was the amount that was paid of the $10 million total.

For the Microsoft, we seek the revenues that were paid in Section 2 and Section 4, $9,750,000.

And for the other license, we ask for all of that money because there has been simply no breakdown between UnixWare and SVRX licenses. And that's $1,156,110.

So, the total that we are asking for from this Court is $19,979,561.

We believe that justice and equity would not be served if SCO's litigation-driven characterization of these licenses were allowed to carry the day. We believe the facts and the evidence and the law do not allow such a result. Thank you, Your Honor.

THE COURT: Thank you, Mr. Acker.

Mr. Singer, you may proceed with your closing argument.

MR. SINGER: Your Honor, would it be possible to have two minutes?

THE COURT: Sure.

(Short break.)

THE COURT: You may proceed, Mr. Singer.

MR. SINGER: Thank you. And, good morning,

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Your Honor.

THE COURT: Good morning.

MR. SINGER: When Novell moved for summary judgment that some parts of the Microsoft agreement involved an SVRX license, they did so on the basis that there was, listed in that agreement, certain prior products which fell within the schedule of the APA. They made the same argument with respect to Sun, that certain of the prior products listed in the Sun license were among those listed in the APA.

They made no motion about SCOsource being covered with respect to the language entitling Novell to royalties. And when this Court ruled on their motion for summary judgment, it held that an SVRX license was implicated by the Sun agreement and by the Microsoft agreement because of the inclusion of those certain prior products.

It made no ruling with respect to SCOsource Now all we're hearing about is the SCOsource campaign, and we submit that is because the weight of the testimony shows that, with respect to the Sun and Microsoft agreement, their substantial value was in licensing of UnixWare, a license to the current products, a licensing of OpenServer and things which SCO had every right to license and keep, and that no valuation has been

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established by Novell for those prior products.

Let's consider the weight of the testimony in general. We'll talk about it more specifically as we go along. During this week, SCO has presented testimony from witnesses who have spent their professional careers working with UNIX, witnesses like John Maciaszek, Bill Broderick and Jean Acheson, with decades of experience in licensing and accounting for the UNIX licenses at USL, at Novell, itself, and then later at Santa Cruz and SCO. Their testimony has been consistent about what the value of those prior products was.

On the other side of the ledger, Novell has called two in-house attorneys with no involvement in UNIX licensing. Only one of them even addresses the valuation issue and simply concludes that, because he doesn't see any apportionment, there should be -- and this is his term -- a forfeiture of all the benefits of those contracts.

Now, the undisputed testimony from the witnesses that SCO has called, the witnesses who have been there for decades and licensing these products, is that, first, historically, the prior products were licensed without any additional fee.

Second. There were no substantial commercial sales after new releases became available. You remember

704

the chart which showed that.

Third. There was no customer demand for those older products, aside from being just included in the latest release. In fact, the last time a customer paid for any SVRX release at all was in 1996. And that makes sense when you think about it. When a company goes to buy software, they want the most recent version, the up-to-date version, and that was UnixWare.

Novell offered no contrary evidence whatsoever establishing any value to the prior products. Instead, they have sought to confuse the issue of the value of those prior products with the value of the older SVRX copyrights. And those are two separate things.

The value of the older SVRX copyrights, the copyrights which we acknowledge the Court has held belong to Novell and were not transferred to SCO, is not an issue before this Court. We are not valuing the copyrights. They don't have a royalty on the copyrights. What they have is an entitlement to royalties on certain SVRX products. And that is what they have had to value, contracts relating to those SVRX licenses as this Court held, and that's what they have not purported to do.

Now, in Novell's closing, they talk a lot about how SCOsource was promised to be the salvation of SCO because it was losing millions of dollars. And there's

705

no question about it. SCO was losing a lot of money and was not profitable in 2002, largely because of what was happening with Linux in offering a free alternative, using its technology in competition with SCO's UNIX products.

What Novell ignores, though, is that SCO was not able to effectively realize on its SCOsource program of dealing with that Linux threat either by licensing because Novell contended it owned the copyrights. And, at that point, there was very little interest in buying SCOsource licenses, which is why we have only about a million and a half dollars to argue about in that category of true SCOsource licenses and because the Court has found that we did not own the copyrights and, thus, our claim relating to that was dismissed.

But that does not mean that, when SCO licensed products to Sun and to Microsoft -- and those were UnixWare and OpenServer licenses -- that those did not have the value established by the testimony and did not constitute the license that the plain language in those agreements establish, which was a license to UnixWare, a license to OpenServer and, to the extent claims were surrendered, those were SCO's claims which SCO had the right to surrender, and not Novell's.

Now, one of the issues that has been talked

706

about a lot throughout this case has been UNIX technology. But what the evidence makes clear is that this core UNIX technology, what Novell likes to talk about as the trunk of the tree, is in both the SVRX legacy products and the newer UnixWare products. That continues through. And you've heard, as recently as this morning, that that technology, the value parts of it, continue through into UnixWare.

The issue of royalties doesn't turn on whether SVRX is involved. The royalties are determined by a factor of what products are being licensed. And this Court's order dealt with contracts relating to a specific set of SVR products. There is no order, there is no right in the APA that any product that might contain any System V technology means that money goes to Novell. That type of position would include UnixWare, where it's clearly established that revenue goes and stays with SCO.

It has been established and it's undisputed that SCO has the right to distribute UnixWare source code. And that UnixWare source code includes the legacy SVRX source code, without any royalty to Novell.

Now, there was a possibility of a royalty to Novell. There was a specific provision in the APA which called for a royalty on UnixWare, but it's never been a point of this litigation, Your Honor, because it is

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recognized that the sales of UnixWare never reached the threshold where a UnixWare royalty would be due to Novell. And, by its terms, that right ended in 2002, and Novell has not contended that they are entitled to one cent under the UnixWare royalty provision, which was part of the APA.

Now, SCO's rights to distribute UnixWare include UnixWare versions initially developed at Novell and sold to Santa Cruz through the APA. Novell does not contest this. At times, though, they ask questions to suggest: Well, was this new technology in UnixWare developed at SCO after the APA?

That, we submit, is not a relevant question. We got all the rights to distribute UnixWare. Our licensing rights with UnixWare were not limited to any new technological advances developed at SCO after the APA was signed. There is nothing in the agreement that suggests that. Rather, what Novell retained was a right to royalties pertaining to certain legacy products.

Now, there's one other issue, before turning to the specific claims, I'd like to briefly address. And that is Novell's effort to shift the burden of proof. And that should be rejected. It should be rejected legally because, in this type of situation, there is no case that says, when you're arguing about what is

708

essentially a contract-based royalty, that one party versus the other should have that burden. In fact, it's the party, generally, who's seeking that, which would have the burden.

And a case that we cited in our papers, that we think is most on point, is the Third Circuit's decision in the Bohler-Uddeholm vs. Ellwood Group case, which is at 247 F.3d 79, and where, in distinguishing between situations where fiduciaries are disputing the fairness of self dealing, where it is appropriate to shift the burden, and where you're talking about interpreting a contract that has implications, and where that contract was entered into before the parties had a fiduciary relationship to one another.

And the Court stated that, while it makes perfect sense to place the burden on a fiduciary to explain business actions which benefitted itself over its beneficiary, the same logic does not hold for a breach of contract when there are dueling interpretations of the contract entered into at arm's length by sophisticated corporations who are not in any kind of fiduciary relationship at the time the contract is formed.

Now, beyond the law, we think that the whole rationale for shifting the burden of proof went out by omission of Novell because they have not been prejudiced

709

in trying to argue for an apportionment of a royalty because the Sun and Microsoft agreements were not provided in 2003. They have had those in this litigation. They have had full rights of discovery. They have had more rights for discovery than they would have under the contract for an audit.

For example, if they wanted to, they could have gone out and taken depositions from Microsoft and Sun executives. Curiously, that they did not do. The only testimony in this trial about those agreements, the only firsthand testimony comes from SCO witnesses, Mr. Sontag in particular.

Now, Mr. LaSala was very candid when I asked him, in terms of calculating the amount of the royalty received in 2003 by SCO, I asked him: You're not prejudiced in any way now in your ability to argue what part of that belongs to Novell.

And he said: I think that's probably correct.

And that's really also embraced in Your Honor's ruling denying the accounting last year because the Court said that, through discovery, the information Novell needs could be obtained.

So this is not a case where Novell can prevail on the basis of the burden of proof. We think they have it. We think, even if we had it, we have been the party

710

that has discharged it by virtue of the evidence we have presented.

Now, there are three are substantial issues which I think both sides have agreed upon that require the Court's resolution: What is the value -- what components of the Microsoft and Sun agreements are SVRX licenses and what value to attribute to them.

Second. Whether parts of the SCOsource agreements are SVRX licenses and, if so, what value to attribute to them.

And third. Whether SCO had the authority to enter into those agreements.

I'd like to discuss each of those topics. Now, with respect to the first, it's important to identify that there are four separate revenue streams that are at issue. One of those is Section 2 of the Microsoft agreement, which was the release. And that's the million and a half dollars. The second is where a UnixWare license was provided in Section 4, a broader UnixWare license, and where the prior products are listed. And that is 8.25 million. At one time Section 3 was on this list, and Novell's -- I think the way Novell characterized it in closing is very accurate.

There was clearly no basis to argue for that because it was a UnixWare license, and it's not an

711

apportionment when they gave it to us. It's not an argument that should have been advanced in the first place.

So, we have two sections of the Microsoft agreement and then we have Section 4 of the Sun agreement, which is the licensing provision there, and the value there is 10 million. And then the rest of the licenses, the so-called SCOsource licenses to protect Linux users against SCOsource intellectual property claims, that's about $1.15 million.

And it's important to deal with these agreements separately because they are not all the same. Now, it's true SCO accounted for the money in the SCOsource division, but that SCOsource division does not mean that that revenue is an SVRX royalty that flows through to Novell. It simply meant these were not licensed like other UnixWare products in the ordinary course of that division. You had a separate division that cut these deals, and it was accounted for in a very accurate manner.

What's important is to look at the licenses because they are radically different. The Sun and the Microsoft agreements provide actual UnixWare licenses. It's in the plain language of the agreements, and it's never been contested. And they did so at a time where

712

SCO had the right to license parties to make full use of that UnixWare source code including any older SVRX code, without any requirement of apportionment.

And then the SCOsource licenses with other parties involved licenses of IP and releases that are not tied to providing a UnixWare license, and we don't think they get that revenue either, in the second category, but when they are talking about SCOsource licenses and penguins and all that, it's really just this second category that's at issue.

I'd like to deal with each of these four revenue streams, Your Honor. The first is our position that only a de minimus amount of the Section 4 Microsoft fees should be allocated to the legacy SVRX products.

Now, Section 4 gave Microsoft something they previously did not enjoy. In fact, the whole agreement gave Microsoft a UnixWare license they did not have. Section 3 gave certain basic rights, limited to certain products. And it was Section 4 that expanded that to allow Microsoft to use UnixWare technology, which means all the earlier technology that's carried on and that's in UnixWare in its prior -- in any of its products.

As Mr. Sontag testified, this was a significant expansion of their rights for how they could utilize that UnixWare source code. It was now all of Microsoft's

713

products, in millions and millions of products, and that was a substantial expansion in how they could use that UnixWare technology. There has been no contradictory testimony on that point.

Microsoft also received a unique license to OpenServer source code, which was a product that actually accounted for two-thirds of SCO's revenue stream. They had never had the source code license before until this Microsoft agreement. And that has substantial value, and there has been no contradiction on that point either.

Now, the one witness who dealt directly with Microsoft and Sun who testified here was Mr. Sontag. He negotiated that transaction. Mr. Sontag indicated, with respect to the Microsoft deal, that what they wanted was to develop UNIX compatibility with Microsoft Windows. And he also said it allowed Microsoft to have the ability to have compatibility with a broad range of OpenServer applications. This wasn't a Linux/SCOsource transaction. This was a transaction where Microsoft wanted broader compatibility with UNIX, and they obtained a license to do so.

And I submit to you that, if Mr. Sontag's testimony was not an accurate view of the purpose of this transaction, that Novell would have pursued depositions and brought in testimony from Microsoft and Sun to

714

dispute that, which they did not do. Mr. Sontag also testified that Microsoft had little interest in the prior outdated versions of System V. He was asked directly about his view as to the relative value of the SVRX component of the agreement, and he said it was insignificant.

It was licensed as a matter of course, but he didn't believe that Sun or Microsoft was valuing it at all. What they were valuing was the UnixWare source code, the UnixWare binary distribution rights and broad distribution rights and OpenServer source code distribution rights. And, in fact, Mr. Petersen testified yesterday that, when there were certain older products, they weren't even able to give them the code because they couldn't find it, that wasn't even an issue and no adjustment of price was made.

Now, this comports with the well-established practice involving UNIX products where the prior products were licensed along with the current release at no additional charge. And you've heard testimony from a number of witnesses on that. Mr. Sontag, Mr. Maciaszek, who said that's the standard practice going back to AT&T days, to grant the right to use prior products as part of the new product. And Mr. Maciaszek said -- he was asked whether they were asked anything extra. And his answer

715

was, quote, "absolutely not."

Mr. Broderick's testimony is consistent with that, as is Ms. Acheson's. There is no contradictory testimony.

There is also documentary proof on that point. We have seen comparisons of licenses on, from one hand, UNIX and, one hand, ALPS, which, for some reason, didn't want the prior products. And the amount of UnixWare license was exactly the same. That was this demonstrative which was used in opening and throughout the trial

Now, what has Novell sought to do with this testimony? They certainly don't have any witnesses that have contradicted it. Instead, they have tried to suggest that the practice was limited to prior products purchased by the licensee. That's what was said in the opening. Well, there is no support in the evidence for that, that you only got the prior products if you had a prior license to it. In fact, Mr. Maciaszek and Mr. Broderick denied that. This is the chart that we have looked at.

And the other point that they have raised is: Well, you didn't get the same amount of rights. And they quote Mr. Broderick's testimony that, if you built a derivative on that, you didn't get the full source code

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rights. And what Mr. Broderick is saying, and what he made clear in his testimony is that if you used one of the earlier versions in the license to base a product, then you still had to, if you didn't have that earlier license, pay the binary royalties for the current release. And quoting from the testimony yesterday where he said:

"If somebody took a 2.0 license and they accessed the prior products and they built a derivative by accessing the prior products in the UnixWare license, then they could distribute the derivative, work, but they would pay off the UnixWare license."

So, the practice was not limited to a few situations where you had a long history of licensing prior products for value. As all witnesses testified, it came automatically. It provided for source code rights.

And what's the other thing that Novell has said this morning? They said: Well, that practice changed when UnixWare only listed a couple of UnixWare prior products. But that's not quite what the testimony said. The testimony from Mr. Maciaszek and Mr. Broderick is that we stopped listing those, but any customer who wanted the earlier products that went beyond, back beyond the UnixWare days, only had to ask for them. But no one

717

bothered to ask because they weren't interested. There was no extra price for those. There was simply no demand for those.

So, in addition to that practice, you also have undisputed testimony that Novell never sought an allocation of royalties on those prior products. They didn't do it in their prior audits of Santa Cruz, and they never sought an allocation for other UnixWare agreements which did include those prior products. So, why should Sun and Microsoft be different?

Now, this is Mr. Maciaszek's testimony indicating that the royalty was not allocated on whether technology from prior products was included, it was always based on the current product.

I'd like to address now the Section 2 fee with respect to Microsoft. This is the million and a half dollars that relates to the release language. And what, exactly, does the contract say? Section 2.1 is a release by SCO to Microsoft of any and all claims. It is SCO's claims that are released. This is an issue that Novell has refused to deal with from the opening, until now, throughout the trial and to the closing.

This is not a release by definition of Novell's claims. It's a release of SCO's claims, and thus SCO had a right to do it.

718

Now, Section 2.2 grants a license to all intellectual property rights owned or licensable by SCO. So it is still limited to what SCO has a right to do. And this, of course, didn't even involve Linux issues. This was Microsoft's products and whether there was any intellectual property concerns that SCO might have with how UNIX technology was being used in its products. SCO released and licensed its rights. That $1.5 million does not require any allocation.

Now I'd like to turn to the Sun agreement. And I would maintain there, too, only a de minimus amount of the Sun $10 million payment should be allocated to the older SVRX products. But it's important with respect to Sun, we think, to put this in the perspective of history, that the Sun agreement did not just come out of nowhere. In 1994 Sun bought out the royalties with respect to these legacy SVRX products. They paid $82.5 million for those and the substantial source code rights they received in 1994. And every dollar of that went to Novell.

And, you know, when Mr. Acker is referring to the fact that Novell -- or, rather, Sun could develop products based on that source code, Novell was well paid for that. It was the $82.5 million for those legacy products.

719

We then come to 2003. We had a period of time of nine years, but Sun had not licensed UnixWare during that time. They wanted a UnixWare license because it would be valuable. Again, Mr. Sontag negotiated a deal. And he testified.

"The most important thing they --"

Sun

"-- were asking for was the ability to quickly take the Solaris product and make it available on an Intel-compatible platform, which they would be able to do with a UnixWare 7.1.3 source code license and the software drivers for UnixWare."

Now, in addition to the source code in 2003, Sun received UnixWare and OpenServer drivers. None of that is allocated. Of course Novell puts not one dollar of value on the OpenServer rights, the UnixWare rights or the drivers. They say all of this should be allocated to them. They point out that they received copies of the same list of legacy products that were in the '94 agreement, but under Section 1.2, SCO was entitled to sell Sun additional source code copies for those products that were in the '94 list and retain the fees from that.

So, the only thing which Sun has a right to is any value that is related uniquely to these older products which were included, the seven prior products or five prior products added by the 2003 license. Did they

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have any value? Well, certainly Novell has not shown any. Mr. Nagle testified that UnixWare does encompass all the valuable code from those few additional System V products, including Solaris specifically.

Now, the one attempt during trial that Novell made to try to include that was a list of open source Solaris products that they downloaded. I think Mr. Jones testified about that. And Mr. Petersen's trial testimony was that every one of the 21 source files that Novell introduced into evidence from OpenSolaris also appeared in UnixWare. There is no testimony that Sun wanted or that it received anything in those five legacy products that it didn't have in UnixWare.

The one further point that Novell seeks to make is that, well, there was a relaxation of confidentiality provisions in the 2003 agreement as to what you could do with the source code. And we submit that is not a basis for allocating any substantial value to the SVRX component there. First of all because Sun already had substantial rights in the 1994 agreement. That agreement allowed them to sublicense the source code and to have those sublicensees sublicense it to their customers.

Mr. Sontag testified that that could have a thousand, a million. They could sublicense that source code to their customers, and by sublicensing source code,

721

he means those customers get to look at the source code. They get not just to look at it, but they can use it to make derivative products.

So, what did the 2003 agreement add to that? Not much. Mr. Sontag testified that Sun believed that they had almost all they needed or had all the rights that they needed and that, to the extent that there was an ability under the 2003 agreement to show that source code to others, to open-source it, it was limited by a provision that said that was for value. So, Sun could not take the source code and do what Linux is doing and distribute it under the GPL and let people use that without being distributed for value at a price.

One other point about the change in the confidentiality provisions. Those changes related to UnixWare, and there is no showing that there is any incremental value in the change in confidentiality as it related to whatever technology -- none of which Novell has been able to successfully identify -- that appeared in the prior legacy products that was not carried forth in the UnixWare.

So we submit there is no basis for that small piece to receive anything but a de minimus valuation.

The fourth area are the other SCOsource agreements. And there, we submit, those are not SVRX

722

licenses within the meaning of the APA which, of course, is an issue this Court has not previously determined.

What are those agreements? They Release SCO claims, not Novell claims, by their terms. And we quote one example, Novell Exhibit 300:

"SCO wishes to grant and licensee wishes to obtain certain limited rights in licenses to use the SCO IP."

And later it provides that SCO shall not bring any legal action alleging infringement of any SCO IP by the licensee. That's a release of SCO's claims. It doesn't prejudice Novell. If they want to take the copyrights that the Court has found it has owned, and if that is maintained, and they want to go out and pursue the people who had a release here under the SCOsource agreement, I don't think it goes very far to say: Well, SCO released its claims.

None of that value flows through to Novell. It's not much because of the actions they have taken, but that $1.15 million stays with SCO. And, in fact, the uncertainly of SCO's claims is recognized in the agreement itself. We cite three of them, which are in evidence, where it indicates that the customer recognizes that you're aware that these claims are in litigation, aware that SCO has not made representations with respect

723

to the outcome of that litigation. No representations or guaranties with respect to that. You're basically getting an insurance policy from SCO.

And that's what the people were paying for. And that is not an SVRX license within the meaning of the APA. And, in fact, to the extent the APA bears on this issue, it is the language in the APA which assigned Novell's claims to the buyer, that claims arising after the closing date against any parties related to any right, property or asset included in the business goes to SCO.

So, even aside from the fact that by their terms these agreements only release SCO claims, the APA gave Novell's claims relating to the business to SCO.

And, finally, the SCOsource concerns, as the Court is aware from the testimony in the case, are not limited to the legacy System V technology. Sure, that's a major part of it, but it extends to UnixWare and OpenServer libraries and rights there. And that is true from a variety of documents in evidence going back to the initiation of the program which talked about UnixWare and OpenServer.

Now, I'd like to address one more issue with respect to apportionment. It is our firm belief that the correct apportionment is a de minimus amount on the

724

components in the Sun agreement and Section 4 in the Microsoft agreement and not at all for Section 2 or the SCOsource licenses because those are not SVRX agreements.

There's certainly no basis in the evidence for Novell's apportionment, which is, except for one section which had nothing do with SVRX that they dropped their claims to, to say they want everything else. That's not an apportionment. But we would submit that what they have suggested in supporting that is simply counting the number of software products up, and that is not any basis for valuation, so a de minimus value is the appropriate valuation.

But there is a ceiling valuation which is also found in the evidence which goes beyond a de minimus amount. And that came out of Mr. Broderick's testimony because he testified that, even if you go back to the time when these prior products were being licensed for value, when they were current -- remember, Mr. Normand took him through each of those on the screen, on the ELMO -- and he said how much each of those products would be licensed for.

And those amounts came up to 700,000 for Sun and 1.249 million for Microsoft, plus another 700,000 if you included in the Microsoft column certain products which they had a right to but never received the copies.

725

This was the handwriting on that exhibit, 700,000 in the Sun column, 1.249 million in the Microsoft column.

But those, of course, are the dollar values back at the date when those were currently being licensed, when there was market demand for them during these respective periods. And when these new products came out, there was no longer a demand in the market, a market value to those products. So, this has to be considered, we submit, a ceiling on any valuation.

Now, what does Novell say about that? They say: Well, we've got broader disclosure rights for these legacy products in the Sun agreement than you would have gotten back when you were paying this amount.

Well, that's true, but you had that broader disclosure right for the UnixWare product, so there's no incremental value shown to that disclosure right for these prior products. And this, which is the actual amount that these products were sold for, should be regarded as a ceiling on any valuation.

Now, there's one other source of evidence that the Court might look at in terms of value. And that relates to what Novell did concede in Section 3, where Section 3 of the Microsoft agreement was priced at $7 million, which was a UnixWare license. And there was undisputed testimony at trial from Mr. Sontag, and

726

Mr. Jones agreed with it, that the SunWare/UnixWare rights are at least as valuable as those procured by microsoft in Section 3 of its licenses for $7 million.

So, if you take that $7 million out of the $10 million that Sun paid, you have a total, a ceiling of $3 million in Sun licenses to allocate among the drivers and any prior products. So that's another place where a ceiling on allocation can be derived from the evidence.

Now I'd like to turn to the last issue which the Court must decide, which is the issue of authority. Now, Mr. Normand argued, as the Court will remember, that there is a fundamental contradiction, an inconsistency by the pleadings, where Novell, on the one hand, has rejected these agreements as being unauthorized, and yet, on the other hand, wants the royalties from them as though they were authorized.

But the Court doesn't even need to resolve that issue if it accepts SCO's position, which is that these were fully authorized; that with respect to the Microsoft and Sun provisions insofar as they had a licensing component that touched on SVRX, that was incidental to the UnixWare license.

And we provided two definitions of "incidental" that support that, which are dictionary definitions and case law definitions, one of them being whether something

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depends upon or appertains to something else as primary, just as these prior products pertain to UnixWare as primary; or a minor value, which would also be applicable here.

But the best evidence that this was incidental actually comes from, as we'll see in a moment, Mr. Broderick's testimony that there was instruction provided by Novell as to this being exactly what the term "incremental" meant in the APA. What does Novell say about that?

The primary thing it said in closing, was that, well, you didn't advance this argument, SCO, when we wrote Mr. Tibbitts in 2003 and said: Give us these documents and tell us what your position is.

But what they ignored is that SCO's position, as articulated by Mr. Tibbitts and defended in this litigation, was principally -- our first line position was these were not SVRX licenses at all because the meaning of the APA on SVRX licenses meant only the old licenses prior to the date of the APA and not new agreements like these entered into in 2003.

When we got into litigation, we had a fall-back position. The Court, in its summary judgment order, rejected our primary position. That doesn't mean that second position, that these, to the extent that they

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implicate SVRX, are not incidentally licensed along with UnixWare. And that's a fully preserved position in the pleadings and in all of the arguments.

Now, what did Mr. Broderick say? He was asked about the time when Novell sat down and they all talked about the licensing of these products. And he says:

"We could license SVRX incidentally. And we asked: What's incidentally? And they said: Well, the major part of this, if you take a look, if you license the source code, the license fees when they first started being used always included prior products of the legacy products. You will continue to use those same types of licenses. You'll continue to include that legacy prior products. And that's an example of an incidental right."

There could not be stronger evidence -- and this evidence is not disputed -- that operationally defines a term in a contract by how the parties understood it and discussed it when it became relevant to do so.

As I mentioned, there was an undisputed historical practice of licensing those prior products incidental to the current release that no fewer than five different witnesses testified.

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Now, in its opening, Mr. Jacobs for Novell said that we actually kind of agree with SCO that these examples of incidental SVRX licenses through UNIX licenses is what incidental licensing means. But he suggested at that time that those were different from Sun and Microsoft because people like NCR had paid value for each of those releases.

But the testimony this week has shown that the practice of SCO and its predecessors consistently has been to license the prior products, regardless of whether or not that was a licensee who had 112 supplements or just came in for the first time to license the product, the current product, you would still get the legacy products. For example. Mr. Maciaszek was asked.

"Did NCR's rights to make use of prior software set forth in this license depend, in any way, on the fact that there were 112 supplements?"

"His answer: Absolutely not."

Mr. Broderick gave two examples, Super Computer and LEXIS software, where they came in, didn't have prior licenses for value, bought a UnixWare 2.0 license and obtained the prior products with it.

And remember that, while these are not all listed out, there is uncontradicted testimony now that if

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anyone today, even, wanted to come in and for some reason wanted a prior product that went back before UnixWare, that would be provided. There's just no demand for it.

Now, there's one additional argument that Novell has made about the Sun agreement, and I'm not going to belabor this because this was argued to the Court on the summary judgment motion. And that's the suggestion that amendment number 2 prevented SCO from acting without Novell's approval because it related to a buyout. And amendment number 2 specifically says that Novell may not prevent SCO from exercising its rights with respect to source code in accordance with the agreement.

In addition, there's no effect on the '94 buyout of Sun's royalty obligation. The '94 agreement was referenced, but nothing changed regarding that, so it should not be held to apply to amendment number 2. In fact, there is additional evidence that came in at trial that's very important on these issues. And that is that, back at the time of the APA, Novell told both Sun and Microsoft that they should deal with SCO as the assignee of UNIX rights, which is consistent with our position.

As to the language that says you can't prevent SCO from exercising its rights with respect to source code, the only argument that Mr. Jacobs made the other

731

day was that, well, it's sort of circular, that Novell would actually read that provision out of the agreement, would give it no meaning at all. So, either because the 2003 agreement didn't change the '94 buyout in any substantial fashion or because of this exclusion, there was no need for -- with respect to the Sun agreement, for Novell's approval to be obtained.

With respect to the SCOsource agreements, that's also the case because they only released SCO claims and licensed SCO IP and, therefore, no Novell authority is required.

In addition, with respect to the SCOsource agreements, Novell, we maintain, should be estopped from contending that their approval is required. And this goes back to what the testimony showed was the whole dialogue that occurred in late 2002 and early 2003 between Mr. McBride and Mr. Jones and people at Novell. And Mr. Jones tried to suggest they really didn't understand what was being involved in SCOsource licensing.

And we think think their e-mails show that's not really the case. The November 15, 2002 e-mail, SCO Exhibit 398 indicates that the purpose for the IP tracking is to help SCO understand its IP rights; that this relates to a conversation with Darl a few weeks ago

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in which he expressed his interest in pursuing Linux users who may be using misappropriated UNIX code.

Also in 2002, you had Exhibits 399 and 400 which show that Novell knew SCOsource involved pursuit of of UNIX claims.

And, in response to that, did Novell ever say: SCO, we own those rights. You can't do this.

Never happened.

Did it ever say: If you go forward with the SCOsource licenses, we get the revenue.

Never happened.

That is a sufficient basis in the evidence for estoppel.

Now, Your Honor, in this case you have had the opportunity to listen principally to witnesses who have spent a large part of their professional career on the development of UNIX technology, either from a technology side or from a marketing side or from a licensing side. Their testimony is consistent. These are individuals whose legacy has been the development of UNIX software. To suggest, as Novell has, that UnixWare doesn't mean anything; that these prior products, because of code, had some value and the SCOsource claim is what this value should be given is flatly contradicted by the testimony of these witnesses.

733

And, on the other side of the ledger, you have Novell's in-house counsel, a gentleman who had no involvement in the events in question, who admits in testimony that what he has done in claiming all of it is not an objective assessment of value, does not reflect any type of economic value or analysis or anything of that nature, but is, in reality, a forfeiture.

We don't think a forfeiture is what this Court is in the business of awarding. Thank you, Your Honor.

THE COURT: Thank you, Mr. Singer.

Did you want to say something, Mr. Jacobs?

MR. JACOBS: At your pleasure, Your Honor. I'm all into getting those documents submitted.

THE COURT: Thank you. We'll take care of these exhibit matters in a minute, and I'll try to get a decision out without undue delay, reasonably, as quickly as I can. I know that there are many important reasons for that.

Now, where are we on the exhibits? We need somebody on each side to compare with Kim's list on what's in and what isn't and then clean up anything that needs to come in that isn't

MR. JACOBS: On the first point, I think our legal assistants will be doing that, Your Honor.

THE COURT: All right. Well, let's have them.

734

You have got your list, Kim?

THE CLERK: Yes.

MR. JACOBS: Your Honor, we would like to move the following exhibits into evidence, and we can flash them on the screen or hand them out, whatever would be most efficient.

MR. SINGER: These documents are not previously moved?

MR. JACOBS: Correct.

THE COURT: Are they on the list?

MR. JACOBS: They are on the list, Your Honor.

THE COURT: But they weren't admitted by stipulation?

MR. JACOBS: That's correct.

THE COURT: Let's see where we are on them.

MR. JACOBS: Novell Exhibit 33.

THE COURT: Thirty-three?

MR. JACOBS: Yes.

MR. NORMAND: Your Honor, shall we do these one-by-one? Do you want me to speak into the record?

THE COURT: Well, I need to know if there is any objection.

MR. NORMAND: No objection to this exhibit, Your Honor.

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THE COURT: Thirty-three? Novell 33 is in.

(Novell Exhibit 33 received in evidence.)

MR. JACOBS: Novell Exhibit 48.

THE COURT: Any objection?

MR. NORMAND: No objection.

THE COURT: Novell 48 is in.

(Novell Exhibit 48 received in evidence.)

MR. JACOBS: Novell Exhibit 172.

MR. NORMAND: We object to the admission of this document, Your Honor.

THE COURT: Nobody testified about this, did they?

MR. JACOBS: That's correct, Your Honor.

THE COURT: Okay. I'm not admitting that one. 172 is not received.

MR. JACOBS: And the same with proposed Novell Exhibit 176, Your Honor.

THE COURT: 176?

MR. NORMAND: Same objection, Your Honor.

THE COURT: Let me see it so I don't have to go blind looking at the screen. This is 176?

MR. JACOBS: Correct, Your Honor.

THE COURT: Same ruling. It's not admitted.

MR. JACOBS: Novell Exhibit 186.

THE COURT: 186?

736

MR. JACOBS: Yes. This is a press release from Sun announcing the OpenSolaris program -- I'm sorry, announcing the agreement with SCO.

MR. NORMAND: We don't have an objection, Your Honor.

THE COURT: 186 is received.

(Novell Exhibit 186 received in evidence.)

MR. JACOBS: Novell Exhibit 327 is one that was the subject of testimony, Your Honor.

THE COURT: Which one is it?

MR. JACOBS: 327. And I just forgot to move it in at the time.

MR. NORMAND: No objection, Your Honor.

THE COURT: 327 is received.

(Novell Exhibit 327 received in evidence.)

MR. JACOBS: Your Honor, we'd like to move in a series of expert reports from SCO's experts in this litigation and the IBM litigation for the limited purpose of showing that SCO attributed, through its experts, substantial value to System V Release 4 copyright rights and System V Release 4 code. That would be Novell Exhibits 350, 356, 380, 437 and 438. All of those are expert reports from SCO experts in this and the IBM litigation.

MR. NORMAND: Your Honor, no objection on the

737

basis of the representation regarding the limited purpose. And, I apologize, I don't think counsel has discussed this. These are all confidential. And although we were able to reach agreement as to the other documents that have been admitted to date, these are confidential.

MR. JACOBS: We have no problem with submitting them under seal, Your Honor, and making those arrangements.

THE COURT: All right. Tell me what they are, again.

MR. JACOBS: These are all Novell.

THE COURT: 350?

MR. JACOBS: 356 -- excuse me. Let me start over. 350, 356, 380, 437 and 438.

THE COURT: All right. Those are admitted under seal, for the limited purpose you described, Mr. Jacobs.

(Novell Exhibits 350, 356, 380, 437 and 438

received in evidence.)

MR. JACOBS: And that's it, Your Honor.

THE COURT: Thank you.

MR. NORMAND: We don't have anything, Your Honor.

THE COURT: All right.

738

MR. NORMAND: I'm sorry. I did mention, as I mentioned this morning, the two A exhibits, but I think that's been taken care of.

THE COURT: Yes. That has been taken care of.

MR. SINGER: We have -- I didn't hand this out before, but these are the slides shown in the closing.

THE COURT: All right. Thank you.

Now, do we have agreement on what's in and what isn't?

MR. JACOBS: We have no disagreement. Let's put it that way, Your Honor.

MR. NORMAND: We understand we should go through with Ms. Jones and check, and if anything comes up --

THE COURT: All right. Check with her, then, and we'll generally be in recess.

MR. JACOBS: Thank you.

MR. NORMAND: Thank you, Your Honor.

(Short break.)

THE COURT: Go ahead.

MR. MELAUGH: Your Honor, we are going to move into evidence two exhibits from Novell and one from SCO, as I understand it. Novell moves into evidence Novell Exhibit 279 and Novell Exhibit 428.

THE COURT: Any objection?

739

MR. GONZALEZ: No, Your Honor.

THE COURT: They are admitted. (Novell Exhibits 279 and 428 received in evidence.)

MR. GONZALEZ: And SCO moves into evidence SCO Exhibit 0050.

THE COURT: Any objection?

MR. MELAUGH: No, Your Honor.

THE COURT: It's admitted.

(SCO Exhibit 0050 received in evidence.)

MR. GONZALEZ: Thank you, Your Honor.

MR. MELAUGH: Thank you, Your Honor.

THE COURT: Thank you

(Whereupon the proceedings were concluded.)

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REPORTER'S CERTIFICATE

STATE OF UTAH
ss.
COUNTY OF SALT LAKE

I, REBECCA JANKE, do hereby certify that I am a Certified Court Reporter for the State of Utah;

That as such Reporter I attended the hearing of the foregoing matter on MAY 2, 2008, and thereat reported in Stenotype all of the testimony and proceedings had, and caused said notes to be transcribed into typewriting, and the foregoing pages numbered 1 through 105 constitute a full, true and correct record of the proceedings transcribed.

That I am not of kin to any of the parties and have no interets in the outcome of the matter;

And hereby set my hand and seal this 2nd day of May, 2008.

_______________________________
REBECCA JANKE, CSR, RPR, RMR