This is the transcript as text of day nine of the SCO v. Novell trial that began on Monday, March 8, 2010 and ran for 15 days, Monday through Friday, for three weeks, with the Hon. Ted Stewart presiding. That would make it
Thursday, March 18, and the witnesses that day were Christine Botosan back on the stand for a second day, followed by Lawrence Gasparro, Phillip Langer and Gregory Pettit.
Here is Groklaw's eyewitness report from the trial for that day. I noticed something significant in the Botosan testimony. Under cross examination by Novell's lawyer Sterling Brennan, she admits she didn't know Red Hat had filed litigation against SCO. Not only is that hard to accept, given that she also testifies on this day that she read most all of SCO's 10Ks and 10Qs from 2003 to 2007, all of which mention it prominently, but it occurs to me that this litigation belonged in her but-for world calculations. The lawsuit wasn't about the copyrights, where Novell ownership claims would have any effect. It was about things like tortious interference with business, false advertising, and defamation, all of which are independent of any copyright ownership issues. Yet, she claims never to have heard about it.
If you'd like to skip ahead to the transcript itself, please feel free. It was a complex day with a lot of things to talk about, so fair warning.
Before the jury enters:
This is by far the most interesting part of the day, because this is the heart of one of the matters that SCO is appealing, namely whether the judge erred in letting Novell inform the jury of the prior rulings in 2004 and in 2007 by the Hon. Dale Kimball. The discussion is rather heated, I'd say, or at least more so than usual, and that may be in part because some of the lawyers were up almost all night working on jury instructions. In fact, the judge offers to let whoever filed them at 4 AM leave and take a nap.
SCO argues that the judge should just stick to his earlier rulings that the jury should not be allowed to hear about SCO losing in earlier court rulings. They don't feel they opened any door to such evidence being allowed in. Their two experts, Dr. Gary Pisano and Dr. Christine Botosan, testified the day before about a but-for world, which assumes that no claim by Novell ever happened, and so no litigation ensued. So they calculated their damages figures that way.
Not so fast, Novell's lawyer Sterling Brennan says. There is a real world in this picture, and SCO is asking for real money in damages, and to ignore reality in order to allow them to take millions from Novell, while not allowing Novell to let the jury know that a lot of people didn't want to take a SCOsource license for a lot of reasons besides what Novell said about copyright ownership is prejudicial to Novell. They ought to be allowed to show that the experts were wrong or inadequate in their reports.
More than that, Botosan testified that damages could be calculated by using stock analyst reports, but those reports were litigation-based. Deutsche Bank said that if SCO lost in litigation, it wouldn't get its payday. The money calculation Deutsche Bank did was based on a litigation strategy of suing relative to the UNIX copyrights at issue in this case. So we're not really in a but-for world where no litigation ever happens, as SCO's expert is suggesting. It's the core of the entire stock analysis. So Novell should be allowed to show the jury the weaknesses in the experts' testimony "by asking questions about the real world, and in a real world where one would measure the intent and thought processes of potential licensees." And there's another real-world element:
In fact, Your Honor, as we'll also see today, in her expert report she indicated that in forming her conclusions she relied upon real world events. For example, in her expert report she said that she considered and relied upon the motion for summary judgment. It was filed by Novell and granted by Judge Kimball. She considered and relied upon the second amended complaint filed by SCO, and Novell's answer to the second amended complaint and counterclaims.
She had within the selected menu of materials the pleadings in this case. She issued her report after the summary judgment motion had been filed. She proffered a
declaration to the Court after Judge Kimball had issued his rulings. For all those reasons, Your Honor, they have broadly opened the door.
Now, it is absolutely true that from the very beginning we have repeatedly asked for authorization to present to the jury information regarding two things. First of all, the mind-set of Novell, and that is relevant to a slander title case that turns on intent. We have also asked, and we repeat the request, that we be entitled to show what is the mind-set of these potential licensees. That is the whole justification for a damages award. The argument that has gone to the jury is that licensees passed on SCO licenses solely for this but-for proposition that Novell slandered the title. There are other considerations. There were litigation considerations. They play it selectively.
So, Your Honor, I think for all of the reasons that we have indicated, and those that are set forth in the papers and prior submissions, and the extraordinary prejudice that Novell bears, that we ought to be able to indicate through Dr. Botosan that there were real world events, and those real world events are directly contrary to the testimony that she is proffering, and also to elicit testimony that if she were to take into account real world events, that that would lead to a different conclusion.
The final point in that regard, Your Honor, is, again, she relies and she said yesterday that her damages calculations were premised on two basic points. One, Deutsche Bank prognostications. As we'll see, as I have mentioned, those prognostications are litigation driven. As we look at the risk factors that are identified in the report, they specifically identify litigation factors.
In addition, Dr. Botosan mentioned that in her estimation the costs of pursuing the SCOsource program would be relatively negligible in terms of legal expense. We know that is not true. We know, for example, that with the two license agreements that also form the foundation for her prognostications, the Microsoft agreement and the Sun Micro Systems agreement, that the Boies Schiller firm was entitled to 20 percent of the revenues generated by that. That was entirely ignored.
So we have a situation where the real world has Boies Schiller involved from the very beginning entitled to massive fees, over $30 million, and entitled to a cut of these revenues, and there is continuing activity, but the witness yesterday got up and said, well, in my estimation and I have run a regression, I don't expect there to be any real significant expense. That is directly contrary to reality. We ought to be able to present all of that, Your Honor.
SCO's lawyer, Stuart Singer of Boies Schiller, is unhappy with that speech, and he launches one of his own:MR. SINGER: Well, what has been raised in these papers is specifically talking about this litigation, about a slander of title litigation and rulings in this litigation, not pursuit of legal remedies in general but this litigation. The whole point of a damages analysis, as these experts have indicated, is you construct an alternative world in which liability is assumed, first of all, and the slander has not occurred. In that case there is no litigation and there are no rulings.
Is there a need to pursue litigation against copyright infringers? Perhaps. That has nothing to do with introducing a 2007 decision or any other decision in the course of this litigation when that would never have occurred if the slander had not occurred.
The last point which was raised by Mr. Brennan is an entirely new aspect of this, that somehow he should be allowed to get into the contingency fee arrangement with
Boies Schiller, because some of the money that SCO pays will ultimately be used to pay its lawyers. Well, if that were true, in every case the contingency fees would be an element of cross-examination. Obviously that is an obligation of the plaintiff, if they are able to make recoveries, and it has nothing to do with the issue of liability or damages to which the plaintiff is entitled and is just another attempt to prejudice the jury.
The Court has had this right and consistently right throughout all of these issues and it should stay with the rulings it has made consistently.
But the problem with his logic here is that the only reason to take a SCOsource license was to avoid getting sued. SCO described it as a promise not to sue, after all, so if you remove all litigation from your fantasy but-for world where there is no litigation, then there is no SCOsource either. Who'd need or want it? Anyway, the judge rules Novell can present what it would like to present, but no new exhibits. And he says he'll read the jury a brief explanation:
THE COURT: Counsel, the Court is going to grant Novell's request and allow cross-examination to include reference to appropriate decisions in the District Court. The Court is going to read to the jury the following instruction after. Ladies and gentlemen, you may be wondering why, in view of the evidence, you have heard of prior court rulings. You have been called to jury service on the issues in this lawsuit. SCO appealed the District Court rulings that you have heard about and the Court of Appeals reversed those decisions and determined that a jury should decide the issues in this case. That is why you are here.
Later, after a break in the proceedings, he comes back and alters the wording a bit: THE COURT: Mr. Brennan, I do want to add some clarification
to my ruling allowing you to question this witness about the
prior court decisions of Judge Kimball. I want to make it
clear to you that it is based upon your representation to
the Court that you can prove its relevance through Dr.
Botosan's analysis. If the Court deems that you simply have
raised the existence of those prior court decisions in an
effort to bring it to the jury's attention without it being
relevant at all, in other words, if you ask her about them
and she convincingly explains why it is totally irrelevant
to her analysis, then the Court will deem that to be an
unwise decision on your part.
I am assuming, based upon your representation to
the Court, both in the written memorandum and also what you
said her today, that you fully expect that it is something
that she should have considered and that she should have
been aware of and is relevant to her analysis. Again, if it
proves otherwise, I think that is a risk and the Court is
going to have to entertain some type of motion from SCO in
regard to that. Okay.
MR. BRENNAN: Thank you, Your Honor.
THE COURT: I do want to state also to all of you,
that because the door has been opened with this witness,
that that does not mean that it ought to be raised again
with any other witnesses, unless this Court gives you
permission to do so.
I want to add also that in instructing the jury,
what I intend to say is SCO appealed the District Court
rulings that we have heard about. The Court of Appeals
reversed those decisions, meaning that they found them to be
without merit, and determined that a jury should decide the
issues in this case. I believe that using the phrase
reversed will not be meaningful to the jury unless I add
that. Brennan points out that the appeals court didn't find all the claims without merit, and in fact it said Novell had strong claims, which the judge acknowledges. But getting back to the time before the jury has entered, after the judge's first stab at wording,
Singer tries to present two alternatives, one that Botosan not testify that day, giving them time to brief this issue. Or second, he'd like it addressed with the jury not listening. This all came up suddenly, with filings late last night, and he'd like an opportunity to brief it before the jury hears all this. But the judge decides neither is going to happen. He relies on them to object to any inappropriate questions, because he isn't going to delay the testimony. Singer asks one last time: MR. SINGER: Yes.
Your Honor, we think -- obviously the Court has ruled on this matter, but we believe that this is really completely unrelated to the but-for world which these witnesses are presenting testimony on. It does not relate to any of the assumptions of the damage analysis here, since these decisions would not have occurred if the slander had not occurred, and the projections are based on studies which are measuring what would have happened --
THE COURT: Mr. Singer, I have the feeling that your witness is able to answer the questions instead of you continuing to argue it here. Okay.
And with that Dr. Botosan is asked to retake the witness stand.
Dr. Botosan's Cross Examination:
On the very first question, she starts to speechify, on the subject of why her fee is what it is ($450, which she thinks is a big number, so she wants to explain it to the jury), and the court tells her to be "as concise as possible" in answering the question asked. If her lawyer wants to bring out additional points, he can later. She's been paid roughly just under $100,000 by SCO so far, for her but-for world calculations.
No wonder she wanted to explain to the jury. That is an enormous sum. Brennan asks her to use the white board that she used the day before to show the damages she had calculated. What if, he asks, the assumptions that SCO's lawyers asked you to assume -- namely that SCO owned the copyrights and Novell slandered their title -- what if neither was true? What would the calculation of damages be? He has to ask her three times, because she has trouble entering this new but-for world. But finally, on the third try, she answers that the damages then would be zero. "Do you mind writing that down?" he asks, and she does so. Then he removes the board.
He asks her to explain what her area of specialty is, namely analyzing financial reports, and he asks if the stock analyst projections that she relied on from Deutsche Bank were in the form of financial reports. No. He then takes her through a list of questions about all the things she is not an expert in. Like Unix. Like Linux. Like copyrights. Like computers, computer licensing, or computer operating system markets. She was an expert, it turns out, hired in another case, Freightliner vs. Dick Simon Trucking, and in her deposition in that case, just five weeks earlier, she said she isn't an expert in business valuation issues. She doesn't remember saying that, so he shows her the transcript: A. Direct me to the specific quote that you're asking me about.
Q. Yes, I would be pleased to. What I'm going to ask you to do is look at page 26, line 17, through page 27, line 9. As you do that, do you recall that your deposition was taken in this case about five weeks ago?
A. I do.
Q. Do you recall at that deposition stating that in connection with a previous matter that you felt that you were not in a position to be hired as an expert to deal with business valuation issues?
A. What I recall from my deposition and saying after I had been asked about this, and in an out of content fashion, was that at the time that this particular case came about it was the first one that I had ever worked on. When I said that I didn't feel prepared to do a damages analysis in this specific example, there were a number of reasons why that was the case, not the least of which that I had been brought into the case sort of last minute.
The damage has been done. He then asks her if she relied on Dr. Pisano's results, and she agrees that she did, except for one part, and once again she announces that it's important for the jury to understand something, and again the judge cuts her off and tells her to just answer the questions. By now, she clearly is uncomfortable:
Q. You did not participate in any of the surveys referenced by Dr. Pisano?
A. I did not, no.
Q. You did not review the questions that were asked of the participants in the surveys, have you?
A. I did not, no.
Q. You don't know what methods were used by those who did
conduct the surveys, do you?
A. I think when you went through this with Dr. Pisano -- not you but the other layer went through this with Dr. Pisano, I think that he was making the point that none of this was relevant to a scientific based approach to doing the market analysis. So while the answer to all of these questions will be no --
Q. If we could just get the answer to the question, would that be agreeable to you?
A. It would be, but I think it is important for the jury to understand --
THE COURT: Dr. Botosan, I explained to you at the beginning that you have an obligation to answer the questions posed by the attorney as directly as possible, and to the extent additional information is necessary, that that will be elicited by your attorney on redirect.
THE WITNESS: Okay. Thank you. Sorry, Your Honor.
Q. Let's go back to the question I asked. You do not know what methods were used by those who conducted the surveys relied upon by Dr. Pisano, is that true?
A. True, and it is not relevant.
She is making a common mistake witnesses often do make, namely getting her emotions into this. Lawyers love to make that happen to you, if they are on the other side, because then you'll be a little less poised and you won't be thinking as clearly as if you were calm. It also, if I may say it, makes you look a bit undignified. Saying "and it is not relevant" makes her look petty and like she isn't impartial and professional, but more a team player, particularly when the judge just told her to just answer concisely what she is asked. By now, the jury may just be thinking about that $100,000 she got for this testimony. If you are paid that much, would you dare to say something the folks paying you don't like? Those are the sorts of questions that float through a juror's mind sometimes, which is also why lawyers bring up the subject of payment. She then tells what reports she relied on other than Deutsche Bank:
Q. Now, you're aware that in addition to Deutsche Bank, there were other analysts and stock market traders who provided reports regarding SCO, right?
A. Yes.
Q. I think you mentioned R.G.?
A. R.R.G.
Q. Excuse me. R.R.G. Who or what is R.R.G.?
A. Renaissance Research Group. It is another group of analysts that provided some forecasts.
Q. Were there other analysts that provided forecasts?
A. There was also the one that Mr. Musika liked to use, which is an analyst from Decatur Jones.
Q. When you say Mr. Musika likes to use, you understand that Mr. Musika is an individual by the name of Terry Musika, right?
A. I do.
Q. You understand Terry Musika to be an expert witness that has been retained by Novell to challenge, as it were, some of the conclusions that you have reached, right?
A. I do.
Q. And you learned about other analyst reports when Terry Musika presented his opposition or rebuttal expert report, correct?
A. The Decatur Jones report, that is true.
Q. Before you got Terry Musika's report in opposition or rebuttal to your positions, you were not aware of these Decatur Jones reports?
A. No, I was not.
Q. They were not in SCO's attorneys' database?
A. They were not. Decatur Jones is a very, very small firm and not well known or widely publicized. That was not something that came up, for example, when I did my Internet search and they were not available.
She is claiming that she searched the Internet but didn't find Decatur Jones in connection with SCO, and the reports were not in SCO's collection of data. But go to Google and search for this:
"Decatur Jones" SCO
Dion Cornett was widely quoted because by 2005, he was the *only* analyst still following SCO, as the Wall Street Journal pointed out at the time in this article, quoting him as saying about SCO, "This is a sinking boat." She couldn't find the only analyst who covered SCO in 2005? Whenever SCO did anything, reporters would contact him. I put his reports on Groklaw, so several of them are available in full, and folks elsewhere reported on them. In 2003, of course, there were many analysts following SCO. Go to Google and search for:
SCO analysts 2003
The first result is an article by CNET's Stephen Shankland on what analysts were saying. Here's what the Robert Francis Group said:
"RFG believes corporate users of Linux should not discontinue their deployments, because the merits of SCO's case appear to be extremely thin," RFG analyst Chad Robinson said. "SCO appears to be attempting to extort funds from the Linux market without substantiating its claims in ways that allow users to respond."...
Robinson's colleague, Adam Braunstein, believes the issue will be put to rest. "The open-source community, IBM and other vendors will find some way to right all of this, and it is extremely unlikely that any users will have to cut checks to anyone for anything."
Here's what Illuminata's Gordon Haff advised:
Research firm Illuminata maintained the skeptical tone it's had since SCO launched its lawsuit against IBM in March. SCO's actions are neither too trivial to be dismissed nor too significant to spur changes in plans, but SCO and its lawyers have "many, many legal hurdles...to overcome," Illuminata's Gordon Haff said. "That SCO's claims are not laughable but merely enormously suspect is no reason for corporations to start a Chicken Little routine at significant cost." Not laughable? I was laughing. The entire open source community was laughing at their claims, because we knew the tech, the history of UNIX and Linux, and the way Linux is developed.
And what about Forrester Research? What did they think?
Forrester Research's Stacey Quandt said companies must proceed according to their tolerance for risk, but that so far SCO hasn't shown enough information to convince companies that they need to sign up for a Unix license. "Signing a license based on allegations and not facts just doesn't make sense," she said. Wait. Did SCO's expert include any of that in her calculations?
Instead, she relied on reports from Renaissance Research Group, an investor in SCO from early on, which I would assume is this report [PDF], for example, and this one [PDF], speaking of laughable, both of which we highlighted on Groklaw back in 2003 in the article, "Visions of Ka-Ching Dance in their Heads". [I note that in her report [PDF], Botosan lists three reports by Renaissance, dated February 24, 2003; March 6, 2003; and April 21, 2003. The article has only two.] I debunked the premises of their prognostications thoroughly, if I do say so myself. She probably should have read it. They should have too. It could have saved them a lot of money, I'm thinking. I'll give you just one taste of how silly it was technically, from that article I wrote in 2003:
Their original strategy was based on the fantasy that the world was clamoring for the ability to stay with UNIX and yet run GNU/Linux applications, and there they'd be, like a troll hiding under the bridge, ready to exact a toll on all those wanting to cross.
SCO, in their daydream, thought they could be the gatekeeper making it possible for companies already on UNIX to sort of transition to Linux, which they knew everyone wanted to do, without leaving their UNIX environment behind. Next step? Backcharge for UNIX shared libraries they believed had been used inappropriately and start scooping the money up in royalties for UNIX code.
Why they imagined companies would rather follow that convoluted, expensive route instead of just running Linux itself is one of those mysteries the tech community can never solve, because it's not based on technical realities but on financial yearning. The tech makes no sense at all. But the ka-ching started ringing in Renaissance's ears, and you know how compelling that can be, like when your telephone starts ringing and you think you have to answer it. But the whole structure is based on a lack of technical knowledge and not enough true facts and a grievous miscalculation about the market. If ever there was a situation illustrating the importance of CEOs and financial analysts comprehending tech, this story is it. Money got invested in a dream that isn't coming true.
Let me let you read it for yourselves, because it's beyond my descriptive abilities to capture all the repulsive nuances, not that this is a subtle document. They begin by describing the conference call and then explain the math potential as they see it: "We believe management's forecasted $10 million of SCOsource revenue in 2Q represents near-term settlement of possible license violations in arrears (related to heretofore unlicensed use of the SCOsource shared libraries) from one or more large vendors of Linux solutions, but we are unable to glean more specifics at this time. . . . SCO management also stated . . . that the vast majority of interactions with customers and other software vendors with respect to the SCOsource initiative were positive. Our view is that lumpy, and possibly large, bookings of SCOsource license fees will continue for several quarters while these negotiated settlements of prior license violations in arrears work their way through the pipeline. SCO's resulting balance sheet should soon look a lot prettier, though we doubt the market will value such lumpy SCOsource fees as part of a consistent and predictable earnings stream -- until all or most SCOsource arrearages are cleared and these license fees become part of normalized product revenue.. . . We currently estimate the net present value of SCOsource 'Extraordinary Items' (arrearages settlements related to prior license violations . . . to be $35.8 million or $3.18 per share, exclusive of the company's current cash generating status and its earnings power based on current and new products." So much for experts. How much of that came true?
Not one company bought the license for those shared libraries, from all we know in public from the testimony in the first trial. That's because no one needed one. And that's a good thing, in that in the end, the jury ruled, as the first judge had before them, that Novell didn't transfer those copyrights to SCO. And after Sun and Microsoft bought their licenses, for reasons that don't seem to have much to do with needing one for anything you'd want to tell your mom about, nobody much was interested. That is just how far off Renaissance was in missing the target. They thought SCO would rake in millions from shared libraries. It's technically laughable. Instead SCO's lawyers did, but SCO is bankrupt, selling off its assets currently. What a terrible waste, born of a terrible greed. Methinks Dr. Botosan should have done more research on the Internet. If she had found the Groklaw article, explaining all the tech mistakes Renaissance made, would she have chosen a different course? I like to think so, but I can't honestly say I assume it. Brennan next asks her to focus on the time frame June of 2003 through December of that year. It leads to this comical exchange:
Q. You're also aware that on December 22nd, 2003, a little more than six months later, is a date that had some significance in this case, because the suggestion has been by SCO Group in this case that on December 22nd Novell made public statements or the publication of information stating that in fact it did own the UNIX copyrights without question, correct?
A. Yes.
Q. Those are the two bookends, June 6, 2003 to December 22nd 2003.
A. Correct.
Q. I'm going to refer to that time period, and this is a word of my choice, as the quiet period. The reason I choose that term is because that was a period, at least based on what we have heard in court, that there were not publications made --
MR. HATCH: He is testifying. Is there a question?
MR. BRENNAN: There will be. I am just trying to define the terms, Your Honor.
THE COURT: Go ahead.
Q. Again, I was talking about why I used the term quiet period to define that time period between Novell's public statement on June 6th regarding copyright ownership and December 22nd regarding copyright ownership.
A. Okay.
Q. Now, did you factor into your analysis, in the real world, whether or not any of the individuals who might be potential SCO licensees entered into SCOsource licenses with SCO during that time period?
A. I did.
Q. Were there any licenses that any persons entered into
with SCO during that time period?
A. There were.
Q. How many?
A. So during that time period the only program that was up and running was the vendor license program. If you recall, and I think my numbers are gone now, but for 2003 there was no revenue forecast for the R.T.U.s. The only revenues that were forecast were for the vendor license revenues. During that time period there was the Sun and the Microsoft agreements.
Q. Let me see if we understand each other. You referenced a Sun agreement, and that was entered into in February of 2003, right?
A. Correct.
Q. You also referenced a Microsoft agreement, right?
A. Correct.
Q. That was entered into in May of 2003, right?
A. Correct.
Q. So the time period I would like you to focus on is a different time period, June 6th, 2003 through December 22nd of 2003.
A. Okay.
Q. Do you have that time period in mind?
A. Okay.
Q. During that time period did SCO enter into any
SCOsource licenses?
A. I don't remember if the Computer Associates agreement was during that time period, but there were no others to my knowledge, any other big vendor licenses that happened during that time period. The R.T.U. license program had not really started at that point.
The testimony the day before brought out that there hadn't been any at all in that period. It was at the Dec. 22nd teleconference that SCO announced that there had not been any more after Sun and Microsoft. She seems rattled, or so eager to support SCO she can't think. Whatever it is, Brennan has made her look like she can't do numbers, and considering her area of expertise, that's not good. She goes on to admit that SCO didn't get any end user licenses either up to October. She doesn't know about November and December. But she should, if she was paying attention.
She said she read all the 10Ks and most of the quarterlies. Here's SCOsource licensing revenues "in thousands" for the three months ending January 31, 2004: $20,000. For three months.
This is what SCO made from SCOsource for those three months, and two of the months are before Novell put out its statement on December 22, 2003 that it definitely owned the copyrights -- November and December of 2003 -- plus a little over one month in January of 2004. So how in the world does Dr. Botosan come up with such gargantuan but-for figures? We certainly saw nothing like it in real life. We know that only Sun and Microsoft had signed up between January of 2003 and May 28, 2003. In August, SCO announced end user SCOsource licenses. So between August and January of 2004, they got $20,000? That's all? Yes. That's all. And did you see how much they spent to make that piddly $20,000?
If you read the transcript of the teleconference SCO held that day, December 22, 2003, you can note how utterly vague it all was, while predicting great things for the future, but not the near future:
Bob Bench: For fiscal 2004, the company has three major business initiatives to drive increasing revenue. Our Unix operating systems and services business. Two, Our SCOsource vendor licensing program that was successfully rolled out in fiscal 2003. And three, our recently introduced SCOsource intellectual property licensing program.
Revenues for the two SCOsource initiatives is expected to be minimal for this first quarter of 2004, as the company finalizes license agreements with its vendors, and begins the implementation of its intellectual property licensing programs. Our future revenue pipeline has strengthened this year, along with our increased confidence in our intellectual property claims. We therefore anticipate significant revenue in subsequent quarters from both SCOsource licensing initiatives. However, the nature and predictability of these lines of revenue and the variability of revenue recognition does not allow for accurate near-term guidance.
In its first quarter, ending January 31, 2004, the company expects total revenue to be in the range of 10 to 15 million, which is in line with first quarter revenue of last year. The company's Unix line of products and services are expected to represent the majority of the consolidated revenue for this quarter. Operating expenses relating to our core business lines should remain consistent with recent quarters. Expenses associated with SCOSouce are expected to increase in fiscal 2004 as the company expands and pursues its legal strategy. Minimal expectations for the next quarter and only $20,000 for the quarter before it, and this is before Novell's announcement. Clearly people were not particularly interested.
Sounds like only the Microsoft and Sun deals happened, with maybe a hint later in the teleconference of a smaller deal or maybe a few, in the Q & A:
McBride: And we learned a lot through that process. I would really look Q4 as more of a modeling, as almost like a testing time that we went through here, to tell everybody where we were and we listened to where everybody else was, and essentially what comes out of that then is ... you know, we had several people sign up for the license, and these are people we don't have other deals going with in the technology industry. These are Fortune 500/Fortune 1000 level accounts that signed up. …
Cornett: OK, and then so ... just, you know, one of the earlier points you made ... you have signed up several, and I can understand why these customers would want anonymity, but how ... for the three, four you have signed up, in rough ballpark what are the dollars associated with those deals.
McBride:Oh. Yeah, we haven't signed up any yet that are in the thousands of users so you know we've ... I haven't seen the exact number on that, but I would say that we haven't signed any of the large users yet. I can say that we have large users that are north of five thousand boxes in their enterprise that are on the bubble waiting to see where they go on this.
No mention of the $20,000, you might notice. I certainly do. It's pitiful. And Darl spoke about why people were not yet fully in gear to buy, and notice he didn't even mention Novell:
The second pipeline that we see that's healthy heading into the new fiscal year is that on the vendor side. We see our vendor pipeline healthy. You know, obviously we did some deals last year. As we head into this new year, quite frankly one of the biggest issues that is basically between us and some deals here has been our coming out and putting on the table some things on the legal side that relate not to IBM. You know, the ... a lot of folks have become a little bit conditioned to saying "Well, let's wait and see how the IBM thing turns out, and we'll go from there." Let's be 100% crystal clear on what we announced this morning. The DMCA copyright violations that were announced this morning are independent of the IBM legal case. The contract case has been moving since March with IBM, and we like where that's going. The case that came out this morning is the first time we've come out definitively saying, "Here is our set of issues, here are our problems that we have, here are the set of files." And we're going to go out and pursue that.
... We're talking about 43 or so header file that touch virtually all of the applications that have been written in Linux. So as those come together now, that's where a lot of the vendors, as well as the end users quite honestly, have been looking for before they move forward on the licensing program.
Jackson: Great, thanks. If you'll take one more question, totally unrelated, but any visibility for your web services platform sell through in subsequent quarters?
McBride: Yeah, we... on the web services sell through, we had it set in the summer timeframe that we thought in 2004 we would see some traction there, and we're starting 2004 right now. We are basically putting together this program to go the 4300 applications in a vertical environment, and we have some interesting partnerships that we're in the middle of right now that we think we will really drive that in a positive way. We're well positioned there. I don't see the uptake on that hitting in Q1, but I do see some positive momentum that comes out of that in this fiscal year.
Jackson: Great. Thanks.
McBride: Yeah.
Operator: We'll take our next question from Dion Cornett with Decatur Jones.
Cornett: Good morning, all, and congrats on the strong quarter.
McBride: Thanks, Dion.
Cornett: A couple quick questions about the guidance coming forward and trying to model that out. Now obviously it's a ... you know, it's complicated and unusual for a software company to migrate to some things you're having to with these end user agreements. But, you know I had a number of two and a half million for January. Looks like if I'm reading the guidance right, it's now zero, and I'm trying to figure out how I get a handle on what the April numbers should look like. Could you ... the easiest way to do this is if you look at the last initiative where you sent out the 1500 letters and you talked about this a little bit with Brian's question. Can you sort of break down, the best you can to the nearest 100, nearest 10 percent of those 1500 letters, what percentage of folks responded to you, and of those people that responded, how many did you meet with, and general ballpark, how many said, "Yes" and it was just a matter of some administrative stuff to get the licensing fees in, how many said, "No"?
McBride: Yes, all good questions Dion. When we rolled this thing out initially last summer, there was a lot of stuff flying around out there. We were going to send out invoices, we were going to do this, we were going to do that, it sounded like a direct mail campaign. That wasn't obviously what we were trying to do. What we did do during the last quarter was spend a lot of one-on-one time meeting with large end-users of Linux. Probably had twelve to fifteen or so direct, one-on-one meetings.
Cornett: OK.
McBride: And we learned a lot through that process. I would really look Q4 as more of a modeling, as almost like a testing time that we went through here, to tell everybody where we were and we listened to where everybody else was, and essentially what comes out of that then is ... you know, we had several people sign up for the license, and these are people we don't have other deals going with in the technology industry. These are Fortune 500/Fortune 1000 level accounts that signed up.
We have another group of those people we met with that have basically said, "Fine, I'm not going to use Linux." You know, CIO's were in meetings, and they said, "Fine, we're not going to do it." And then we have another group that essentially have said, "We're looking for something. We're either going to wait until the IBM litigation is done, or we're looking for something on your copyright claims, and if you show us something there, then we'll step up and move."
So, if you take those, and you say, you know, the greatest group of those -- you know, again there were some of them that said that I'm not going to use any -- but the greatest group either licensed or said they would upon seeing something that legally they felt like they should moving on now as opposed to waiting for the IBM case. The other thing to recognize is in Q4 we only had two people involved in this. One coming from more of the legal side, and one more from a market place presence perspective/accounts perspective. We intentionally kept this thing very tight, very controlled because we wanted to not let this thing get out ahead of us.
We feel now from where we sit that we are in a mode to move this out. We announced this today, and we are going to be moving very aggressively. Whereas, last quarter we had two people working on this, starting next week when we come back from the holidays, we're going to be moving essentially dozens of resources on to this project. And as we move forward with those resources internally backed by the Boies team externally, we think that -- again, we might see some uptake here in Q1 as it relates to this, but as we get into Q2 and beyond, you know, it's hard to give guidance exactly, Dion. What I can tell you is that the people we're meeting with have thousands and thousands of units of Linux inside the shop. You take, some of these that have anywhere from five to ten thousand units going. You can model out, you know, the 699, the 1399 price point, that I'd stick on the lower end of that right now, because we still have that as an option.
As we move into the legal side of this it's important for people to understand that under copyright law, people who are violating copyright law can face statutory damages as high as 30,000 dollars for not willful infringement on a per instance basis, so per server per CPU basis, and as high as 150,000 per instance for willful violations. So people are going to be staring at these letters that say, you know, we're going to be considering you a willful violator if you continue to copy our IP going forward. So you know, I think that the options are really clear. You go down a legal path, and it's going to be, you know, where it is with the legal remedies. The licensing path is another. The third would be to just not use it at all. But I think the realistic path probably is going to be the licensing path for many companies.
Cornett: OK, and then so ... just, you know, one of the earlier points you made ... you have signed up several, and I can understand why these customers would want anonymity, but how ... for the three, four you have signed up, in rough ballpark what are the dollars associated with those deals.
McBride:Oh. Yeah, we haven't signed up any yet that are in the thousands of users so you know we've ... I haven't seen the exact number on that, but I would say that we haven't signed any of the large users yet. I can say that we have large users that are north of five thousand boxes in their enterprise that are on the bubble waiting to see where they go on this.
Sounds like he figured suing people might get more money from them, and that this was the plan. Since SCO said repeatedly that they preferred not to sue, clearly the SCOsource initiative had failed. Hence they announced the third phase, threatening legal action. And they sent out the letters to previous Unix customers, like DaimlerChrysler that same week. SCO was escalating, because you can't build a second home for $20,000 over three months.
Here's what the press release SCO sent out on Dec. 22, 2003 reported regarding revenue from SCOsource:
Fourth quarter revenue from UNIX products and services was $14.0 million. In addition, revenue generated from the Company's SCOsource licensing initiative was $10.3 million, which was derived from licensing agreements reached with Microsoft Corporation and Sun Microsystems, Inc. earlier in fiscal 2003. …
The Company anticipates significant revenue in subsequent quarters from both the vendor license and intellectual property license programs, its two SCOsource initiatives. The nature and predictability of these revenue streams and variability of the timing of revenue recognition does not allow for accurate short-term guidance. Management anticipates that these revenue streams will continue to develop momentum during the next several quarters. …
Mr. McBride concluded, "This year, in addition to the successful and ongoing SCOsource vendor licensing program, we are moving forward with the SCOsource intellectual property licensing initiative, which are both expected to add recurring revenue streams that will drive sustained growth for the future. Although we are not able to predict the timing of significant revenue, with over 3,000 vendor contracts and 2.5 million servers running Linux, our confidence in generating increased revenue from SCOsource initiatives has never been stronger."
I realize that doesn't match what they said at the teleconference. They told the public that there were several others that signed up, while the SEC filing says otherwise. I can't explain it, but then it's not me who said these things. It's really SCO that should explain, I think. I just report what they say. I don't vouch for them. Incidentally, "Jackson" asking the questions is Herb Jackson of Renaissance, who wrote the report on which Dr. Botosan relied, the same Herb Jackson who we later find working at SCO. He and affiliated investors have owned 2% of SCO since 2003.
And you'll find Brian Skiba of Deutsche Bank asking questions in that same teleconference. Dr. Botosan seems not to have relied on a single uninvolved analyst. I guess that might explain all the weird numbers she came up with in her but-for world. But-for reality, SCO could have made a fortune. It's that reality part that keeps blocking their path to billions. And did you notice that Darl knew Dion Cornett of Decatur Jones? He answered his questions at this very teleconference, and at many others. So why didn't SCO give her this analyst's reports, since they had to know about them instead of just favorable ones by supporters? I should hold my hand up. It's a trick question. Hahaha. Hardly.
What this expert does not know about SCO is surprising, considering she has testified that she read all the 10Ks. For example, she says she was not aware that Red Hat was suing SCO:
Q. Well, are you aware essentially that Red Hat is a Linux provider like Novell, right?
A. Correct.
Q. And Red Hat had filed suit seeking a determination that its version of Linux was not infringed, did not infringe UNIX, right?
MR. HATCH: Objection, Your Honor. He is testifying.
MR. BRENNAN: It is a leading question, Your Honor.
THE COURT: Overruled.
THE WITNESS: Um, I'm not aware of that firsthand. But if you purport that to be the case, I will accept it.
But that information is in each and every 10K since Red Hat first filed. So if she read all the 10Ks, as she claims, then by my calculation, she read it 5 times. If you add in all the 10Qs, she read it an additional 18 times, the numbers including the amended quarterlies. That's not even counting any 8Ks. Either she is unable to retain significant information after reading it, or she didn't actually read any 10Ks or 10Qs, at least not all the way through a single one: Q. Have you reviewed the S.E.C. filings whether 10-Ks or
10-Qs or 8-Ks made by SCO Group, Inc.?
A. I did examine the 10-Ks. I examined the 10-Qs. I am
not at this point, three years later, I don't recall if I
looked at every single 8-K that they filed.
Q. For what time period did you review either the 10-K,
which is the annual report, or the quarterly 10-Q reports,
or periodic 8-K reports for SCO?
A. For SCO I know that I looked at the 10-Qs from at least
2001 through 2004. For the 10-Ks, I looked at quite a few
years of those as well. I can't say I read every single
one, which is this big, from cover to cover, but I did use
parts of them.
Q. Now, yesterday when you made your presentation to the
jury, you included damage amounts for each of the years of
2003, 2004, 2005, 2006 and 2007, right?
A. That is correct.
Q. Did you look at SCO's public filings whether 10-Ks or
10-Qs or 8-Ks for each of those five year?
A. I believe that I looked all of the 10-Ks from all of
those years. I am not sure that I looked at all the
quarters from all of those years.
Q. As you sit here in court today, you have had the
benefit of looking at least at the annual reports filed by
SCO in connection with the years 2003 through 2007?
A. I have.
Red Hat sued SCO in 2003. Here's Groklaw's page titled SCO Financials, where we have made available all of SCO's 10Ks and 10Qs from 2000 to the present. Here's what the 10K for 2003 said about the Red Hat litigation on page 12: Red Hat
On August 4, 2003, Red Hat filed a complaint against us. The action is currently pending in the United States District Court for the District of Delaware under the case caption Red Hat, Inc. v. The SCO Group, Inc., Civil No 03-772. Red Hat asserts that the Linux operating system does not infringe our UNIX intellectual property rights and seeks a declaratory judgment for non-infringement of copyrights and no misappropriation of trade secrets. In addition, Red Hat claims we have engaged in false advertising in violation of the Lanham Act, deceptive trade practices, unfair competition, tortious interference with prospective business opportunities, trade libel, and disparagement.
On or about September 15, 2003, we filed a motion to dismiss the Red Hat complaint. The motion to dismiss asserts that Red Hat lacks standing and that no case or controversy exists with respect to the claims seeking a declaratory judgment of non-infringement. The motion to dismiss further asserts that Red Hat's claims under the Lanham Act and related state laws are barred by the First Amendment to the U.S. Constitution and the common law privilege of judicial immunity. Red Hat has filed an opposition to our motion to dismiss, but the court has not ruled on the motion. We intend to vigorously defend this action.
Incidentally, the very next line on that page is the section on Novell. How in the world could she miss the Red Hat mention?
Well, let's assume she did. She likely would read the section on SCO litigation, though, wouldn't you think? Here's the section on Red Hat on page 78 in that section of this 10K:Red Hat, Inc.
On or about August 4, 2003, Red Hat, Inc. ("Red Hat") filed a complaint against the Company in the United States District Court for the District of Delaware. Red Hat asserts that the Linux operating system does not infringe on the Company's UNIX intellectual property rights and seeks a declaratory judgment for non-infringement of copyrights and no misappropriation of trade secrets. In addition, Red Hat claims the Company has engaged in false advertising in violation of the Lanham Act, deceptive trade practices, unfair competition, tortious interference with prospective business opportunities, trade libel and disparagement.
On or about September 15, 2003, the Company filed a motion to dismiss the Red Hat complaint. The motion to dismiss asserts that Red Hat lacks standing and that no case or controversy exists with respect to the claims seeking a declaratory judgment of non-infringement. The motion to dismiss further asserts that Red Hat's claims under the Lanham Act and related state laws are barred by the First Amendment to the U.S. Constitution and the common law privilege of judicial immunity. Red Hat has filed an opposition to the Company's motion to dismiss, but the court has not ruled on the motion. The Company intends to vigorously defend this action.
Surely she at least read the Risks section, given her assignment to calculate damages. Here's one item:Our claims relating to our UNIX intellectual property may subject us to additional legal proceedings.
On or about August 4, 2003, Red Hat filed a complaint against us that is currently pending in the United States District Court for the District of Delaware. Red Hat has asserted that the Linux operating system does not infringe on our UNIX intellectual property rights and seeks a declaratory judgment for non-infringement of copyrights and no misappropriation of trade secrets. In addition, Red Hat claims we have engaged in false advertising in violation of the Lanham Act, deceptive trade practices, unfair competition, tortious interference with prospective business opportunities, and trade libel and disparagement. We have filed a motion to dismiss the Red Hat complaint, asserting that Red Hat lacks standing and that no case or controversy exists on which to base a declaratory judgment. Red Hat has filed an opposition to our motion to dismiss, but the court has not ruled on the motion. If Red Hat is successful in its claim against us, our business and results of operations could be materially harmed. By the way, those three sections are not the only mentions of Red Hat, and take a look at each and every 10K for 2003 through 2007, and you'll find essentially the same mentions of the Red Hat litigation in each and every one of them. Check the 10Qs too. You'll find the same material. Here's 2003's Q3, for example. Just read them all up to the present, and you'll find them all telling about the Red Hat litigation. Well, SCO stopped filing in 2009, but you can go up to then. It would be remarkable indeed if it did not mention Red Hat. If she is being truthful in her testimony, how is it possible to miss all that? No wonder Singer objected to her having to be asked this question. And here's the significant piece, to me: the Red Hat litigation is in no way dependent on the Novell copyright claims debate on ownership. It was Red Hat suing SCO, after all, and it was before Novell put out its statement firmly claiming copyright ownership in December of 2003. The claims include a request for a declaratory judgment of noninfringement, but it's a claim that lives no matter who owns the copyrights, because it was Red Hat's assertion that there was no Unix code in Linux inappropriately. That claim doesn't depend on who owns the copyrights. Red Hat's claim would be that no matter who owned them, there was no infringement. And therefore the Red Hat litigation belongs in Dr. Botosan's but-for world. She should have calculated the impact of that litigation on people deciding not to buy a SCOsource license. And so should Dr. Pisano. Here's how the 2009 10Q, the only one filed that year after which SCO stopped filing them, describes the litigation on page 15: Red Hat, Inc.
On August 4, 2003, Red Hat, Inc. filed a complaint against the Company. The action is pending in the United States District Court for the District of Delaware under the case caption, Red Hat, Inc. v. The SCO Group, Inc., Civil No. 03-772. Red Hat asserts that the Linux operating system does not infringe on the Company’s UNIX intellectual property rights and seeks a declaratory judgment for non-infringement of copyrights and no misappropriation of trade secrets. In addition, Red Hat claims the Company has engaged in false advertising in violation of the Lanham Act, deceptive trade practices, unfair competition, tortious interference with prospective business opportunities, trade libel and disparagement. On April 6, 2004, the court denied the Company’s motion to dismiss this case; however, the court stayed the case and requested status reports every 90 days regarding the case against IBM. Red Hat filed a motion for reconsideration, which the court denied on March 31, 2005. The Company intends to vigorously defend this action. In the event that the stay is lifted, including the bankruptcy stay, and Red Hat is allowed to pursue its claims, the Company will likely assert counterclaims against Red Hat….
Pursuit and defense of the above-mentioned matters will be costly, and management expects legal fees and related expenses will be substantial. A material, negative impact on the Company’s results of operations, liquidity or financial position from the Red Hat, IPO Class Action, or Indian Distributor matters, or the IBM or Novell counterclaims is not estimable. …
A material, negative impact on our results of operations or financial position from the Red Hat, Inc., IPO Class Action, or Indian Distributor matters, or the IBM counterclaims may be probable but not estimable. Because these matters are not estimable, we have not recorded any reserves or contingencies related to these legal matters. In the event that our assumptions used to evaluate these matters change in future periods, we may be required to record a liability for an adverse outcome, which could have a material adverse effect on our results of operations, financial position and liquidity. …
Our claims relating to our UNIX intellectual property may subject us to additional legal proceedings.
In August 2003, Red Hat brought a lawsuit against us asserting that the Linux operating system does not infringe our UNIX intellectual property rights and seeking a declaratory judgment for non-infringement of copyrights and non-misappropriation of trade secrets. In addition, Red Hat claims that we have engaged in false advertising in violation of the Lanham Act, deceptive trade practices, unfair competition, tortious interference with prospective business opportunities, and trade libel and disparagement. This case is currently stayed pending the resolution of our suit against IBM and because of the bankruptcy cases. If Red Hat is successful in its claim against us, our business and results of operations could be materially harmed.
Probably, eh? A material adverse effect on our results of operations, financial position and liquidity, eh? In that case, Dr. Botosan ought to have included some impact in her calculations, one would think. Here's the Red Hat complaint, so you can verify that it does, indeed, belong in her but-for world calculations. Even if Novell had never said a word about ownership of copyrights, this complaint would stand, because it was for things like tortious interference with prospective business opportunities, unfair competition, false advertising, and the like. And significantly, in its defense, SCO claimed something that definitely had to be in Dr. Botosan's but-for world:7. Further, SCO Group, Inc. asserts that it did not engage in false advertising in violation of the Lanham Act, deceptive trade practices, unfair competition, tortious interference with prospective business opportunities, trade libel or disparagement. Indeed, SCO Group, Inc. asserts that Red Hat is a debtor of SCO Group, Inc. and not the other way around. At a minimum, if Red Hat were a debtor of SCO Group, that ought to have been mentioned and factored into her but-for-world calculations of SCO's monetary prospects, one would think. Here is how the Red Hat complaint opens, so you can see that their claims would remain in a world where Novell claimed copyright ownership or in a world where they didn't ever do that:1. The plaintiff, Red Hat, Inc. ("Red Hat"), has commenced this action in response to the unfair, untrue and deceptive campaign now being waged by the defendant, The SCO Group, Inc. ("SCO"), to harm the market for Red Hat's highly successful operating system based on the open source LINUX kernel. As described in detail below, SCO's tactics have centered on the use of highly publicized, but vague, general and unsupported claims that portions of the LINUX kernel and operating system contain intellectual property allegedly owned by SCO, in hopes that such unfair, untrue and deceptive statements will cause users and potential users of LINUX to re-evaluate their plans to deploy LINUX as a primary component of their Information Technology infrastructure.
2. SCO's claims are not true, and are solely designed to create an atmosphere of fear, uncertainty and doubt about LINUX. SCO's own conduct demonstrates this fact. For example, beginning in or about March 2003, SCO made numerous public statements that LINUX, in some unspecified way, contains SCO trade secrets, and that LINUX users might be
(1)
liable to SCO for using those trade secrets if they continue to use LINUX. Also at that time, SCO filed a lawsuit against IBM claiming that, among other things, IBM had improperly contributed UNIX software code trade secrets to LINUX. However, SCO never publicly identified a single line of the publicly available LINUX source code that allegedly contains even one SCO trade secret. In fact, at the same time that SCO was contending that the LINUX operating system included SCO's trade secrets without authorization, SCO itself continued to offer its own version of LINUX, thereby continuing to make publicly available the very computer source code that SCO was claiming to be "secret."
3. SCO apparently recognized that the supposed "secrets" that SCO itself was making publicly available through its own LINUX distribution do not qualify as trade secrets. Accordingly, SCO recently has changed the focus of its campaign against LINUX. SCO, which has itself developed and sold a version of LINUX for years, now claims to have suddenly discovered that LINUX contains computer software code that was copied from another, competing operating system that SCO claims to own — UNIX. Again, although the LINUX source code is publicly available, SCO repeatedly has refused to identify publicly even one line of SCO source code that was copied.
4. SCO's tactics are as obvious as they are unlawful. SCO makes grand public claims about the potential liability of anyone using LINUX because of alleged violations of SCO's purported intellectual property, but then refuses to support those claims with the detail that would exist if SCO's claims were true. Trade secrets, not copyrights, in that section. And in fact in the beginning that is what SCO claimed IBM had done wrong. And that reminds me, when SCO dropped the trade secrets claims, and admitted in open court that there were no trade secrets in UNIX, do you suppose that fact should be included in a but-for world calculation? I mean, Dr. Botosan relied on Dr. Gary Pisano, and so they both are standing on the dime that only Novell caused people not to buy a SCOsource license. But here's an obvious reason why people wouldn't wish to get one -- the Red Hat complaint followed by SCO dropping the trade secrets allegations. Don't you think that would make a potential licensee say Hmm? I do, and it's obvious that this litigation had to be included in any such analysis. Both failed to do so.
Dr. Botosan ought to have at least noticed that Red Hat had filed this litigation, wouldn't you think? But no, she claims it's the first she's heard of it. I know. SCO would say that she didn't claim to read 2009, only up through 2007. OK. Here's the 3rd 10Q for 2007, and note that this is the very first text, immediately after the numbers section showing the financials:
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
The business of The SCO Group, Inc. (the “Company”) focuses on marketing reliable, cost-effective UNIX software products and related services for the small-to-medium sized business market as well as replicated site franchises of Fortune 1000 companies. The Company has operations in a number of countries that provide support services to customers and resellers. The Company acquired certain intellectual property rights surrounding UNIX and UNIX System V source code in May 2001 from The Santa Cruz Operation. During the year ended October 31, 2003, the Company initiated its SCOsource business to protect and defend its UNIX intellectual property rights.
The Company incurred a net loss of $4,565,000 for the nine months ended July 31, 2007, and, during that same period, used cash of $690,000 in its operating activities. As of July 31, 2007, the Company had a total of $7,393,000 in cash and cash equivalents and $3,020,000 in restricted cash, of which $2,589,000 is designated to pay for experts, consultants and other costs in connection with the litigation between the Company and IBM, Novell and Red Hat (the “SCO Litigation”), and the remaining $431,000 of restricted cash is payable to Novell for its retained binary royalty stream.
It then goes on to repeat all the sections on Red Hat that I just showed you. I'm sorry, but it beggars belief that she couldn't know about the Red Hat litigation, if she read even one 10K or one 10Q ever.
This has gotten so long, I'll stop now and finish describing the rest of the day's events later.
Update: On my break, I read the report [PDF] that Botosan prepared for SCO in 2007, the damages calculation and the events timeline. The latter wasn't used at trial, as it turned out, but the rest was. Botosan lists all the documents that she relied on, on page 24 of the report, 27 of the PDF:
So she knew that the litigation happened. Perhaps her answer means that she didn't know what it was about. Or she forgot. But that makes it worse, in a way, because either she can't recall significant events, or she didn't think it was significant to the damages calculations even though it's obvious that potential licensees would factor in what Red Hat announced about its claims when deciding whether or not to pay for a SCOsource license, or she never bothered to read up on what it was about. Those are the possibilities I can think of, anyway. Here's what she definitely did forget -- that she listed as documents she relied on when forming her opinion the following: All SCO's 10-K's from 2001-2006 and all the 10-Q's from Ql, 2001, through Q1, 2007.
Some other things struck me odd in her report. She lists other cases where she has been asked to work as either a consultant or an expert witness. She doesn't list the SCO v. IBM litigation in her 2007 report. And then there is this section: 32. On January 22, 2003 SCO formally announced its SCOsource initiative.32 Shortly thereafter, on February 25, 2003 SCO and Sun signed a vendor license agreement that generated $10 million of SCOsource vendor license revenues. Based on this early success, an independent analyst at the Renaissance Research Group (RRG) revised a forecast related to SCO that he had issued earlier on February 24, 2003. In the earlier February forecast, the RRG analyst forecasted SCOsource vendor license revenues of $2 million dollars per year, but in his revised forecast dated March 6, 2003, he increased his revenue forecast to $10 million per year.33 The analyst noted that during SCO ' s February 26, 2003 quarterly earnings conference call, management had announced $10 million in revenue from its SCOsource licensing initiative.
33. In addition to forecasting arrearages settlement revenues of $1 0 million in the second quarter of 2003, plus $10 million, on average, for each of the next three years, the RRG analyst forecasted $1 million of SCOsource "recurring" product revenue beginning in the third quarter of 2003, and increasing by 5% per quarter sequentially through fiscal year 2004. The analyst described his forecast of recurring product revenues as "conservative.,, 34
34. While the RRG analyst clearly identified the arrearages settlement revenues as vendor license revenues, he did not specify whether the recurring product revenues also related to vendor license agreements or SCOsource RTU license agreements. Given that the forecast predates by 5 months the August 5, 2003 announcement of the availability of the SCOsource RTU license, I treat the RRG analyst's recurring revenues as distinct from the SCOsource RTU license revenues, which appear as a separate revenue stream III later forecasts. See Exhibit 4 for a summary of RRG's March 6, 2003 forecast….
41. Using the forecasts described above I estimate expected SCOsource revenues
absent Novell's claimed interference in the marketplace. My estimate includes expected revenues from (I) SCOsource vendor license agreements (initiated with the introduction of the SCOsource division in January 2003) and (2) SCOsource RTU license agreements (formally announced August 5, 2003). In my opinion, independent analysts' forecasts made at the relevant time generally provide the most objective assessment of the perceived revenue potential of SCOsource. In computing lost revenues, I rely on SCO internal forecasts only in the absence
of a relevant independent analyst forecast.
_____
32 SCO's first quarter ended soon after, on January 31, 2003. As a result, SCO booked no SCOsource revenue during the first quarter o f its 2003 fiscal year.
33 The analyst referred to these revenues as arrearages settlement revenues.
34 RRG March 6, 2003, forecast, pg. 2. First of all, Renaissance was hardly independent. But I think she misunderstood what they wrote, in any case, which would throw off her calculations. She seems here to think that there are only two SCOsource offerings, a vendor license deal first and then an end user license, which she calls the right to use license, or RTU. She thinks Renaissance must be projecting vendor licenses, since the right to use license was not available when the reports were published. She is mistaken. The first SCOsource "product", as she calls it, was an end user license, for people wishing to run UNIX applications on Linux. That is what Renaissance was thinking was going to set the world on fire. It didn't, because, although they didn't realize it apparently, that's not something anyone needed. You can achieve your goal another way, without having to use SCO's libraries, which were the first SCOsource offering announced publicly. The SCO press release from January 22, 2003 said this was what they were offering: Key components of today's announcement include:
-- The creation of SCOsource, a division of SCO that will expand the licensing of the company's core intellectual property, including the core UNIX source code.
-- The first offering from SCOsource will be SCO System V for Linux -- an end-user licensed product for use on Linux systems. SCO System V for Linux provides unbundled licensing of SCO's UNIX System shared libraries for use with UNIX applications, enabling them to run on Linux.
-- The appointment of David Boies and the law firm of Boies, Schiller and Flexner to help research and advise SCO on the company's intellectual property. ...The SCO System V for Linux license will provide access to SCO's UNIX System Shared Libraries for use with Linux. Customers frequently use SCO's shared libraries to allow UNIX applications to run on Linux. In the past, SCO's UnixWare and OpenServer license agreements did not allow these UNIX libraries to be used outside of SCO's operating systems. With this announcement, customers can now license these libraries from SCO for use with Linux without having to license the entire SCO operating system. This will enable customers to now run thousands of UNIX applications on Linux.
They called it an end user license. There was another end user license announced later, for Linux end users specifically, the one she calls the RTU license. But Renaissance was hearing ka-ching from this first one. Remember their language?:
We believe management's forecasted $10 million of SCOsource revenue in 2Q represents near-term settlement of possible license violations in arrears (related to heretofore unlicensed use of the SCOsource shared libraries) from one or more large vendors of Linux solutions, but we are unable to glean more specifics at this time This is so garbled, there's no unraveling it. Microsoft was, obviously, not a Linux vendor, and while Sun was on and off, its license was mostly a buyout, plus to get drivers for Xenix, or so they told the world, and to get the right to open source Solaris. It was, in reality, not part of the public SCOsource licensing offerings, but tailored to them specifically. Microsoft claimed to have licensed patents after all, which were not part of this SCOsource offering. So, all in all, I'd say Botosan relied on misinformation if she relied on Renaissance. My main point is this: there was no separate vendor license announced that January. The Sun and Microsoft license agreements she calls vendor agreements, and I can't say otherwise, not having read them since they are under seal, but there was no separate announcement of vendor licenses that January, just this first shared libraries thing, and we learned at the trial, the first one, that no one bought that, so that can't be what Microsoft and Sun got, I will assume. SCO worked those two licenses out in private and we heard about them only after they happened. And SCO has described them as predominantly about UnixWare, or mostly about a kind of indemnification, or as SCOsource. That's part of the problem. The story keeps changing. Why parse all this out? Because it affects the numbers. You could get the first SCOsource offering, the shared libraries, for only $149 per CPU, with volume discounts for enterprise customers and OEMs. Microsoft and Sun paid millions and not, from all we know publicly, for shared libraries to run UNIX applications on Linux. There is a huge difference, then. The RTU license cost $699 per CPU, not $100-$300, as she seemed to think, according to her testimony on her first day on the stand. And so far as we know, from testimony at the first trial, no one bought the first SCOsource product offered. So all in all, I'd suggest that the numbers she used don't seem likely to add up right even in a but-for world, being based on incorrect assumptions.
If you'd like to jump to a different day of the trial, here you go:
The transcript of this day is in three parts: part 1
[PDF] [Text], part 2
[PDF] [Text] and part 3
[PDF] [Text].
1380
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH
CENTRAL DIVISION
| THE SCO GROUP, INC., a | ) | |
| Delaware corporation, | ) | |
| Plaintiff, | ) | |
| vs. | ) | CASE NO. 2:04-CV-139TS |
| NOVELL, INC., a Delaware | ) | |
| corporation, | ) | |
| Defendant. | ) | |
| _______________________________ | ) | |
| AND RELATED COUNTERCLAIMS. | ) | |
| _______________________________ | ) | |
BEFORE THE HONORABLE TED STEWART
--------------------------------
March 18, 2010
Jury Trial
Volume IX
1381
A P P E A R A N C E S
For Plaintiff: BRENT HATCH
[address]
STUART SINGER
[address]
EDWARD NORMAND
[address]
For Defendant: STERLING BRENNAN
[address]
ERIC ACKER
MICHAEL JACOBS
[address]
Court Reporters Ed Young
Laura Robinson
Patti Walker
[address]
[Phone]
1382
I N D E X
| Witness | Examination By | Page |
| Christine Botosan | Mr. Brennan (Cross) | 1396 |
| Christine Botosan | Mr. Hatch (Redirect) | 1535 |
| Christine Botosan | Mr. Brennan (Recross) | 1539 |
| Lawrence Gasparro | (Deposition) | 1543 |
| Phillip Langer | (Deposition) | 1553 |
| Gregory Pettit | (Deposition) | 1564 |
|
| Exhibit | | Received |
| Defendant's Exhibit R21 | | 1477 |
| Plaintiff's Exhibit 188 | | 1568 |
1383
March 18, 2010 8:30 a.m.
P R O C E E D I N G S
THE COURT: Good morning, counsel.
MR. BRENNAN: Good morning, Your Honor.
MR. SINGER: Good morning.
THE COURT: Somebody has to be tired. I was
informed by Mr. Copeland that the jury instructions were
filed at 4:00 a.m. this morning. So whoever is responsible
for that, I want you to raise your hand and you can go take
a nap. The Court wants to express its gratitude to you for
the efforts that you have made.
I do have one question. It appears that the
parties have abandoned the litigation privilege in the jury
instructions. Is it correct that you are no longer seeking
an instruction on that particular privilege?
Mr. Normand?
MR. NORMAND: Your Honor, it was Novell who had
primarily asserted that privilege, and my understanding is
that they are not asserting it anymore. That came out of a
meeting that we had over last weekend, and it was confirmed
in the writing from the last couple of days.
THE COURT: Mr. Jacobs, is that true?
MR. JACOBS: I will double-check what happened
last night to be sure, and that in the wee hours there was
1384
not some change, Your Honor, and I will advise the Court.
THE COURT: Thank you.
Counsel, the Court wishes to address Novell's
renewed motion regarding the prior District Court rulings.
Mr. Hatch or Mr. Singer, do either of you wish to
respond to that?
MR. SINGER: Yes, Your Honor.
I will be brief, because this was filed late last
night and this is something the Court has dealt with
repeatedly in the trial. I don't believe that we have
opened any doors. I think this is more of an attempt by
Novell to construct a door that they can open themselves.
We have insidiously followed the Court's ruling that we not
talk about the Internet site that has been up or to make any
comments about that, which was the basis for the issue
before.
The expert testimony of Dr. Pisano and Dr. Botosan
is all based on the but-for world. In that but-for world
there is no issue as to copyright ownership and it rests
with SCO. There is no slander of that title. There is no
litigation and there are no rulings. Therefore, there is no
reason why any rulings by Judge Kimball come in.
The surveys which Professor Pisano relied upon
were in 2004 and 2005 and before the summary judgment ruling
of Judge Kimball in 2007. It is as Professor Pisano said, a
1385
good proxy for what would have happened in that but-for
world. If they wanted to raise that in connection with
Professor Pisano also, the time to have done so was
yesterday.
With respect to Professor Botosano, and Mr. Hatch
can elaborate on it, it is certainly apparent to the Court
that her testimony is based on a but-for world with
assumptions that the slander is never made and that you,
therefore, never have any litigation and you, therefore,
never have any of these court ruling. There is absolutely
no reason why this should come in at this time.
The one issue which they had raised that came
close to this issue is the event study which talked about
the effect of the events in the real world. We have stayed
away from that and we have dropped the event study in its
entirety. This highly prejudicial information, which the
Court has recognized in repeated rulings, should not be
introduced.
THE COURT: Thank you, Mr. Singer.
Mr. Brennan.
MR. BRENNAN: Yes. Thank you, Your Honor. Just A
couple of points. I think most of them are set forth in the
written submissions, but I do wish to highlight some
important matters.
First of all, the suggestion that this is merely a
1386
but-for world construction both misstates the testimony that
is proffered and that upon which the two experts have
premised their testimony.
First of all, as we heard yesterday, Dr. Botosan's
entire analysis rests upon stock analyst reports. As we
will see today, those very analyst reports are premised upon
a litigation strategy. The litigation strategy that is
announced in the stock analyst reports is pursuit of
litigation relative to the UNIX copyrights at issue in this
case. As we will see today, the stock analyst reports, that
are the entire foundation for Dr. Botosan's testimony,
suggest that if the litigation strategy does not work that
SCO will fail. So the suggestion that we are in a but-for
world is truly a mischaracterization.
What will be put in front of the jury I expect
today, because Dr. Botosan chose to avoid mentioning it, is
prognostications premised on a litigation strategy.
Second of all, the fact that the testimony may
have been crafted in a way to suggest an abstract world, the
reality is that there is a reality, and on cross-examination
we should be able to indicate both to the jury, and to show
the weaknesses in both Dr. Botosan's and Dr. Pisano's
presentations, by asking questions about the real world, and
in a real world where one would measure the intent and
thought processes of potential licensees. That is what is
1387
significant here in a slander title case.
There are potential licensees who in the real
world rejected SCOsource licenses because, among other
things, rulings by the District Court. First, in 2004 the
Court, Judge Kimball presiding, expressly debunked many of
the theories that are now being advanced. Then, of course,
in 2007 with the summary judgment ruling.
We should be entitled to explore the real world,
because the numbers that I saw put up yesterday were real
numbers. Well over $200 million in damages are being
claimed. It is highly prejudicial for Novell in an effort
to defend against that sort of gargantuan claim, not to be
able to indicate to Dr. Botosan real world events.
In fact, Your Honor, as we'll also see today, in
her expert report she indicated that in forming her
conclusions she relied upon real world events. For example,
in her expert report she said that she considered and relied
upon the motion for summary judgment. It was filed by
Novell and granted by Judge Kimball. She considered and
relied upon the second amended complaint filed by SCO, and
Novell's answer to the second amended complaint and
counterclaims.
She had within the selected menu of materials the
pleadings in this case. She issued her report after the
summary judgment motion had been filed. She proffered a
1388
declaration to the Court after Judge Kimball had issued his
rulings. For all those reasons, Your Honor, they have
broadly opened the door.
Now, it is absolutely true that from the very
beginning we have repeatedly asked for authorization to
present to the jury information regarding two things. First
of all, the mind-set of Novell, and that is relevant to a
slander title case that turns on intent. We have also
asked, and we repeat the request, that we be entitled to
show what is the mind-set of these potential licensees.
That is the whole justification for a damages award. The
argument that has gone to the jury is that licensees passed
on SCO licenses solely for this but-for proposition that
Novell slandered the title. There are other considerations.
There were litigation considerations. They play it
selectively.
So, Your Honor, I think for all of the reasons
that we have indicated, and those that are set forth in the
papers and prior submissions, and the extraordinary
prejudice that Novell bears, that we ought to be able to
indicate through Dr. Botosan that there were real world
events, and those real world events are directly contrary to
the testimony that she is proffering, and also to elicit
testimony that if she were to take into account real world
events, that that would lead to a different conclusion.
1389
The final point in that regard, Your Honor, is,
again, she relies and she said yesterday that her damages
calculations were premised on two basic points. One,
Deutsche Bank prognostications. As we'll see, as I have
mentioned, those prognostications are litigation driven. As
we look at the risk factors that are identified in the
report, they specifically identify litigation factors.
In addition, Dr. Botosan mentioned that in her
estimation the costs of pursuing the SCOsource program would
be relatively negligible in terms of legal expense. We know
that is not true. We know, for example, that with the two
license agreements that also form the foundation for her
prognostications, the Microsoft agreement and the Sun Micro
Systems agreement, that the Boies Schiller firm was entitled
to 20 percent of the revenues generated by that. That was
entirely ignored.
So we have a situation where the real world has
Boies Schiller involved from the very beginning entitled to
massive fees, over $30 million, and entitled to a cut of
these revenues, and there is continuing activity, but the
witness yesterday got up and said, well, in my estimation
and I have run a regression, I don't expect there to be any
real significant expense. That is directly contrary to
reality. We ought to be able to present all of that, Your
Honor.
1390
One last point, and I appreciate your patience,
but we are mindful of the Court's comments regarding perhaps
the need to inform the Court that there was a ruling by the
Tenth Circuit. We have proffered to the Court at least a
suggestion as to how to deal with that at this juncture.
Thank you.
THE COURT: Thank you, Mr. Brennan.
Mr. Singer, do you wish to reply?
MR. SINGER: Well, what has been raised in these
papers is specifically talking about this litigation, about
a slander of title litigation and rulings in this
litigation, not pursuit of legal remedies in general but
this litigation. The whole point of a damages analysis, as
these experts have indicated, is you construct an
alternative world in which liability is assumed, first of
all, and the slander has not occurred. In that case there
is no litigation and there are no rulings.
Is there a need to pursue litigation against
copyright infringers? Perhaps. That has nothing to do with
introducing a 2007 decision or any other decision in the
course of this litigation when that would never have
occurred if the slander had not occurred.
The last point which was raised by Mr. Brennan is
an entirely new aspect of this, that somehow he should be
allowed to get into the contingency fee arrangement with
1391
Boies Schiller, because some of the money that SCO pays will
ultimately be used to pay its lawyers. Well, if that were
true, in every case the contingency fees would be an element
of cross-examination. Obviously that is an obligation of
the plaintiff, if they are able to make recoveries, and it
has nothing to do with the issue of liability or damages to
which the plaintiff is entitled and is just another attempt
to prejudice the jury.
The Court has had this right and consistently
right throughout all of these issues and it should stay with
the rulings it has made consistently.
THE COURT: Counsel, the Court is going to grant
Novell's request and allow cross-examination to include
reference to appropriate decisions in the District Court.
The Court is going to read to the jury the following
instruction after. Ladies and gentlemen, you may be
wondering why, in view of the evidence, you have heard of
prior court rulings. You have been called to jury service
on the issues in this lawsuit. SCO appealed the District
Court rulings that you have heard about and the Court of
Appeals reversed those decisions and determined that a jury
should decide the issues in this case. That is why you are
here.
MR. SINGER: Your Honor, may I address the Court?
THE COURT: Yes.
1392
MR. SINGER: This motion, which would call for a
reversal of the Court's consistent rulings which have been
on this subject for weeks now, came in last night.
Ms. Botosan is local, and may we have an
opportunity to brief this for Your Honor and Ms. Botosan
could be re-called if necessary to pursue this line of
questioning? We think this is highly prejudicial.
In the alternative, to at least explore this issue
with Ms. Botosan outside the presence of the jury first, and
see what type of evidence would be elicited, and then make a
decision as to whether or not that should be something heard
by the jury. We really are, you know, responding to this on
the basis of something filed late last night, without having
filed written memorandum, and we think it is a very
important issue. We would like an opportunity, if we could,
to further brief this point or to explore it in a manner
which the jury does not hear it until the Judge, Your Honor,
has been able to hear exactly what Mr. Brennan hopes to
elicit.
THE COURT: How would you propose that happen?
MR. SINGER: Well, with respect to the first --
THE COURT: I am not going to delay the testimony.
That is not going to happen.
MR. SINGER: With respect to the second request,
just like a Daubert type hearing, that line of
1393
cross-examination be heard first outside of the presence of
the jury, and we can argue as to whether or not it is
probative. The Court can see whether or not it is probative
and then make a ruling. If the Court says that should come
in, then it would be presented in front of the jury, if it
does not, then it shouldn't.
THE COURT: Mr. Singer, I am not going to do
either. I am going to allow the cross-examination to
proceed. I will count on Mr. Hatch to make appropriate
objections if he thinks a question is inappropriate and the
Court will rule on a question by question basis.
MR. SINGER: Your Honor, may I understand the
scope of the ruling? The only point which can be elicited
is the 2007 summary judgment, and then the Court would
instruct the jury that that was reversed and that is why
they are here listening to this case?
THE COURT: I believe Mr. Brennan wants to ask
about the 2004 ruling by Judge Kimball.
MR. BRENNAN: That is correct, Your Honor.
MR. SINGER: The 2004 ruling was in the course of
a denial of a motion to dismiss. I take it that is
something that could then be explored on redirect, that that
motion was denied and that the grounds on which it was
raised by the --
THE COURT: Of course it will, Mr. Singer. Of
1394
course it will.
MR. SINGER: Yes.
Your Honor, we think -- obviously the Court has
ruled on this matter, but we believe that this is really
completely unrelated to the but-for world which these
witnesses are presenting testimony on. It does not relate
to any of the assumptions of the damage analysis here, since
these decisions would not have occurred if the slander had
not occurred, and the projections are based on studies which
are measuring what would have happened --
THE COURT: Mr. Singer, I have the feeling that
your witness is able to answer the questions instead of you
continuing to argue it here. Okay.
Anything else before we bring the jury in?
MR. BRENNAN: No. Thank you.
MR. HATCH: Your Honor, the only other thing is we
also late last night, and I saw it for the first time this
morning, and I didn't count them up, but there are a number
of new documents that I don't believe we have seen before
that Mr. Brennan apparently intends to use. Many of them
would be objectionable, because they are now dealing with
Boies Schiller contingency fees and things of that nature,
but they have had this report for over three years and we
get this many new documents, and both the quantity and the
quality of these things, and I just don't think they are
1395
appropriate and I object to these.
MR. BRENNAN: Just so the Court will be mindful,
there are two species of documents that we sent over. One
are A.K. filings, S.E.C. A.K. filings by SCO to the
Securities and Exchange Commission, and the second --
THE COURT: Mr. Brennan, you have been aware of
Dr. Botosan's testimony for a long time. I am not aware of
anything that was elicited yesterday on direct that was
outside of the scope of that, and there is certainly no
objection to that extend, so the Court is not going to allow
any additional new exhibits at this point in the trial.
MR. BRENNAN: Very well. Thank you, Your Honor.
MR. HATCH: Your Honor, also, I think Mr. Brennan
mentioned the issue about the fees. I don't think that
should be game, but --
THE COURT: Let's see what his question is and you
can object to it and the Court will make a ruling at the
appropriate time.
MR. HATCH: Thank you.
THE COURT: Put the charts up and everything back
up before we bring the jury in so that we don't waste any
time.
MR. BRENNAN: With your permission, my intention
was to use this one early on, and then I wanted to take it
down so that I have a line of sight.
1396
THE COURT: That will be fine.
(WHEREUPON, the jury enters the proceedings.)
THE COURT: Dr. Botosan? Where did she go?
Dr. Botosan, I will remind you that you're still
under oath.
THE WITNESS: Thank you.
CROSS-EXAMINATION
MR. BRENNAN: May it please the Court?
THE COURT: Go ahead.
BY MR. BRENNAN
Q. Good morning, Dr. Botosan.
Let me introduce myself. I am Sterling Brennan, one of
the attorneys who is representing Novell on this matter. I
do have a number of questions for you this morning, and I
hope you'll be patient as I ask them of you.
Let me start by asking you this. When did SCO's
attorneys first approach you and ask you to help them with
this case?
A. January of 2007.
Q. How much did they agree to pay you per hour for the
work that you do in connection with this case?
A. So my hourly rate is $450 an hour, which I know sounds
like a big number, and it seems like a big number to me, as
well, but I think it is really important for the jury to
understand why those numbers are so large and --
1397
MR. BRENNAN: Your Honor, I wonder if --
THE COURT: Dr. Botosan, I will instruct you to
answer the questions posed directly. If there is something
that your counsel believes needs to be brought out in
addition to the answer that you provide, he will do that by
way of redirect.
THE WITNESS: Okay.
THE COURT: Just try to be as concise as possible
in answer to the questions.
THE WITNESS: Okay. Sorry.
MR. BRENNAN: Thank you.
BY MR. BRENNAN
Q. Dr. Botosan, this $450 per hour, that is substantially
more than you are paid by you employer, the University of
Utah, correct?
A. Yes. On an hourly basis, yes.
Q. What would be the hourly rate, if your were able to
calculate it, that you're paid for your work by the
University of Utah?
A. Off the top of my head I have no idea.
Q. Substantially less than $450 per hour?
A. Yeah, it is, but the other consulting work that I do is
similar.
Q. How much time have you spent working on this matter for
SCO's attorneys since they first approached you in February
1398
of 2007?
A. I have spent -- I think it works out to an average of
about a week a year out of the four years, so about a total
of four weeks in total for the four years I have been on the
case.
Q. Would that be a 40 hour week multiplied by four?
A. No. I wish my weeks were 40 hours. It is about 50
hour weeks.
Q. Your estimation, if my calculations are right, is you
spent about 200 hours on this so for?
A. That is correct.
Q. That has been 200 hours, roughly, times $450 per hour?
A. That is correct.
Q. So that is just under $100,000?
A. Roughly.
Q. Now, when SCO's attorneys first hired you, they asked
you to make certain assumptions and they gave you specific
instructions, correct?
A. We discussed the case and what the but-for world would
look like. I was instructed about the but-for world and
what assumptions I would make with that, but beyond that I
was not given instructions.
Q. For example, in this but-for world you were given
specific parameters that you were to consider to be true,
right?
1399
A. Correct. I was to assume that Novell had in fact
slandered the title.
Q. So when SCO's attorneys came to you, they instructed
you that you were to assume that Novell was liable, right?
A. Correct.
Q. You have not made any independent evaluation of whether
Novell is liable, have you?
A. I have not.
Q. So what you presented to the jury yesterday was
premised and dependent upon the instruction that SCO's
attorneys gave you when they first approached you in
February of 2007 that Novell had slandered title, right?
A. Correct.
It is typical in these sorts of damages analyses that
we are to assume that the bad act happened. Then we're
asked to compute what damages would be under that
assumption. I mean, ultimately it is up to the court to
decide.
Q. SCO's attorneys also came to you and asked you to
follow their instructions and then reach certain
conclusions, correct?
A. I'm sorry. Repeat that question.
Q. I would be happy to.
When SCO's attorneys first came to you, they asked you
to follow their instructions, to assume certain matters, and
1400
then to reach conclusions that you put in a written report,
correct?
A. Well, no. What they asked me to do was they asked me
to examine the available evidence, and then using my
expertise to come up with an independent assessment of what
I felt the damages were from Novell's wrongful acts. That
is what I did.
Q. You put that in a written report, correct?
A. That is correct. I did write a report.
Q. The first report that was prepared was dated May 23rd,
2007; is that right?
A. That is correct.
Q. I believe if you will look in the black binder that is
in front of you, you'll find a copy of the written report
dated May 23rd, 2007.
Now, SCO's attorneys helped you write that report,
correct?
A. No, they did not.
Q. They played no role whatsoever in its preparation?
A. No, they did not.
Q. Well, for example, SCO's attorneys provided you certain
documents to review, correct?
A. They provided me some documents that they had
discovered, and then I was also given access to the database
of documents. I went through a training session on how to
1401
access that database so that I could do key word searches on
my own.
Q. And this database did it include all of the various
pleadings and filings in the litigation?
A. Yes.
Q. And the database that you were given access to included
orders and decisions made by this Court, correct?
A. I assume so.
Q. Did you review those?
A. I reviewed the ones that dealt with the case.
Q. The ones that you reviewed, were those ones that were
selected for you by SCO's attorneys?
A. Not that I recall.
Q. So you in your review had full access to all of the
rulings and orders in this case when you prepared your
report; is that correct?
A. Yes.
With that said, I do want to make the point that I am
not a lawyer. So, you know, I read the complaint, for
example, and I read depositions and --
Q. Now, when you were hired by SCO's attorneys and they
gave you their instructions, one of the instructions that
you were given was as follows. If you have any question
about it, you can follow along with me from your report.
Again, that is the May 23, 2007 report. I'm going to read
1402
from page 2, paragraph 5.
One of the assumptions that you were asked to make and
an instruction that you were given was as follows: That,
quote, the asset purchase agreement and bill of sale
transferred the entire UNIX and UnixWare business to SCO,
including the copyrights, and amendment number two confirmed
that the transfer had in fact occurred, end quote.
That is one of the instructions that you were given,
right?
A. That is true. I mean, I think as we have already
established, my understanding was that I was supposed to
assume that there were harmful acts on the part of Novell
and that SCO owned its copyrights.
Q. One of the other instructions that you were given is
that you were to calculate damages based on, quote, SCO's
lost profits due to Novell's public claims that SCO does not
own the copyrights to the UNIX source code associated with
the UNIX and UnixWare business, right? I'm reading from
your report, page 1, paragraph 1.
Do you see that?
It is on the screen, if that would help you.
A. Thank you.
That is correct. That is what I was asked to do.
Q. So SCO's attorneys told you what the measure of damages
should be, right?
1403
A. Again, it is typical with an expert witness to discuss
with the lawyers what the appropriate measures of damages
are. Not being a lawyer, it is important for me to
understand from the legal team what the appropriate damage
measures are.
Q. My question, perhaps, called for a more abbreviated
response.
A. Okay.
Q. The question is SCO's attorneys gave you the
instruction as to what your measure of damages calculation
should be, right?
A. I think my answer was that that is typical, yes.
Q. In fact, without SCO's attorneys' instructions you
wouldn't know what the measure of damages should be, right?
A. So my role in this is to compute the amount of damages.
My role is not to act as the lawyers to determine the degree
of the case, for example.
Q. Let me ask the question. Without the instructions that
you were given by SCO's attorneys, you wouldn't even know
what measure of damages to calculate, right?
A. I would rely on the experts, the lawyers, to determine
the appropriate measure of damages, and then my job as the
expert is to measure those damages, which is what I did.
Q. Now, you don't have any independent basis to determine,
for example, whether Novell transferred the UNIX copyrights
1404
to Santa Cruz Operation, do you?
A. I have seen the documents, but that is not -- I am not
a contract expert. I relied on the instruction that I
received and the assumptions that I was supposed to make and
proceeded from there.
Q. Essentially what you were doing is following the
instructions given by SCO's attorneys in reaching the
information that you presented to the jury yesterday, right?
A. I would agree with that statement, but only to the
extent that it was appropriate for me to follow their
instruction.
Q. Just as you don't have any independent basis to know or
to determine whether or not Novell transferred ownership of
the UNIX copyrights to Santa Cruz Operation, you don't have
any independent basis to determine whether or not SCO
claimed title to those UNIX copyrights was slandered by
Novell's public statement, do you?
A. So I was to assume that SCO owned the copyrights and
that Novell had harmed SCO. That was the assumption and I
started my work from there.
Q. Now, if the instructions and assumptions given you by
SCO turned out to be inaccurate, that would significantly
impact the damages calculations you made, right?
A. Well, if the court or the jury decides that SCO does
not have a case then, yeah, there won't be any damages.
1405
Q. Just so we are clear, if it is determined that the UNIX
copyrights did not transfer to Santa Cruz Operation under
the asset purchase agreement, then you would agree that
there would be no damages, right?
A. So my damages were calculated in a world where SCO owns
the copyrights and Novell harmed them. So if you want to
get outside of that world then, you know, we are not in the
world that I calculated damages.
Q. Let me ask the question again. If it is determined
that the UNIX copyrights did not transfer to Santa Cruz
Operation, then you would agree that SCO has no damages,
right?
A. Well, SCO would not own the copyrights in that case, if
that is what you're telling me.
Q. Just so we are clear, you would agree that SCO had
suffered no damages, right?
A. Well, if they don't own the copyrights, then they
wouldn't incur damages.
Q. Now, your written report that you prepared in May of
2007 includes additional conclusions that you didn't present
yesterday, right?
A. Repeat that again.
Q. I would be happy to.
Your May 23rd, 2007 report that you prepared almost
three years ago, included various conclusions that you
1406
reached that you did not share with the jury yesterday,
right?
A. I was told that we were going to be discussing the
damages, and that is the portion of the report that I was
asked about.
Q. In fact, either yesterday or the day before, SCO's
attorneys told you not to present information other than
what you shared yesterday, right?
MR. HATCH: Your Honor, objection.
THE COURT: Sustained.
BY MR. BRENNAN
Q. Now, I am going to ask you to help me, if you might,
with a calculation.
Would you mind coming down to the board as you did
yesterday?
A. Sure.
Q. I have left a marker out front. You'll see the green
marker. I'm going to ask you to perform a calculation.
Just so that we are clear, what is before us is a summary of
the testimony that you provided yesterday, correct?
A. Correct.
MR. HATCH: May I move to where I can see?
THE COURT: Yes.
THE WITNESS: Except for the material on the other
board.
1407
BY MR. BRENNAN
Q. Just so we are clear, if the instruction that you were
given and the assumption that you made by SCO's attorneys,
namely that Novell had slandered SCO's title, isn't
accurate, then what number would you put on this board in
terms of the amount of damages that SCO would have suffered?
A. So you're saying if the assumption is that Novell did
not slander the title --
Q. Slightly different. If the instruction that you were
given and the assumption that you were asked to make is not
true, that is that Novell transferred ownership of the
copyrights, and Novell slandered title, if either of those
turns out not to be accurate, what would your calculation
number be for damages suffered by SCO?
A. Okay. I just want to make sure that --
Q. Please.
A. You're asking me to assume that SCO does not own the
copyrights and Novell did not slander the title? Is that
what you're saying?
Q. Let me say it a third time and I apologize.
A. Yes. I'm having a hard time.
Q. I will try to do better.
You have been asked to assume by SCO's attorneys that
the copyrights to UNIX transferred to Santa Cruz Operation,
right?
1408
A. Yes.
Q. That is assumption number one.
A. Correct. What do you want me to assume from that one?
Q. Just listen to me for a minute, if you would.
That is the first instruction you were given, right?
A. Right.
Q. The second instruction that you were given is that
Novell slandered SCO's title to the UNIX copyrights,
correct?
A. Correct.
Q. Now, if either of those assumptions and instructions
turns out to be inaccurate, what is the amount of damages
that you would write down on this board suffered by SCO?
A. Again, I mean, it sounds to me like what you're saying
is that if you want me to assume that the copyrights did not
transfer, okay, and Novell did not slander the title --
Q. Either one of those.
A. Either one. Do you want to do all the different
scenarios?
Q. Well, let's start first with this. If the UNIX
copyrights did not transfer to Santa Cruz Operation, what is
the amount of damages that SCO suffered in this case?
A. So if we knew for sure -- does the entire market know
for sure?
Q. I'm just asking you to --
1409
A. But you have to give me some context for this new
but-for world. Are you telling me that not only does SCO
and Novell know that the copyrights didn't transfer, but the
entire world knows that the copyrights didn't --
Q. Let's make that assumption.
A. If you want to make that assumption, then it is the
same problem that we have after Novell slandered the title,
which is a company can't charge a licensing fee for an asset
that they don't own. In that case, if that is the world
that you want to create which, of course, is not the world
that we are living in, but if you want to create that world,
then they don't own the copyrights, no one would wants to
buy a SCOsource license, in which case there wouldn't be any
damages, but we also wouldn't be sitting in court discussing
this.
Q. So what is the number you would put down assuming the
assumptions that I just gave you? What would the damage
number be?
A. It would be zero in that case.
Q. Do you mind writing that down so that we can make sure
that we have that.
Thank you.
That is the only calculation I needed you to do at this
juncture.
MR. BRENNAN: Your Honor, with your permission may
1410
I move the easel?
THE COURT: Yes.
MR. BRENNAN: Thank you.
BY MR. BRENNAN
Q. Just so that we can understand what we have just been
talking about, the conclusions that you have reached and
presented to the jury are functions of the assumption that
you are asked to make, right?
A. As is typical in damages analysis, if you're going to
compute damages you have to assume that something bad
happened. So, yes, it is definitely a function of that
assumption that a bad thing did happen.
Q. And without that assumption you would not be able to
reach the conclusion that you presented to the jury,
correct?
A. Well, if nothing bad happened then there wouldn't be
any damages. That seems fairly obvious.
Q. Now, you were asked by Mr. Hatch yesterday some
questions about your qualifications, and I would like to
follow up with you a bit about some of those. You told us
yesterday, if I heard correctly, that your areas of
specialty are financial statement analyses and corporate
reporting strategy, correct?
A. That is correct. Well, financial reporting and
financial statement analysis, yes.
1411
Q. Mr. Hatch showed to us yesterday your curriculum vitae.
I think he used C.V.
Do you remember that?
A. Yes.
Q. You understand that is short for curriculum vitae?
A. Yes.
Q. I think that is Latin for life story, something like
that?
A. Could be.
Q. Maybe that is another word for resume, right?
A. Uh-huh.
Q. Correct?
A. Yes.
Q. In your curriculum vitae, and based upon what you told
us yesterday, is it correct that most of your time in an
academic environment is spent with issues of financial
statement analyses and corporate reporting strategies?
A. That is correct.
Q. Now, to your knowledge in this case there is not an
issue about financial statement analyses, correct?
A. Well, no, that is not true. I mean, my expertise in
financial statement analyses is critically important in my
ability to do the lost profits analysis, because to do a
lost profits analysis you need to be able to analyze
financial information and model financial outcomes. Those
1412
are all skills that are within that realm of financial
statement analysis expertise.
Q. Let me see if I understand this correctly. You
essentially relied on two sorts of documents in reaching
your conclusions. One were stock market trader analyst
reports, right?
A. I did rely on analyst reports, that is correct.
Q. The other were internal projections by SCO, right?
A. Those are two of the very small subset of documents
that I had to rely on and use in coming up with my
recommendations, yes.
Q. Would you agree that the stock trader analyst reports
are not financial statements?
A. Actually I would disagree to -- with financial
statement analysis, that name is a bit of a misnomer.
Really it is financial information analysis, might be a
better way of describing what that area of expertise is. I
don't limit myself, you know, and if it is financial
information, and it just does not happen to be written on
the face of the balance sheet, that does not mean that I
wouldn't understand that information.
The analyst report that I examined was chock full of
financial information and I analyzed it.
Q. I think my question might have been a little different.
Let me try it again.
1413
You know what a financial statement is, right?
A. I definitely do.
Q. The stock market analyst report is not a financial
statement, is it?
A. It is a document that conveys financial information.
Within that document there were financial statements. There
was also additional information.
Q. Were the stock market analyst reports audited financial
statements?
A. No.
Q. The SCO projections, those were not financial
statements, were they?
A. Again, you know, none of this is relevant. They are
definitely -- they are not financial statements by
definition. They are projections. They are financial
information.
Q. You also mentioned that the other area of expertise
that you have is corporate reporting strategies, right?
A. That is correct.
Q. That would include things like filings with the
Securities and Exchange Commission?
A. That would include filings with the Securities and
Exchange Commission.
Q. And you're aware that publicly traded corporations that
may be regulated by the United States Securities and
1414
Exchange Commission are required by law to file an annual
report with the S.E.C., correct?
A. That is correct.
Q. Those are called, in short terms, a 10-K, right?
A. That is correct.
Q. You're also aware that publicly traded corporations are
also required by law to submit quarterly reports to the
S.E.C., and those are called 10-Qs, correct?
A. That is correct.
Q. You're aware as well that if there is a material
development effecting a publicly traded corporation, that by
rule and regulation from the Securities and Exchange
Commission that publicly traded corporations are required to
submit within a certain time period after the material
development a form that the S.E.C. calls an 8-K, correct?
A. That is correct.
Q. And in your work dealing with corporate reporting
strategies, you're familiar with those sorts of S.E.C.
filings, correct?
A. I am.
Q. Have you reviewed the S.E.C. filings whether 10-Ks or
10-Qs or 8-Ks made by SCO Group, Inc.?
A. I did examine the 10-Ks. I examined the 10-Qs. I am
not at this point, three years later, I don't recall if I
looked at every single 8-K that they filed.
1415
Q. For what time period did you review either the 10-K,
which is the annual report, or the quarterly 10-Q reports,
or periodic 8-K reports for SCO?
A. For SCO I know that I looked at the 10-Qs from at least
2001 through 2004. For the 10-Ks, I looked at quite a few
years of those as well. I can't say I read every single
one, which is this big, from cover to cover, but I did use
parts of them.
Q. Now, yesterday when you made your presentation to the
jury, you included damage amounts for each of the years of
2003, 2004, 2005, 2006 and 2007, right?
A. That is correct.
Q. Did you look at SCO's public filings whether 10-Ks or
10-Qs or 8-Ks for each of those five year?
A. I believe that I looked all of the 10-Ks from all of
those years. I am not sure that I looked at all the
quarters from all of those years.
Q. As you sit here in court today, you have had the
benefit of looking at least at the annual reports filed by
SCO in connection with the years 2003 through 2007?
A. I have.
Q. Have you, to your knowledge, looked at most of the
quarterly or 10-Q reports?
A. Like I said, with the quarterlies I distinctly remember
that I collected data from the quarterly reports from 2001,
1416
I think it was, through 2004. I would have to go back and
check my report to confirm whether it was '04 that I -- that
is my best recollection, the best I can do.
Q. Was the information that you saw in those public
filings information that you took into consideration in
forming your opinion that you shared with the jury
yesterday?
A. Yes.
Q. Now, we have talked a little bit about the work that
you have done in this case where the SCO Group, Inc. is
suing Novell, but you have also been asked by SCO's
attorneys to do work for them in another case for SCO,
right?
A. That is correct.
Q. That is the case against I.B.M., right?
A. That is correct.
Q. When were you first engaged to do work by SCO's
attorneys in the I.B.M. case?
A. That one I don't remember exactly. It was before
Novell. It must have been either 2006, 2005, somewhere in
that time frame.
Q. So your recollection is you began work for SCO's
attorneys as early as 2005, right?
A. Actually I think I might be able to tell you with
certainty on that one.
1417
Q. Thank you.
A. I should have a date. 2005.
Q. Have you been paid the same hourly rate by SCO's
attorneys in the I.B.M. case as you have been paid in the
Novell case?
A. I don't recall.
Q. Do you have any reason to believe you were being paid
more or less in the litigation against Novell than in the
litigation against I.B.M.?
A. No.
Q. How much have you been paid to date for your I.B.M.
work?
A. I have not been working on that case in quite awhile,
so I really don't recall.
Q. Do you have an estimation as to how much you have been
paid for the work that you did do?
A. I don't recall. I'm sorry. It has been quite awhile
since I had any dealings with that case.
Q. Now, looking at your C.V. that Mr. Hatch showed you
yesterday, there are a number of publications that are
identified in your curriculum vitae, right?
A. That is correct.
Q. None of those publications have to do with the issue of
a lost profits analysis, do they?
A. Not directly. That is not the type of thing that an
1418
academic would research.
Q. You're telling me that an academic would not research
lost profits issues?
A. Not in an academic research context. I think often
there is a misunderstanding about what we do in academic
research.
Q. Are you aware of any academicians who have written on
the subject of lost profits damages or analyses?
A. From an academic perspective as opposed to a
practitioner perspective?
Q. Yes.
A. So running an analyses, scientific based analyses on
lost profits, no. I would say no, I am not aware of any.
Q. Have you been to the University of Utah's law library
to look at academic works on lost profits analyses?
A. Well, the law research is very different from
accounting research.
Q. You certainly have never written on that topic, have
you, that is lost profits analyses?
A. I have not.
Q. None of the articles that you have written address the
subject of the correct methodology to determine a proper
calculation for lost profits analyses, have they?
A. Well, you know, I would say that my expertise comes not
from the academic research that I have done, but from what
1419
we discussed earlier, which is the expertise that I have in
financial statement analysis and financial accounting, which
comes more from the teaching side of my experience.
Q. So your answer to my question would be what?
A. I'm sorry. I thought I answered it.
Do you want to repeat the question?
Q. I will do my best to try.
Is it correct then that none of the articles that you
have written address the issue of the correct methodology
for calculating and determining lost profits?
A. Okay. I believe that I agreed to that statement, but
just wanted to make the point that that is not where I
purport my expertise comes from.
Q. Now, you do not consider yourself to be an expert in
computer programming, right?
A. No.
Q. You do not consider yourself to have been educated or
have experience in computer technology or computer operating
systems, right?
A. No.
Q. You don't consider yourself an expert with respect to
what is known as the Linux operating system, do you?
A. No.
Q. You don't consider yourself to be an expert with
respect to the UNIX operating system, fair?
1420
A. That is all fair. I consider myself to be an
accounting expert.
Q. You're not familiar with computer operating system
markets, are you?
A. I am an accounting expert so, no.
Q. You don't consider yourself to be an expert with
respect to issues involving computer software licensing, do
you?
A. I am an accounting expert not a computer expert.
Q. You have never been directly involved in any issue
involving the licensing of computer software, have you?
A. Again, that was not why I was hired and that was not
the expertise that I was asked to have. No.
Q. You don't consider yourself to be an expert with
respect to intellectual property, correct?
A. Well, that depends on what aspect of intellectual
property you're asking me about.
Q. Okay. Let me --
A. For a damages analysis, I would disagree with that
statement.
Q. For example, you don't consider yourself to be an
expert with respect to patents, correct?
A. I am not a patent expert, no.
Q. You don't consider yourself to be an expert with
respect to copyrights, fair?
1421
A. That would be fair.
Q. Nor do you consider yourself to be an expert with
respect to trademarks, correct?
A. Correct. There are a lot of things I'm not an expert
in. I am an expert in accounting and financial analysis.
I wish I was an expert in tons of stuff. That would be
great.
Q. Now, before you were asked to prepare the expert report
that you did in this case, you in your career had only
previously prepared one other expert report, right?
A. That is true. I mean, I think I made the point before
during my direct that I don't do a lot of expert witness
work. But that said, you know, I do feel that I have the
expertise to do it based on my education and background.
Q. I don't want to belabor the point, but just so we don't
lose the answer, I asked you whether or not it was true that
the only expert report that you had done previous to the one
in this case was one another one, right?
A. The only lost profits analysis or the only expert
report?
Q. The only expert report that you have done before this
case was one other, right?
A. That's not true.
Q. Okay. Let me just see if I understand.
You prepared the expert report in this case in May of
1422
2007, right?
A. You mean -- sorry. I thought you meant to this point.
At the time that I prepared this expert report I had done
two others, I believe, but let me just check.
Q. Well, isn't it correct that the only other one you had
done was in the case of LifeWise versus eTrade?
A. Let me just see. There was the Freightliner versus
Dick Simon Trucking, which would have predated that as well,
the SCO Group versus I.B.M., and then LifeWise, so there
were three.
Q. Now, let me have you focus on the LifeWise case. Do
you recall your deposition was taken in that case?
A. I do.
Q. Do you recall in that deposition that you acknowledged
that you're not an expert in terms of business valuation
issues.
A. So if you could get me the actual quote, I don't
believe that that is what I said.
Q. I believe that in front of you is a copy of your
deposition taken in this case on February 5th of 2010.
In particular, if you would --
A. Where am I supposed to be? Is it in this pile or this
pile?
Q. Dr. Botosan, I think, if I may help, to your left are a
series of files, and I think you'll find the depositions
1423
that you have given. I don't want to disrupt your papers
here.
A. That is okay.
Q. There we go.
A. Direct me to the specific quote that you're asking me
about.
Q. Yes, I would be pleased to.
What I'm going to ask you to do is look at page 26,
line 17, through page 27, line 9. As you do that, do you
recall that your deposition was taken in this case about
five weeks ago?
A. I do.
Q. Do you recall at that deposition stating that in
connection with a previous matter that you felt that you
were not in a position to be hired as an expert to deal with
business valuation issues?
A. What I recall from my deposition and saying after I had
been asked about this, and in an out of content fashion, was
that at the time that this particular case came about it was
the first one that I had ever worked on. When I said that I
didn't feel prepared to do a damages analysis in this
specific example, there were a number of reasons why that
was the case, not the least of which that I had been brought
into the case sort of last minute.
Q. Now, you have never taught a course regarding damages
1424
issues, have you?
A. I have not. Well, I have taught courses that do
financial statement analysis, which is a big part of doing a
damages analysis. I have taught many courses that require
the skills and abilities that I bring to bear when I do this
sort of an analysis.
Q. Is it fair that you have never taught a course dealing
with lost profits damages?
A. Well, you know, I have not taught a course where I have
taught my students to do a damage analysis. I have taught
many courses where I have taught them to do the type of
analyses that I do in a damages analysis.
Q. Now, the opinion that you expressed to the jury
yesterday is dependent upon analyses done by Dr. Gary
Pisano, correct?
A. Could you repeat that question again?
Q. Yes. I would be pleased to.
The presentation that you made to the jury yesterday
and the conclusions that you communicated, those are
dependent upon analyses done by Dr. Gary Pisano, correct?
A. They incorporate some of the analyses that Dr. Pisano
did. They are not dependent on Dr. Pisano's analysis.
Q. You had a chance to sit in the courtroom yesterday and
listen to Dr. Pisano's testimony, correct?
A. I did.
1425
Q. And you rely upon the opinions of Dr. Pisano, correct?
A. As I said, they were incorporated into my analyses.
Except for one piece of my analyses I do rely on his
opinions.
Q. You understood from what Dr. Pisano has said, including
what he said yesterday in court, that he relies upon web
based surveys, correct?
A. That was one of the pieces of information that he uses
in his analysis, correct.
Q. As you understood Dr. Pisano's opinions that you relied
upon, you understood that Dr. Pisano himself did not conduct
the surveys, right?
A. That is true. I understood from his testimony that
using his expertise and following standard procedures, he
did the analysis of the market based on the web based
surveys that were available to him.
Q. You have not conducted any surveys yourself, have you?
A. I have not.
Q. You did not participate in any of the surveys
referenced by Dr. Pisano?
A. I did not, no.
Q. You did not review the questions that were asked of the
participants in the surveys, have you?
A. I did not, no.
Q. You don't know what methods were used by those who did
1426
conduct the surveys, do you?
A. I think when you went through this with Dr. Pisano --
not you but the other layer went through this with Dr.
Pisano, I think that he was making the point that none of
this was relevant to a scientific based approach to doing
the market analysis. So while the answer to all of these
questions will be no --
Q. If we could just get the answer to the question, would
that be agreeable to you?
A. It would be, but I think it is important for the jury
to understand --
THE COURT: Dr. Botosan, I explained to you at the
beginning that you have an obligation to answer the
questions posed by the attorney as directly as possible, and
to the extent additional information is necessary, that that
will be elicited by your attorney on redirect.
THE WITNESS: Okay. Thank you. Sorry, Your
Honor.
BY MR. BRENNAN
Q. Let's go back to the question I asked. You do not know
what methods were used by those who conducted the surveys
relied upon by Dr. Pisano, is that true?
A. True, and it is not relevant.
Q. Now, being web based surveys there was no way to
control for a number of things such as, for example, the
1427
randomness of the response, correct?
MR. HATCH: Your Honor, objection. This is beyond
the scope and no foundation. She has already indicated this
is Dr. Pisano's analysis.
THE COURT: The Court will sustain the objection.
BY MR. BRENNAN
Q. Just so we are clear, your testimony, as you have told
us, relies upon Dr. Pisano's survey information, right?
A. So my testimony is that Dr. Pisano did the analysis
that I relied upon in my report. That is correct. I relied
upon his expertise.
Q. Have you done anything to corroborate or sustain the
validity of the surveys conducted by Dr. Pisano?
MR. HATCH: Same objection, Your Honor.
THE COURT: You may answer the question.
MR. BRENNAN: Thank you.
THE WITNESS: So that is kind of the point of my
triangulation analysis that I did, so the fact that the
forecast analysis that I did independently of Dr. Pisano,
and Dr. Pisano's analysis comes out to some numbers,
provides support for both of those analyses.
BY MR. BRENNAN
Q. Well, I think the question that I asked is that you did
not do anything to corroborate --
A. Well, that is the corroboration.
1428
Q. -- the reliability of the methodology used by Dr.
Pisano in the survey; is that correct?
A. I did not corroborate the methodology, but I did
corroborate the outcome.
Q. You don't consider yourself an expert in the
formulation or implementation of surveys, correct?
A. That is why I rely on Dr. Pisano.
Q. Your answer to the question --
A. No.
Q. Now, yesterday to the jury you presented a high end
number and a low end number.
Do you remember that?
A. Correct.
Q. And the so-called high end number is dependent upon Dr.
Pisano's analysis, correct?
A. That is correct.
Q. So if we were to focus on the work that you did, only
the low end number would be the based upon your own work?
A. That is correct. My independent work was based on the
forecast analysis.
Q. So would you agree that if for any reason Dr. Pisano's
analysis is not wholly accepted, then the high end number
would not be reliable? Correct?
A. That would be correct.
Q. Now, when --
1429
A. Actually, can I just add one thing to that, though?
That is that Dr. Pisano's high end number was within the
neighborhood -- if you remember when I went through the
analysis yesterday, there were three scenarios that I talked
about in the Deutsche Bank report, and Dr. Pisano's high end
number was very close not to the most optimistic outcome,
but to the second outcome. So there is, although I didn't
have that in my report, there is support in the Deutsche
Bank report for that number in terms of it being consistent
with that sort of middle scenario.
MR. BRENNAN: Your Honor, I move to strike, given
the witness's statement that it was not within her report.
MR. HATCH: Your Honor, it was clearly within her
testimony yesterday.
THE COURT: It was within her testimony yesterday.
MR. BRENNAN: Very well, Your Honor.
BY MR. BRENNAN
Q. Now, you have not spoken with any person that you
understood was a potential SCOsource licensee; is that
correct?
A. No, I have not.
Q. You didn't conduct any interviews to find out what the
feelings or viewpoints were of any persons who might be
candidates for a SCOsource license at any time, correct?
A. I did not, no.
1430
Q. You told us that you were first contacted by SCO's
attorneys in about February of 2007. Do you know when this
lawsuit was filed by SCO against Novell?
A. I believe it was January of 2004.
Q. So you were contacted a little more three years after
the case was filed, correct?
A. Yes.
Q. To your observation, given the fact that it had been
more than three years after the lawsuit was filed, SCO's
attorneys didn't come to you to consult with you to get
information about what theories they might present in the
lawsuit, right?
A. I did not have any conversation with them prior to
January of '07.
Q. So by the time they come to you, that is SCO's
attorneys have come to you, you understood that this lawsuit
was already three years in the making, right?
A. Correct.
Q. Now, if I could direct your attention to your report,
and in particular I would like to direct your attention to
that section of the report that is entitled Exhibit 1. It
covers pages 23 and 24. This is a list of documents that
you considered in forming your conclusions when you
submitted your initial report in May of 2007, correct?
A. That is correct.
1431
Q. And among the documents that you looked at was the SCO
Group second amended complaint filed in this case, correct?
A. That is correct.
Q. And you also look at Novell's answer to that complaint,
right?
A. Correct.
Q. And you also looked at a document entitled memorandum
in support of Novell, Inc.'s motion for partial summary
judgment or preliminary injunction, correct?
A. That is correct.
Q. I think you told us earlier that in addition to those
specific documents and pleadings filed in this case, that
you also had access to the other pleadings that had been
filed, that is the submissions by the attorneys representing
the parties as well as court rulings and orders, correct?
A. So everything that I have looked at is listed here.
Q. You had access to additional information, correct?
A. Well, I mean, I had access to it. I mean, I had access
to the whole database. Everything that I looked at is in
this list.
Q. What information did SCO's attorneys provide in terms
of documents when they first asked you to help them in this
case against Novell?
A. That was a long time ago. Just basically off the top
of my head, what I would expect I did see at that point was
1432
the -- I don't remember the timing of some of these, and if
they happened after I started my report, but basically the
complaint that had been filed at that point in time, the
asset purchase agreement, the amendments, the technology
license agreements, so just some of the various agreements.
Then other documents that they had already located that I
would need in order to do my analysis.
Q. So was all of the documentary information that you
needed to do your work supplied to you by SCO's attorneys?
A. No. So they gave me kind of what they had already
collected and then, as I said before, I collected some data
on my own as well, either through accessing the database or,
you know, checking things out on the Internet and just
trying to find data myself.
Q. When you said that you checked things out on the
Internet, what sorts of things did you look for on the
Internet?
A. One of the things that I did was I did a key word
search looking for press releases or newspaper articles that
were written during this time period. I tried to find any
references that I could to analyst reports that had been
produced.
Q. When you're doing these Internet searches, did you use
a string of key words or search terms?
A. Generally, yeah.
1433
Q. Words like Novell?
A. Novell would be one.
Q. SCO?
A. SCO.
Q. Copyrights?
A. In the content of Novell and SCO, yes, not just
copyrights.
Q. And as a result of doing those sorts of searches, you
came up with a large body of information, right?
A. Correct.
Q. Did you look at the information that you found?
A. I tried to, yes.
Q. Now, did SCO's attorneys ever instruct you not to look
at anything?
A. No. Never.
Q. They didn't tell you to ignore or not pay attention to
any of the publicly available information that you either
were given or that you could find through searches?
A. No, they did not.
Q. Now, you're aware that developments regarding both
SCO's case against I.B.M. and SCO's case against Novell had
been broadly reported in the press, right?
A. That is true.
Q. And you had the understanding that those who were
involved in the computer software market likely also had
1434
been following the developments in this case, right?
A. I suspect that they are aware of them.
Q. Would you expect that those who are in the computer
software industry would be watching developments in this
case?
A. I would say definitely to the point that they are
publicly reported. To the point of sitting down and
actually reading legal briefs, that one I am not so sure
about.
Q. To your expectation, those individuals who are in the
computer software market, would include those who would be
users of Linux, right?
A. Potentially.
Q. And you would expect that those who use Linux would
likely follow developments in this case that are broadcast?
A. That are publicly broadcast, yes.
Q. Would you also expect that those in particular who may
have been the subject of demands by SCO, with respect to the
request that Linux users pay a royalty or a license fee to
SCO under the SCOsource license program, would follow
developments in this case?
A. I think that is fair.
Q. Do you believe that those who would follow developments
in the case would be influenced by those developments?
A. Well, I guess it would depend on whether the
1435
development you're referring to provided new information. I
mean, I think that they would be aware of what was going on
and would take that into consideration in their decisions.
Q. In fact, would you expect that those who would be
watching developments in this case, if there was new
information, that that would play a role in the decision on
their part as to whether or not to accept SCO's demand that
they pay a license fee?
A. I think that they would take all of the information
into consideration when they are making that decision.
Q. You have mentioned analyst reports. In fact, you found
analyst reports on the Internet, correct?
A. You know, I'm trying to remember where I got them from.
It is kind of hard sometimes to find analyst reports on the
Internet because they are not always publicly available. I
don't recall if I found the Deutsche Bank report on the
Internet or if it was in the database, for example.
Q. Thank you for raising that. I want to focus on that
for a minute.
You have relied upon certain Deutsche Bank reports,
right?
A. That is correct.
Q. Were you provided those or did SCO's attorneys give
those to you?
A. As I recall, when I came to the decision as to how I
1436
was going to go about trying to construct the but-for world,
I asked the attorneys if they knew if there were any
forecasts that were available. They searched the database
and I searched the database and found whatever we could.
There was some internal scope forecasts, there was an R.R.G.
forecast, there was Deutsche Bank forecasts.
Then I also did my search of the Internet but, like I
said, not much comes up on the Internet because generally
investment banks want to sell those forecasts. They are not
giving them away for free. They don't just post them on the
Internet. It depends on the investment bank.
Q. The Deutsche Bank reports in particular, were those
provided to you by SCO's attorneys or did you independently
find them?
A. I don't recall if -- they responded to my request for
forecast.
Q. You mentioned this database or data bank. What is
that?
A. It is just that there is so much material in this case,
that the attorneys have it all set up in a database that you
could key word search.
Q. So SCO's attorneys have set up some sort of database,
right?
A. Yes.
Q. They have given you access to that, correct?
1437
A. I had access to it. I have not accessed it recently,
but --
Q. Was this some sort of password that you were given so
you could go on the Internet and get access to this database
of computer recorded documents?
A. If I recall, there was some sort of F.T.P. protocol
that I had to get on my computer so that I could get in and
get access.
Q. You don't remember whether the Deutsche Bank analyst
reports were on that database or not?
A. I don't recall.
Q. Did you contact Deutsche Bank and ask for any analyst
reports regarding SCO?
A. I did not.
Q. Now, you're aware that in addition to Deutsche Bank,
there were other analysts and stock market traders who
provided reports regarding SCO, right?
A. Yes.
Q. I think you mentioned R.G.?
A. R.R.G.
Q. Excuse me. R.R.G.
Who or what is R.R.G.?
A. Renaissance Research Group. It is another group of
analysts that provided some forecasts.
Q. Were there other analysts that provided forecasts?
1438
A. There was also the one that Mr. Musika liked to use,
which is an analyst from Decatur Jones.
Q. When you say Mr. Musika likes to use, you understand
that Mr. Musika is an individual by the name of Terry
Musika, right?
A. I do.
Q. You understand Terry Musika to be an expert witness
that has been retained by Novell to challenge, as it were,
some of the conclusions that you have reached, right?
A. I do.
Q. And you learned about other analyst reports when Terry
Musika presented his opposition or rebuttal expert report,
correct?
A. The Decatur Jones report, that is true.
Q. Before you got Terry Musika's report in opposition or
rebuttal to your positions, you were not aware of these
Decatur Jones reports?
A. No, I was not.
Q. They were not in SCO's attorneys' database?
A. They were not. Decatur Jones is a very, very small
firm and not well known or widely publicized. That was not
something that came up, for example, when I did my Internet
search and they were not available.
Q. Are you familiar with an entity known as Blaylock,
B-l-a-y-l-o-c-k, and partners?
1439
A. That name does not sound familiar.
Q. I take it you have never reviewed analyst reports
prepared by Blaylock?
A. I do not believe so, no.
Q. Are you familiar with an entity known as Kaufman
Brothers?
A. I am as of this morning.
Q. How so?
A. I saw a reference to that name, but prior to that I was
not.
Q. I take it you have never reviewed any reports by
Kaufman Brothers, fair?
A. No.
Q. Are there other analyst reports that you reviewed other
than those I have referenced this morning in connection with
SCO?
A. So I reviewed the internal forecasts, Deutsche Bank
forecasts, the R.R.G. forecasts, the Decatur Jones forecasts
after they were brought to my attention by Mr. Musika.
Q. Now, you would agree that one of the reasons that some
Linux customers chose not to enter into SCOsource licenses
was because of a concern that SCO could not prove that Linux
infringed UNIX, right?
A. That is true. That is incorporated into my analysis.
Q. Now, you talked about a but-for world, and I would like
1440
to focus for a moment on a different kind of world, the real
world. I would like you to focus your attention on a
particular time period. I would like you to focus your
attention on the period from June 6th of 2003 until December
22nd of 2003.
Do you have that time period in mind?
A. Okay.
Q. You're familiar generally with those dates, aren't you?
A. I am.
Q. During that time period, and let's see if we can back
up and see what those two bookends might be. You're aware
through your work in the case that there is a claim by the
SCO Group that on June 6, 2003, that Mr. Jack Messman, then
the chief executive officer of Novell, issued a statement
suggesting that there was a question as to whether Novell
had in fact not transferred copyrights, correct?
A. That is correct.
Q. You're also aware that on December 22nd, 2003, a little
more than six months later, is a date that had some
significance in this case, because the suggestion has been
by SCO Group in this case that on December 22nd Novell made
public statements or the publication of information stating
that in fact it did own the UNIX copyrights without
question, correct?
A. Yes.
1441
Q. Those are the two bookends, June 6, 2003 to December
22nd 2003.
A. Correct.
Q. I'm going to refer to that time period, and this is a
word of my choice, as the quiet period. The reason I choose
that term is because that was a period, at least based on
what we have heard in court, that there were not
publications made --
MR. HATCH: He is testifying. Is there a
question?
MR. BRENNAN: There will be. I am just trying to
define the terms, Your Honor.
THE COURT: Go ahead.
BY MR. BRENNAN
Q. Again, I was talking about why I used the term quiet
period to define that time period between Novell's public
statement on June 6th regarding copyright ownership and
December 22nd regarding copyright ownership.
A. Okay.
Q. Now, did you factor into your analysis, in the real
world, whether or not any of the individuals who might be
potential SCO licensees entered into SCOsource licenses with
SCO during that time period?
A. I did.
Q. Were there any licenses that any persons entered into
1442
with SCO during that time period?
A. There were.
Q. How many?
A. So during that time period the only program that was up
and running was the vendor license program. If you recall,
and I think my numbers are gone now, but for 2003 there was
no revenue forecast for the R.T.U.s. The only revenues that
were forecast were for the vendor license revenues. During
that time period there was the Sun and the Microsoft
agreements.
Q. Let me see if we understand each other. You referenced
a Sun agreement, and that was entered into in February of
2003, right?
A. Correct.
Q. You also referenced a Microsoft agreement, right?
A. Correct.
Q. That was entered into in May of 2003, right?
A. Correct.
Q. So the time period I would like you to focus on is a
different time period, June 6th, 2003 through December 22nd
of 2003.
A. Okay.
Q. Do you have that time period in mind?
A. Okay.
Q. During that time period did SCO enter into any
1443
SCOsource licenses?
A. I don't remember if the Computer Associates agreement
was during that time period, but there were no others to my
knowledge, any other big vendor licenses that happened
during that time period. The R.T.U. license program had not
really started at that point.
Q. Let me focus on what you call this R.T.U. license. I
think you told us yesterday that that is an acronym for
right to use; is that correct?
A. Right.
Q. During this June through December time period, you're
not aware of any right to use licenses being entered into?
Is that what I understood you to say?
A. That there were not any forecasted for that time
period, and that there were not any entered into because the
program was just getting stated.
Q. Now, when did SCOsource announce the right to use
program?
A. I believe that was in August.
Q. Your testimony is that you believe that the
announcement of the SCOsource right to use program was not
even announced until August of 2003?
A. The R.T.U. for the end user Linux group? It was in
that time frame. I don't remember exactly, but it was in
that time fame.
1444
Q. Let's just assume that the right to use license program
was not announced until August of 2003. Let's then shorten
the time period we're looking at and focus on August of 2003
and until December 22nd of 2003. That is a about a four
plus month period, right?
A. Correct.
Q. Did SCO enter into any R.T.U. licenses during that
period?
A. Can I just check my report for one second?
Q. Sure. Whatever you would like to look at.
A. According to the numbers, the data that I have
collected in my report, there were no R.T.U. license
revenues through October of 2003, which was their 2003
fiscal year end.
There were R.T.U. license revenues recorded in the
first quarter, end of January of '04, which would have been
November, December and January. I can't say that there were
none in November and December, which are two of the months
you're asking about. I can say that there were none that
were recorded through October of '03.
Q. Since you have the materials in front of you, let's
focus on the first fiscal quarter of 2004, which would be
November 1st, 2003, through January 31st, 2004, right?
A. Correct.
Q. What was the amount of revenue indicated for SCOsource
1445
licenses, R.T.U. licenses during that time frame?
A. During that time period, which was when they were just
getting going, was 20,000.
Q. Let me see if I understand this correctly. We have
looked at a time period, June 6, 2003 when Novell made a
public statement, that has been at least suggested in court,
as withdrawing its claim of ownership to the UNIX
copyrights. That has been the suggestion?
A. Correct.
Q. And December 22nd of 2003 when Novell publicly asserted
that it did in fact own the copyrights?
A. Correct.
Q. During that time period, and if we could spill over
another month into January of 2004, during that time period
when there are no public statements by Novell claiming
ownership to the UNIX copyrights, SCO was only able to sell
about $20,000 worth of R.T.U. licenses?
A. Well, during that time period SCO was just getting
started with the program.
Q. Your answer to my question is what?
A. My answer to your question is that they were just
getting started with the program. They were just getting
ramped up, so they were in the process of starting the
program. There was no expectation -- I think this is
important to point out -- there was no expectation at that
1446
point in time by either internal to SCO or external analysts
as of October -- when was the forecast -- October 14th was
the Deutsche Bank forecast -- there was no expectation by
anybody at that point that they were going to have R.T.U.
license sales, because they were just starting up the
program.
Q. Did someone from SCO tell you they had no expectation
that they would sell any SCOsource licenses until sometime
in 2004?
A. That is what is incorporated into the forecast. We
didn't discuss it in those terms, but that is what the
numbers convey.
Q. Let me ask you about your discussions that you have
had. Have you ever talked with Darl McBride?
A. I have on occasion, yes.
Q. Have you ever asked Mr. McBride what he expected would
be the revenue from the sale of SCOsource licenses from the
time of the announcement through the end of January of 2004?
A. I did ask him about the forecasts that were internal to
SCO.
Q. Did he tell you that he did not expect to sell a single
license from that time period?
A. I am not sure that it was Mr. McBride that I had this
conversation with, or if there was somebody else from SCO
that I had conversation with about the SCO forecasts, but
1447
what they conveyed to me at that point in time is they were
only forecasting revenues for the vendor license stream.
Q. Let's talk about this SCOsource R.T.U. license program.
A. Okay.
Q. You understood that to be a new venture for the SCO
Group, right?
A. I understood it to be a new product line, a new product
they were adding to their mix.
Q. And you consider that to be a new business, right?
A. No, I don't.
Q. Let's back up. Had SCO ever previously offered a
license to Linux users that would protect them against
claims of infringement of the UNIX copyrights?
A. As I said, that was a new product that they were
offering.
Q. It had never been offered before, right?
A. They had offered -- they have always made their money
off of their intellectual property. This is another product
within that realm of ways of making money.
Q. Prior to the announcement of the vendor license
agreement, you're not aware of that license agreement
prevoiusly being offered by SCO, right?
A. The vendor license?
Q. Right.
A. Is that what you're asking me about?
1448
That is correct. I have already testified that these
are new products they were offering.
Q. So both the vendor license program and the right to use
license program, you call them new products, right?
A. Correct.
Q. Was the SCOsource right to use license a product?
A. Yes. I consider it a product.
Q. Now, for example, was there something that was actually
physically produced?
A. Well, to me you don't have to physically produce
something to provide a product. I mean, you know, an expert
witness provides a product in a way when we offer our
expertise, but that is not necessarily something physical.
Q. Wasn't the right to use license program a promise by
SCO that it wouldn't sue people for infringement of the UNIX
copyrights if they paid SCO a certain amount of money?
A. My understanding is that those were the licenses, that
in return for the upfront fee the customer received the
right to use the infringing code that was in Linux.
Q. Actually, the so-called license was a promise, a
contractual promise by SCO that it would not sue a Linux
user on the basis of a claim that Linux contained UNIX,
right?
A. I think that is the value to the customer. That is
what they are receiving.
1449
Q. That is the so-called product, right?
A. Yes.
Q. Now, would you agree that a new product, and in order
to make projections regarding its performance, is evaluated
and valued differently than a long running product?
A. I would say that the methods that you would use in
wanting to assess the market potential would be different.
Q. As we have talked about it, the SCOsource licensing
program or the vendor license aspect or the right to use
aspect was a new business or product, as you put it, right?
A. A new product, yes.
Q. You don't consider the SCOsource business to be a
start-up?
A. I do not.
Q. Do you consider it to be a long established business?
A. I view it as a natural extension of the business that
SCO had been involved in for years.
Q. Now, the business that SCO had been involved in for
years, let's talk about that. The SCO Group, Inc. had been
in business for how long prior to its announcement of the
SCOsource license program?
A. Well, the company had changed names over a number of
years, so as far as I know it went back to the 1990s, but I
could check and see.
Q. If you would. Is there something in your report that
1450
will tell how long --
A. I think I recall --
Q. -- they had been in business?
A. Back in the discussion of the history -- let's see. In
September, 1995, Novell and Santa Cruz entered into the
asset purchase agreement and --
Q. Just so we can be clear on the question, how long had
the SCO Group, Inc., or if it previously had been named
something else like the Caldera Group, how long had that
company been in business?
A. It depends on sort of how far back you want to go.
Q. As far back as you're able.
A. Santa Cruz was kind of the beginning and was back in
1995. Then there was some changing of hands or parts of
that business that ultimately resulted in the SCO Group,
Inc.
Q. I apologize if I am being less than clear and I will
try to do better.
I want you to focus on the plaintiff in this case, an
entity known today as the SCO Group, Inc. You are familiar
with that entity?
A. Yes.
Q. Have you been told that before it was called the SCO
Group it had been known by the name of Caldera?
A. Correct.
1451
Q. Do you know when Caldera, now known as SCO Group, first
stated?
A. I know that they purchased the software and the
professional services division from Santa Cruz in 2001.
Q. Is that when you believe Caldera started?
A. I don't know if Caldera had operations prior to that,
but I thought we were talking about the operations that
ultimately became the SCO Group.
Q. What I'm trying to find out from you is essentially
this: You have suggested today that the SCOsource license
program was not a new business but instead a new product,
right?
A. Correct.
Q. And you believe that the factors that one must apply to
value a new product must be different than that which would
be applied to a new business or start-up, right?
A. Yes. That the methods that you would use to determine
what you think you can sell would be different.
Q. So you draw a distinction between a new product and a
new business, right?
A. Well, what I'm drawing the distinction between is when
you have the historical data versus when you don't.
Q. Because if you don't have historical data you can't
reach the same conclusions about the future, right?
A. You can't use the same methods to reach your
1452
conclusions about the future.
Q. So if you don't have historical data or performance
data in the past, you have to use different methods to try
to calculate what the future might look like, right?
A. Right. You would probably to a market analysis.
Q. For a start-up?
A. Yes.
Q. So if you were trying to evaluate a new business rather
than an established one, you would use a market analysis to
evaluate the prospects for the new business, right?
A. Correct, because you wouldn't have the historical data
to rely on.
Q. And using projections would not be a valid method for
evaluating a new business, right?
A. Absolutely not true.
Q. Absolutely not true?
A. Absolutely not true.
Q. So if you had a new business, a start-up, and it had no
historical record, there was no past runway to look at, what
methodology would you use to project the future for that
start-up business?
A. Then using sort of what firms do all the time when they
get involved in new product lines and need to forecast the
future, is they would do an analysis very similar to what
Dr. Pisano did. They would say how big is the market? How
1453
much of that market can we capture? They would use that
information to generate their forecasts.
Q. If I understand what you're saying, for a new business
you would do something like Dr. Pisano did to try to project
the future, right?
A. Yes. That would be the way I would go.
Q. Whereas if you had a long established business that had
historical performance to look at, you would use a different
methodology to try to project the future, right?
A. Well, actually if I had historical data I would
probably do both. You know, I am a firm believer that we
want to use all of the data that we have available and then,
you know, using all of that data to see if we come out to
similar answers. It just provides you with much more
comfort.
Q. If you had an established business, you would want to
look at its past to predict the future, right?
A. That would be one thing that I would look at as well as
market analysis.
Q. Now, with the SCOsource license program, whether it be
the vendor license program or the R.T.U. license program, it
had no previous history to look at, right?
A. That is correct. So that is why you'll see that I
didn't attempt to do that kind of analysis.
Q. You would have to do what you call a market analysis
1454
for that sort of business, right?
A. That would be the best approach, yes.
Q. Now, you don't think that the SCOsource program is a
new business, right?
A. It is a new product, as we talked about before, but the
issue is the same. You don't have historical sales data for
SCOsource.
Q. You have stated in this case in deposition that you did
not consider the SCOsource product to be a new business,
right?
A. That is correct.
Q. Now, as you sit here today in court do you believe
that, in fact, the SCOsource license program was a new
business?
A. No. I viewed it as a new product line within their
existing -- within that existing business.
Q. Now, let's turn to the past of Caldera or the SCO
Group. Did you look at any of the performance data for the
SCO Group previous to the announcement of the SCOsource
license program?
A. Yes, I did.
Q. How far back did you go?
A. I believe that in calculating the -- in estimating the
costs I went back as far as 2001. Again, I can just check
real quickly, if you would like me to make sure.
1455
Good thing I checked. The first quarter of 2002
through the first quarter of 2007 was the data that I used.
Q. Let's look at, for example, 2002. What were SCO's
revenues for 2002?
A. I don't recall off the top of my head. If you can give
me their financials, I can tell you what they were.
Q. Did you look at the financials?
A. I did.
Q. Do you see that they had a loss?
A. Yes, they did.
Q. Did SCO also have a loss for 2001?
A. They did.
Q. What about 2000?
A. I believe from what I recall from reading, was that one
of the really positive things about the SCOsource program
was that it had allowed them -- I think it was referred to
in one of the documents -- their first profitable quarters.
I think that they had had a history of losses up until that
point in time.
Q. If one were to try to make projections about the future
regarding a business, the SCO Group, and you believe that
was an established business, to project the future one would
want to look at the past, right?
A. For the SCO Group, yes, but that is not the issue in
question here, correct.
1456
Q. But the Deutsche analysis that you looked at was an
analysis of expected stock performance for the SCO Group,
right?
A. Well, the part of the forecast that I took and that I
emphasized involved SCOsource sales. That is what I was
looking at.
Q. Would you agree with me that the Deutsche analysis that
you looked at was in connection with the potential future
stock performance of the SCO Group, Inc.?
A. I would agree that that is what they looked at. I
would not agree that that is what I used from that report.
Q. You just went in and cherry picked something out of it?
A. Absolutely not.
Q. You looked at the entire analysis, right?
A. All 24 pages.
Q. Every bit of it?
A. Every bit of it.
Q. And you looked at all of the things that were said in
it, right?
A. I did.
Q. Going back to the SCO Group, Inc., if one were to look
at its historical performance to try to determine its
future, one would take into account that historical
performance, right?
A. If I wanted to try to forecast for the SCO Group, but
1457
that is not what I was doing.
Q. You were not interested in forecasting the future for
the SCO Group, right?
A. I was interested in calculating lost profits for the
SCOsource program.
Q. Would you agree that prior to 2003 that SCO had never
earned a profit on its business?
A. As I said, the only recollection that I have directly
on that was that one statement which would be consistent
with that, yes.
Q. So the answer is yes?
A. I think so.
Q. Now, if we might, let's focus on a term that is called
risk factor.
Are you familiar with that term?
A. Yes.
Q. And you understand that risk factor or risk factors is
something that one must take into account in making a
determination as to what the future for a company might be,
correct?
A. I am hesitating, because the answer to my question will
depend on the context, so if you can give me a specific, I
can answer.
Q. Certainly. For example, in looking at the SCO Group
and trying to determine what the future for it might have
1458
been, one would appropriately look at risk factors, right?
A. So if you're asking me about risk in the product market
that they were facing, I would agree with that statement.
Q. Let's focus on that. In performing your analysis and
in making your presentation to the jury, did you understand
that in trying to make a forecast about the future that is
premised, as I understand it from your presentation,
premised on forecasts on right to use license revenue and
vendor license revenue, one would have to take into account
risk factors, right?
A. You would need to take into consideration the market
conditions in determining what you thought you could sell.
If you want to call those market conditions risk factors,
then I would agree with that, but it would be related to
that product.
I guess why I'm hesitating here is because there are
many risk factors that a company faces that won't
necessarily impact the forecasts. There are risks of the
firm, for example, that don't have anything to do with how
much they can generate in revenues in a particular product
market. That is why I'm a little bit uncomfortable with
giving you a more direct answer and I apologize for that.
Q. Did you take into account any risk factors for the
potential profits for SCO Group when you made your analysis?
A. Yes, I did.
1459
Q. Which risk factors did you take into account?
A. So I took into account, as did Dr. Pisano, and I think
he testified to this, and the same sorts of things were
incorporated into the forecasts, and there were -- if you
want to call them risks, I will call them market conditions
that existed at the time that infringement had not been
proven. There was hostility against SCO in the Linux
community. There was the potential for other
indemnification programs. All of those factors existed in
the marketplace and they were known to the players at the
time. They were incorporated into Dr. Pisano's analysis by
his penetration assumption.
If you remember, he testified that he assumed at the
low end that only one in five people would buy a SCOsource
R.T.U. license. There are lots of reasons why. With
respect to my forecasts, those exact same factors are
incorporated because they are specifically discussed by the
analysts, they knew what the market conditions were, and
they would take that into considerations in coming up with
their forecasts, and their forecasts are consistent with Dr.
Pisano's lower bound, which would suggest that they were
kind of roughly in the same ballpark when it came to
penetration rates, which is about one in five of people that
would purchase a R.T.U. license.
Q. The question that I was asking you is what risk factors
1460
you took into consideration.
A. I think --
Q. You told me market conditions, correct?
A. I said that I would describe -- I think what you are
referring to as risk factors, I think of those as market
conditions.
Q. I'm trying to get a list from you, if you will, of the
risk factors that you took into account.
A. Okay.
Q. I think the second one you mentioned is that
infringement had not been proven, right?
A. That is correct.
Q. The infringement you have reference to is the
fundamental question as to whether or not Linux infringes
UNIX, right?
A. That is correct.
Q. And your understood that a risk to the SCOsource
licensing revenues was the unanswered question as to whether
in fact Linux infringes UNIX, right?
A. Okay. That is where I would say that there was a
market condition that existed, that it was not known at the
time that infringement had or had not occurred.
Q. In addition, you mentioned that there was hostility
against SCO, right?
A. Correct.
1461
Q. And that hostility was manifested in a number of ways,
correct?
A. Correct.
Q. You became generally aware of this hostility through,
for example, reading the Deutsche Bank analyst report,
right?
A. They did talk about that, yes.
Q. Did you do any independent analysis or search to find
out other sources of hostility toward SCO by the consuming
public?
A. Well, as I said before, I had done a key word search of
newspaper articles, and it is kind of hard of search SCO
without getting a sense for what people's feelings are.
Q. You also mentioned other indemnification programs,
right?
A. Yes.
Q. That is the notion that there might be other computer
software companies, for example, Hewlett-Packard or Novell
or a company called Red Hat and others that would say to
those who acquired Linux and related products from them,
that if SCO sues you or comes after you and claims that your
use of Linux infringes UNIX, that we'll protect you, right?
A. My understanding is that those indemnification programs
exited, but I would like to make sure that we also don't
forget Dr. Pisano's testimony. He --
1462
THE COURT: That testimony was heard yesterday,
Dr. Botosan.
Mr. Brennan, if you would look for an appropriate
time for a break, please.
MR. BRENNAN: May I have one minute?
THE COURT: I don't want to interfere with your
train of thought, but I do want you to be aware that it is
about that time.
MR. BRENNAN: I will be mindful of that.
BY MR. BRENNAN
Q. Now, were there any other risk factors that you took
into account other than the four that you have just
mentioned?
A. There was also some discussion in some of the analyst
reports about the possibility of some customers saying we
don't want to buy a SCOsource license, and instead we're
going to switch, but the analysts generally felt that that
was a pretty low probability. Then there was also some
discussion about, you know, potentially a design around, but
that also didn't get much traction.
Q. What do you mean it didn't get much traction?
A. I mean that the analysts didn't seem to feel like that
was as important a market condition as, for example, that
infringement was in question.
Q. Did you also take into account the notion that there
1463
was something called the G.P.L. or the general public
license?
A. That was also discussed in the Deutsche Bank report.
Q. Did you take that into account in your analysis?
A. Well, since I used the Deutsche Bank forecasts, it is
incorporated, yes.
Q. Before we take our break, were there any other risk
factors that you were cognizant of or applied in your
analysis other than those we have briefly talked about here?
A. As I sit here at this particular moment I can't
remember any other ones. If I could go back and look at my
report, I know I had that discussion of these in there.
Right off the top of my head, I don't remember any others.
MR. BRENNAN: Your Honor, with your permission,
perhaps this is a good time to break and we will pick this
up after the break.
THE COURT: Ms. Malley.
THE CLERK: All rise for the jury, please.
(WHEREUPON, the jury leaves the proceedings.)
THE COURT: Dr. Botosan, can I ask you to leave
the courtroom just for a second?
THE WITNESS: Certainly.
THE COURT: You don't want to go out that way,
however.
Mr. Brennan, I do want to add some clarification
1464
to my ruling allowing you to question this witness about the
prior court decisions of Judge Kimball. I want to make it
clear to you that it is based upon your representation to
the Court that you can prove its relevance through Dr.
Botosan's analysis. If the Court deems that you simply have
raised the existence of those prior court decisions in an
effort to bring it to the jury's attention without it being
relevant at all, in other words, if you ask her about them
and she convincingly explains why it is totally irrelevant
to her analysis, then the Court will deem that to be an
unwise decision on your part.
I am assuming, based upon your representation to
the Court, both in the written memorandum and also what you
said her today, that you fully expect that it is something
that she should have considered and that she should have
been aware of and is relevant to her analysis. Again, if it
proves otherwise, I think that is a risk and the Court is
going to have to entertain some type of motion from SCO in
regard to that. Okay.
MR. BRENNAN: Thank you, Your Honor.
Just so we are clear, I don't know what her answer
will be in advance for my questions.
THE COURT: And I don't want her being advised of
this discussion, and that is why I asked her to leave the
courtroom. I don't want her back there being primed to
1465
respond in a certain way. I just need you to understand,
all of you, that I do deem the raising of the issue with the
jury, the prior court decisions, to be something that is
really unnecessary as a general rule. Not just unnecessary,
but highly prejudicial. I am willing to grant you that you
believe that you can establish that her analysis is
defective and significantly because she did not consider
these decisions. I want to give you that opportunity.
MR. BRENNAN: Thank you, Your Honor.
THE COURT: I do want to state also to all of you,
that because the door has been opened with this witness,
that that does not mean that it ought to be raised again
with any other witnesses, unless this Court gives you
permission to do so.
I want to add also that in instructing the jury,
what I intend to say is SCO appealed the District Court
rulings that we have heard about. The Court of Appeals
reversed those decisions, meaning that they found them to be
without merit, and determined that a jury should decide the
issues in this case. I believe that using the phrase
reversed will not be meaningful to the jury unless I add
that.
All right, counsel.
I also have to add, Mr. Brennan, that the jury was
really struggling there towards the end. You perhaps are
1466
not watching that, but I thought you ought to be aware of
the Court's observance.
MR. BRENNAN: Thank you.
MR. HATCH: Consistent with what you have been
saying, I noticed that Mr. Brennan, and I was trying to
watch it very closely, he is bringing up some things that
Dr. Botosan looked at in her report, but the report covered
two areas, one of which is not at issue in this trial. I
want the Court to be very cognisant of any kind of
bootstrapping of any kind of opinions that were not offered
in this trial as a way to get the prior opinion in.
MR. BRENNAN: Your Honor, just to comment on that,
first of all, as I understand what transpired here --
THE COURT: Ladies and gentlemen, you may sit
down. You don't have to be standing.
MR. BRENNAN: Dr. Botosan was proffered prior to
her testimony for two purposes. One was a causation
analysis and an event study, and the second one was the lost
profits damages analysis. It is when we I think did the
courtesy to SCO Group, and mindful of the Court's desire not
to be surprised, that we said if you pursue the event study
we think that is one of two pathways by which you have
opened the door. The SCO Group strategically decided to
withdraw the proffering of that testimony. I did not
understand that was by court order. They made a strategic
1467
decision simply not to put a witness up to testify on a
certain subject.
THE COURT: That is my understanding as well.
MR. BRENNAN: That in mind, given the fact that
she is an expert and she testified to it, but I did not
understand, nor would I have understood, that that meant
that I couldn't ask any questions about it.
THE COURT: About that testimony that they
withdrew?
MR. BRENNAN: Simply because they chose not to ask
the witness about it. It is in her report.
During the course of the proceedings this morning
I asked the question, did you reach conclusions in your
report that your attorneys asked you not to present? I do
not believe that the subject matter was privileged and it
was not subject to an evidentiary ruling.
THE COURT: Do you intend to pursue that further?
MR. BRENNAN: I don't. The objection was
sustained. The reason I raise this is if there is some
suggestion that we engaged in some impropriety in asking a
witness about testimony that her attorneys chose not to
examine her about, I would not have believed or understood
that to have been off bounds simply for me to ask her about
that.
THE COURT: You don't intend to pursue that
1468
further?
MR. BRENNAN: I don't.
THE COURT: I don't think there was anything
untoward about your question, but I was afraid that you were
going to go perhaps down that path, and had it gone any
further I think I would have to have sustained an objection
to that.
MR. BRENNAN: Yes. In fact, you did sustain the
objection to that question.
I suppose the other point I just want to alert the
Court to is this, that during the examination we have had of
Dr. Botosan so far, without at this juncture asking her
specifically about the rulings, and I did ask her whether or
not rulings and decisions in this case were broadly
disseminated, which she said she would except so, and I
asked whether or not they would have an impact on potential
licensees of the SCOsource program. She said yes to that.
THE COURT: In the real world.
MR. BRENNAN: In the real world.
THE COURT: This is my dilemma. You have to,
somehow or other, have to draw her away from her but-for
world, that she testified on, to the real world. That is
what I'm trying to warn you about. There has to be that
connection in order for her testimony on the court decisions
to be relevant. You just can't say I want you to throw out
1469
everything that you did in your but-for world, and now
answer all my questions about the real world, unless you're
able somehow to draw the connection between the two. That
is what Mr. Singer was arguing about earlier this morning.
I am basing my ruling on the presumption that somehow or
other that is a relevant line of questioning.
MR. BRENNAN: And my suggestion, because I don't
want there to be an unnecessary problem with Novell and the
Court on this, is because an expert witness comes in and
says I have created a construct, a but-for world, that that
insulates them from examination regarding the real world.
The mere fact that they have chosen a device, the so-called
but-for world, because I think Your Honor what she may say,
and I don't know this, but anything that you ask me about
the real world is different than the but-for world and
thereby it is somehow irrelevant.
I think the unfairness of that is it impedes our
ability to conduct an appropriate cross-examination, to
impeach the witness, and to draw conclusions that might be
different were the jury to focus on the real world. The
reason I raise that is I don't want to be crosswise with the
Court on this.
THE COURT: No.
Again, I want to give you leeway because I realize
the importance of this testimony, but the dilemma I would
1470
have, if you continue to question her about the real world,
and she simply responds over and over again that I did not
consider that, it is not relevant to my analysis, so that
you end up with a bunch of questions to which there is no
response, and I would think that would be highly
prejudicial. I don't quite know how to suggest to you that
you approach this, but that to me, as I say, would be -- if
she is in effect going to say I have not considered that,
because I worked within my little world of but-for, the
construct that I was given, and the rest of this stuff I
have never even thought about, what will be the value of
that?
MR. BRENNAN: Well, two responses.
First of all, Your Honor, I also was very careful
to ask her so far, and I apologize if it wasn't
scintillating testimony, what did you look at? I read to
her specifically from her report where she said I reviewed
the motion for summary judgment filed by Novell.
THE COURT: The question may be, yes, she may have
reviewed it, but did she consider it in her but-for world?
That would be the relevant question.
MR. BRENNAN: Let me assume for purposes of
discussion, because I don't know what her answer will be,
that she were to say no, and I believe that it would be of
value to the jury to actually draw a contrast between real
1471
world developments involving real world licensees and her
but-for world. That is the fundamental purpose of the
cross-examination.
THE COURT: I think that is a legitimate point
that you can make.
MR. BRENNAN: That is the point that I do intend
to make, Your Honor.
Just so we are clear, I don't know what she will
say. My expectation, frankly, is that she will answer the
questions as the Court may suspect. Whenever I ask about a
whole host of these matters she will say but I was in a
but-for world, and I'll want to draw the comparison between
the but-for world and the real world. We got a taste of
that, for example, Your Honor, and I was just about to show
her that the Deutsche Bank report is a real world study,
where it specifically states that if SCO does not succeed in
its litigation against I.B.M., it will have to close its
doors. It will fail.
So what I want to among other things show the
jury, is that the very report that she is relying upon, and
I asked her about did you cherry pick matters out, and that
the analysis is a litigation analysis. It is a study of
whether or not an investor should engage in what they refer
to as a binary decision, that either this company will fail
or succeed based on the outcome of the litigation. They say
1472
in the report this is kind of a wild shot. If you want to
take a risky investment and ride it up and you do well, but
if they don't succeed, it fails. That is the context by
which she has drawn her analysis.
If what she is going to do is say, well, yeah,
that is what the Deutsche Bank report says, and it is called
on its surface, on its face a call to arms, and Deutsche
Bank calls this a litigation strategy. Is she going to say,
well, no, I want to parse that. I want to divorce myself
from those considerations. Then she is stepping away from
the very analysis. That is the first point.
The second point, and I apologize for going on,
but I just want the record to be clear, is that I want to be
able to do the very thing I have suggested to the Court, and
that is draw a very clear line of demarcation between her
very narrow construction by which she is suggesting the jury
should award $250 million in damages, and a very real world
where people are making much different decisions real time
before she even submitted her report.
THE COURT: Thank you.
MR. BRENNAN: Thank you, Your Honor.
MR. HATCH: The problem with what Mr. Brennan is
saying is, one, he is ignoring the 403 issues here. He is
bootstrapping because he even talks about the Deutsche Bank
report. That report was before the slander suit. He is
1473
bringing in issues and trying to bring in court decisions in
this case that didn't exist when those reports were being
done. As Mr. Singer said today, the but-for world here is
that SCO owned the copyrights and Novell had never asserted
that they thought they did and then go out and slander our
client. That is the world. He wants to confuse the two.
That is highly prejudicial, Your Honor.
THE COURT: Counsel, the Court believes that to
the extent that Mr. Brennan wants to undermine the but-for
world with the real world, the Court has to allow him to do
so.
MR. HATCH: Should that be done with a proffer
outside of the presence of the jury, before he connects it
up and --
THE COURT: I will just rely on you to make
objections to the questions asked. All right.
MR. BRENNAN: Thank you, Your Honor.
THE COURT: We'll take another ten minutes.
(Recess)
***** Part 2 *****
(10:40 a.m.)
THE COURT: Mr. Hatch?
MR. HATCH: Just one matter, Your Honor. If it
becomes necessary for you to make that instruction, we're
somewhat concerned people may, may or may not, which we
don't know, know the court process. And we would like the
reference to it as a unanimous decision.
THE COURT: All right. The court will grant you that.
MR. HATCH: Thank you.
MR. BRENNAN: Your Honor, on that same subject of a
decision, we have two, at least two suggestions for the
court to consider. First of all, we do believe the
suggestion in the instruction that the decision by the
District Court was without merit is contrary to the holding
of the Tenth Circuit. For example, among other things, the
Tenth Circuit held that Novell has powerful arguments.
There were certainly aspects --
THE COURT: As far as those issues that are before
this jury, I believe the court's statement is correct.
MR. BRENNAN: The second aspect, Your Honor, is that
we suggest it might be a preferable course of action to see
how the testimony goes and before giving an immediate
instruction allowing the parties to make contributions to
what the instruction ought to read like. That is a function
of what action is presented to the jury. In other words, to
1474
have some period of repose simply to analyze the
presentation of the evidence, the testimony of the witness.
We are quite a ways away from a final instruction to the
jury, and if the court believes that some sort of
explanatory statement needs to be made, we do understand
that, but wonder whether it would be more appropriate to do
that after some period of reflection.
THE COURT: The suggestion you gave the court was that
it be given after Dr. Botosan's testimony and I agree.
Because I don't want the jury sitting here from this point
forward wondering why are we here if there was in fact a
court decision that is brought up by your cross-examination.
MR. HATCH: Your Honor, I think the cure instruction
should be given as soon as the prejudice. So I would give
it as soon as he brings it up.
THE COURT: That is probably what I will do. It will
depend on the context. I think the court is going to have
to make that judgment as to whether or not it is disturbing
enough to the jury that they begin to wonder. But the court
will just have to let you know when that decision is made.
Counsel, if it is not clear to you, I hope you all
understand that this case is going to go to the jury by noon
a week from tomorrow. If there is any doubt about us going
until midnight on Friday and somehow deeming that as
finishing the case within the three weeks, I think that you
1475
need to be disabused of that notion.
MR. SINGER: Certainly what the court has said is
exactly what our understanding is.
THE COURT: All right. Let's bring the jury in,
Ms. Malley. Mr. Brennan, if you would try to time yourself
so that we stop at about five minutes to 12, please.
MR. BRENNAN: I will certainly do that, Your Honor.
Thank you.
THE CLERK: All rise for the jury.
(Whereupon, the jury returned to the courtroom.)
THE COURT: Go ahead, Mr. Brennan.
MR. BRENNAN: Thank you, Your Honor.
Q. (By Mr. Brennan) Dr. Botosan, before our break
we were talking about the so-called risk factors. And I
would like to draw your attention, in particular, to Exhibit
R21. You can find that either in the binder or it will be
displayed on the screen, whatever is easier for you.
A. Okay.
Q. R21 is a document that appears to be from
Deutsche Bank dated October 14th, 2003 entitled SCO Group,
Inc. A call, parenthesis, (option) in parenthesis, to arms.
Do you see that?
A. I do.
Q. Is this one of the two Deutsche Bank reports that
you made reference to in connection with your presentation
1476
to the jury yesterday?
A. Um, this is the Deutsche Bank report that I made
reference to, yes.
Q. And when did you first review this report?
A. Um, well it was after January 2007, but before
May when I put in my report. It was in that time period.
MR. BRENNAN: Thank you. Your Honor, we wish to move
into evidence Exhibit R21.
THE COURT: Any objection?
MR. HATCH: No objection, Your Honor.
THE COURT: It will be admitted.
(Whereupon, Defendant's Exhibit R21 was
received into evidence.)
Q. (By Mr. Brennan) Now focusing then on this
Deutsche Bank analyst report, you will see that in the first
-- well, let me ask you this first. There appear to be two
authors, a Brian Skiba, S-K-I-B-A, and a Matthew Kelly. Do
you see those two names?
A. Yes, I do.
Q. Is it your understanding that those two gentlemen
are the authors of this report?
A. It is.
Q. Have you ever spoken with either of them?
A. I have not.
Q. Have you ever made any effort to contact them?
1477
A. No, I did not.
Q. Did you ever do anything to reach out to Deutsche
Bank or Mr. Skiba or Mr. Kelly to understand the bases for
their statements and recommendations in the report?
A. Um, I did have one call to Deutsche Bank with
respect to the report.
Q. Did you speak with anyone there?
A. I did.
Q. Who was that?
A. Um, I don't recall the name.
Q. Let's look at the first paragraph. It begins
initiating coverage. Do you see that there?
A. I do.
Q. It states quote, "Initiating coverage with a Buy
rating and a $45 price target. We view SCOX" now let me
pause there, did you understand SCOX to be in essence the
trading symbol for The SCO Group?
A. I do.
Q. Continues, "as a call option on a substantial
lawsuit against IBM and the potential to capitalize on
Linux. Investors should consider an investment in SCOX as
extremely high risk and volatile." Do you see that?
A. I do.
Q. And then if we can go to the next paragraph and
highlight that, it states quote, "We view SCOX as a
1478
synthetic call option." Now do you know what a call option
is?
A. I do.
Q. What do you understand a call option to be?
A. Um, it is an option to purchase stock, um, at a
set price in the future.
Q. And those who typically engage in call option
trading are hoping that there might be an event in the
future whereby the price of the stock would rise and they
would benefit from buying at a low price at least a call
right hoping that it will rise in value?
A. Um, true.
Q. Okay. So then it continues, quote, "investors
with an appetite for risk should, in our view, see an
investment in SCO Group as the equivalent of a call option -
with most of the risks and rewards often associated with
options. The IBM lawsuit and the potential for Linux
licensing deals offer plenty to be excited about, while
failure could render the shares worthless, in our view."
This is the report that you relied upon, correct?
A. It is.
Q. And you understood that Mr. Skiba and Mr. Kelly,
the authors of the report, were suggesting that if someone
wanted to take a highly risky investment, what they might do
is buy SCO stock in the chance that perhaps SCO would
1479
prevail in the lawsuit against IBM, right?
A. Well, there are two things, right. The lawsuit
with IBM and the potential for capitalizing on the Linux
business.
Q. And if there were failure in either one, that
failure would render SCO stock worthless, right?
A. Um, that is what they're saying, yeah.
Q. And so did you essentially understand that this
Deutsche Bank recommendation was being prepared by Deutsche
Bank stockbrokers?
A. Um, so it was being prepared by Deutsche Bank's
analysts Brian Skiba and Matthew Kelly.
Q. And you understood that Deutsche Bank was a
market-maker for SCO stock, right?
A. Um, I don't believe -- if we can go back to the
back where they talk about what their -- what their
relationship was with SCO, we can verify whether that is a
true statement or not.
Q. Well, if we can take just one minute and put your
proverbial finger, if you will, on Exhibit R21. I would
like to turn, if we could, to Exhibit C25 not yet in
evidence.
Now, Exhibit C25 is also a Deutsche Bank analyst
report; correct?
A. That is correct.
1480
Q. And this second Deutsche Bank report is dated
January 21st, 2004; right?
A. That is correct.
Q. And you have reviewed this before, haven't you?
A. No, I don't believe I have.
Q. You have never seen this report?
A. I don't believe so.
Q. Are you aware that Deutsche Bank issued a report
in January of 2004 which was just three months after the
issuance of the report marked as Exhibit R21?
A. Um, I did not look for forecasts into 2004
because this was after the December 22nd reassertion of
ownership.
Q. Looking at the third page of Exhibit C25 at the
bottom under the heading disclosures?
MR. HATCH: Do you have a copy? You know, either
these are out of order that you gave me or I don't have a
copy.
MR. BRENNAN: I'll lend mine to you.
MR. HATCH: Thank you.
Q. (By Mr. Brennan) Do you see the reference,
quote, "Deutsche Bank or its affiliates makes a market in
securities issued by the following companies SCO Group,
Inc.," do you see that?
A. I do.
1481
Q. Does that inform you that, in fact, Deutsche Bank
was a market-maker for SCO stock?
A. Um, as of that point in time, but I did not rely
on this report. And if we could go back to the disclosures
that are in the report that I actually relied upon, we could
confirm whether that was the case at the time of the
forecast that I relied upon.
Q. We can in just one minute we'll turn back to R21.
My question to you is looking at Exhibit C25, which was
issued less than three months after the report that you
relied upon, you see that Deutsche Bank declares itself to
be a market-maker for SCO stock; right?
A. I do see that, yes.
Q. And does that inform you that, in fact, the
Deutsche Bank had stockbrokers who were offering and
encouraging the sell and trade of SCO stock; right?
A. Um, that would suggest that they were making a
market in the securities, correct.
Q. So a market-maker in securities is in essence a
brokerage house that undertakes steps to encourage trading
in stock, right?
A. Um, so this -- it is true, um, that it is quite
common for investment banks to have both sides of the house.
Q. And Deutsche Bank --
A. Independent of each other.
1482
Q. My apologies. Deutsche Bank has a stock trading
aspect of it; doesn't it?
A. That is true.
Q. And now in looking at Exhibit C25, you would
agree that this suggests to you that Deutsche Bank had a
stock trading component to it that was a market-maker in
particular for SCO Group -- SCO Group stock, which meant, in
fact, that it was encouraging trades in SCO stock; right?
A. That portion of the business, which is
independent of the analyst side, by law, um, my
understanding, um, was making a market. But as I said, that
is not atypical.
Q. Okay. Let's go back to Exhibit R21 which is in
evidence. Let's put that back on the screen. Now, if we
could turn to the third page of Exhibit R21 and it talks
about risks; correct?
A. Correct.
Q. Let's highlight that, if we might. And it says
quote, "The largest risk is that SCO Group's claims be
without legal merit. We are not lawyers and are not
attempting to predict the outcome of this legal case,
however, should this lawsuit be without merit, it would be a
huge blow to the shares. We believe the stock will be
extremely volatile, due to constant newsflow and a small
share count. Swings of plus or minus 20 percent in a single
1483
day could be expected. A lawsuit against a large and rich
company such as IBM is a dangerous undertaking, and it could
cause SCO to overextend its legal reach and budget. In
addition, SCO is being sued by Red Hat. This lawsuit is a
risk and we imagine SCO could be the focus of other
lawsuits, as its legal actions could be interfering with
Linux business at many companies. Finally, the company is
angering the Linux community, which could prove to hurt
business down the road." Do you see that?
A. I do.
Q. So when you reviewed this report, the one that
you relied upon, you understood that the Deutsche Bank
analysts were indicating that there was huge risk for SCO;
right?
A. That this was a risky stock. That is true.
Q. And the largest element of the risk was legal
maneuvering; right?
A. That is what they say, yeah.
Q. And the analyst suggested that there are varied
aspects of legal risk. One is that SCO may not win its
lawsuit against IBM; right?
A. That was one of the risks.
Q. And the other -- excuse me, the other risk would
be that SCO would lose lawsuits that have been filed against
it, right?
1484
A. That was another risk to the firm.
Q. There was reference to the Red Hat litigation.
Do you know what that litigation is about?
A. Um, that one I have seen reference to, but I am
not very familiar with it.
Q. Well, are you aware essentially that Red Hat is a
Linux provider like Novell, right?
A. Correct.
Q. And Red Hat had filed suit seeking a
determination that its version of Linux was not infringed,
did not infringe UNIX, right?
MR. HATCH: Objection, Your Honor. He is testifying.
MR. BRENNAN: It is a leading question, Your Honor.
THE COURT: Overruled.
THE WITNESS: Um, I'm not aware of that firsthand.
But if you purport that to be the case, I will accept it.
Q. (By Mr. Brennan) And you understood from reading
the analyst reports that the analysts at Deutsche, the
authors of the report that you relied upon, were also saying
there could be other legal actions involving Linux, right?
A. And that they recognize all of these as risks of
the company, yes.
Q. Now, in your analysis did you take into account
the fact -- let me back up. My apologies. Looking at the
analyst's report, Exhibit R21, you understood that
1485
essentially this was a litigation based play; right?
A. For the stock, yes.
Q. Right. That what Deutsche Bank again was
suggesting is that there are litigation aspects out there
that will influence the future of SCO; right?
A. Um, yes, for the value of SCO's stock is what
they're talking about there. I would agree with that
statement.
Q. Let's go to Page 7, if we might, of the Deutsche
Bank report that you relied upon. If we could again there
is another section called risks here, right?
A. That is correct.
Q. And it begins under this section, quote, "Our
thesis that SCOX shares can be viewed as a call option
implies that investors are paying the current share price as
a premium. Should the legal case and the company's efforts
to arrange licensing agreements not come to fruition, the
investment could wind up worthless. The upside potential is
clearly huge, should the SCO be able to monetize its UNIX
assets." Then it continues with this language. "An
alternative way to look at the SCOX situation is as a
straddle as opposed to a pure call." Do you know a straddle
is in this context?
A. Um, I think they go on to describe it a little
bit later in the report, um, or they say, if you continue
1486
reading, "Rather than assuming the stock goes to zero, the
management could decide to strike a more aggressive
licensing arrangement with key vendors and perhaps settle
all issues with IBM at a bargain price. Given this
strategy, we would expect the stock to support a higher
price than zero, perhaps $15 per share." Um, so, that is
the only indication that I have of what they were referring
to when they said a straddle.
Q. Let's look at the next paragraph here. Quote,
"SCOX has frustrated the "Linux community" and should it not
prevail (in its legal claims or in selling UNIX/Linux
licenses), then the company could shut its doors. Notably,
the company's website has already been the target of at
least two "denial of service" attacks." Do you see that?
A. I do.
Q. Do you know what a denial of service attack is?
A. I don't know the technical aspects of it. I know
that it caused an inability for customers, I think, to
access the website when it was going on.
Q. Was this essentially because such a flood over
the internet of negative commentary coming into SCO that it
shut down, in essence, its web service?
A. I don't know the details or the specifics.
Q. Okay. Then in the next paragraph, "Lawsuits are
expensive and typically protracted. A lawsuit against a
1487
large and rich company such as IBM is a risky undertaking,
and it could cause SCO to overextend its legal reach and
budget. The company is also being sued by Red Hat. This
lawsuit is a risk and we imagine SCO could be the focus of
other lawsuits." Do you see that?
A. I see all of those risks of the company listed,
correct.
Q. So you understood when you read this analysis and
did your report that what Deutsche Bank was doing is saying
there are risks to this company and the risks are primarily
litigation risks, right?
A. Um, when we're talking about the company,
correct.
Q. Now, let's talk about other litigation. When I
asked you earlier about your expert report, you indicated
that you had access to the SCO attorneys database, right?
A. Yes.
Q. And you reviewed various pleadings in this case,
right?
A. Yes.
Q. And you were aware that, for example, in this
very case, Novell had filed a motion for summary judgment
against SCO; right?
A. Yes.
Q. And that was filed sometime in 2007?
1488
MR. HATCH: Objection, Your Honor, foundation and
relevance.
MR. BRENNAN: Your Honor, I'm asking what she looked
at. We have been talking about the litigation risks. I
would like to talk to her about litigation.
THE COURT: I'll overrule the objection.
Q. (By Mr. Brennan) Let me just back up for a
moment. You were aware that Novell had filed a motion for
summary judgment in this case in 2007, right?
A. Correct.
Q. And that motion was filed before you prepared
your expert report; right?
A. That is correct.
Q. Now, several years before, let's back up. You
understand that this lawsuit that brings us here today was
first filed by The SCO Group in January of 2004, right?
A. Correct.
Q. And you understand that Novell asked the court in
which the case was assigned to dismiss the lawsuit, right?
A. I'm sorry, can you repeat the question?
Q. You understand that when the lawsuit was first
filed Novell asked the court to dismiss the case, correct?
A. Are we talking about the --
Q. This case that brings us here today?
A. Right. No, I understand. Are we talking about
1489
the pleading that you were asking me about earlier, or are
you talking about something different?
Q. I'm talking about --
THE COURT: Mr. Hatch?
MR. HATCH: Your Honor, I don't think Mr. Brennan has
laid a foundation yet for this kind of testimony.
THE COURT: Okay. Well, I'm going to sustain the
objection, but we're jumping back and forth rather quickly
here. So I'm going to sustain the objection, and ask you to
start over again.
MR. BRENNAN: I would be happy to, Your Honor.
Q. (By Mr. Brennan) You're aware that -- let me
back up. You told us earlier that people in the community
were following this litigation, right?
A. Um, that they were aware of it, correct.
Q. And you expected that those who were Linux users
would be interested in developments in the case, right?
A. Um, to the extent that it would affect their
beliefs about, for example, infringement.
Q. And so those who were Linux users who were
concerned about the issues of infringement would have
concerns about this litigation, right?
A. About the Novell litigation?
Q. Yes.
A. That is correct.
1490
Q. Because one of the things that you told us
earlier in terms of assumptions is you were asked by SCO's
attorneys to assume that Novell had transferred the UNIX
copyrights to Santa Cruz Group, right?
A. Sure.
Q. That is one of the instructions you were given,
right?
A. One of the assumptions that I made and among
other assumptions. So, for example, the assumption the but
for world in this case didn't exist as well.
Q. And you were -- you also in the materials you
reviewed and relied upon you looked at the initial asset
purchase agreement, right?
A. Correct.
Q. You looked at Amendment Number 1?
A. Correct.
Q. You looked at Amendment Number 2?
A. Correct.
Q. And you were aware that decision-makers, that is
potential licensees of the SCO Source program would be
interested in and make decisions in part as a result of
rulings in this case, right?
A. And incorporated that into the forecast. That is
incorporated into the forecast is the market condition, yes.
Q. So your suggestion is that built into the market
1491
conditions are results in this litigation, right?
A. No. What I'm saying is that there were -- there
was a well-known -- it was well-known in the marketplace
even before the Novell case was filed, the case against
Novell was filed, um, that -- that infringement was not
known, for example. So what I'm saying is those market
conditions were known to the market and to the analysts and
were incorporated into the forecasts that I relied upon.
Q. And you would agree that rulings by the Federal
District Court in which the Novell case was pending would be
material to decision-makers in the real world relative to
whether or not they should buy SCO license, right?
A. But my analysis is not in the real world, it is
in the but for world. So for my purposes, for my analysis,
none of those would matter. What would matter were the
things that existed prior to the Novell suit being filed.
And those are incorporated into the Deutsche Bank report.
Q. So in your world it is an abstract world, right?
A. Um, well, by definition it has to be because
we're trying to figure out how much damage, how much -- what
SCO's sales would have been if Novell hadn't done what it
did. So I can't look at the real world to get at that
because Novell did what it did. So I have to look at a
world that is a but for world. I have, you know, that is
the purpose of this.
1492
Q. Let's look at the real world for a moment. I am
going to hand you a document entitled Memorandum Decision
and Order, it is dated June 4th, 2009, issued by the United
States District Court for the District of Utah Central
Division Judge Kimball.
MR. HATCH: Your Honor, I object. He has laid no
foundation. She has made it very clear that this was not
part of the but for analysis.
MR. BRENNAN: And Your Honor I --
MR. HATCH: Rule 403.
MR. BRENNAN: I apologize, I think I gave the wrong
date. I should have said 2004. I think I said 2009.
MR. HATCH: Same objection.
THE COURT: I'll overrule the objection and allow the
witness to continue.
Q. (By Mr. Brennan) So what I would like you to do
is to look at this memorandum decision and order. Again, I
apologize, I used the wrong date. The correct date of the
issuance of the order is June 4th, 2009. And I would like
to direct your attention -- 2004, I keep doing that, I
apologize. I would like to direct your attention to page
number eight. And I will represent to you that this is the
ruling of Judge Kimball in this case.
MR. HATCH: Do you have a copy of that, Mr. Brennan?
MR. BRENNAN: I certainly do.
1493
Q. (By Mr. Brennan) We're going to focus on Page 8
and I would like you to read with me from the last full
paragraph on that page that begins, "it is undisputed." Do
you see that?
A. I do.
Q. Okay. It reads, quote, "It is undisputed that
the APA did not transfer any copyrights. Under the APA,
Novell agreed that on the closing date, December 6, 1995" --
MR. HATCH: Your Honor, I'm going to object. This has
not been admitted into evidence. It is not properly
admitted. He is reading from the document.
MR. BRENNAN: Your Honor, I'm certainly permitted to
read from a document to impeach the witness.
THE COURT: Go ahead.
MR. BRENNAN: Thank you.
THE COURT: Now, ladies and gentlemen, I want to give
you an instruction right now though. I want you to listen
to this very carefully.
In light of the testimony that is being elicited on
prior court decisions in this matter, I want you to listen
to this. You will hear evidence about prior court rulings
in this case. And it may lead you to wonder why are we
being asked to serve as jurors at this point in time in
light of those prior decisions. You have to be aware that
SCO appealed the rulings by the District Court, this
1494
decision and perhaps another decision that you may yet have
reference to, to the Tenth Circuit Court of Appeals. The
Tenth Circuit Court of Appeals in a unanimous decision
reversed the District Court as to the issues before you in
this case and concluded that those issues were to be decided
by a jury.
And so it is important for you to understand that
reference to these prior decisions does not in any way
affect the decisions that you will be making in this case
because they were reversed and they were found to have been
in error in a unanimous decision. Thank you.
MR. BRENNAN: Thank you, Your Honor. I appreciate
that.
Q. (By Mr. Brennan) So if we could go back to the
District Court's decision that was issued on June 9th of
2004. I'll continue. Let me just back up. Quote, "Under
the APA, Novell agreed that on the closing date, December 6,
1995, it would assign all assets on Schedule 1.1(a), but
that it would transfer no assets listed on the Excluded
Assets Schedule, Schedule 1.1(b). There is no dispute that
all copyrights were excluded on Schedule 1.1(b) and,
therefore, no copyrights transferred on the closing date
under the terms of the APA. Also, Amendment Number 2 merely
amends the schedule of excluded assets and does not
constitute a transfer of copyrights on its own. Therefore,
1495
the issue raised by Novell is whether the APA as amended by
Amendment Number 2 is a sufficient writing under Section
204(a)" Your Honor, I'll insert of the copyright act, and
then to continue, "to transfer ownership of" if we could
continue to the top of the next page, "copyrights."
Now, are you aware -- let me back up. I then will
continue in the next paragraph that begins "the APA
amendment." It reads, quote, "The APA Amendment Number 2
excludes from transfer, quote, all copyrights and
trademarks, except for the copyrights and trademarks owned
by Novell as of the date of the APA required" --
THE COURT: Mr. Hatch?
MR. HATCH: Your Honor, at this point Your Honor has
told the jury that the United States Court of Appeals by a
unanimous decision found this to be in error and reversed
it. He is just reading it to us.
MR. BRENNAN: This is not an objection.
THE COURT: It is an objection. And I am giving you
some leeway, Mr. Brennan, and it had better -- there better
be some questions asked about this that is relevant to the
testimony.
MR. BRENNAN: I intend to do that.
MR. HATCH: He is basically trying to read the
decision that is in error and it has been reversed to help
the jury out to see these things.
1496
THE COURT: I am trusting Mr. Brennan is going to do
more than that. So I will overrule the objection and allow
him to proceed.
MR. BRENNAN: Thank you. And just so the record is
clear, this decision was never appealed. This is not the
subject of an appeal, what I'm reading to the court. I
will --
THE COURT: If you are somehow implying that that
language is the relevant language in this case, then that is
very inappropriate. That specific decision by Judge Kimball
was reversed in a subsequent decision.
MR. BRENNAN: I do intend to turn to that. And just
for the record, I want to indicate I'm reading from the
ruling on the motion to dismiss, not the summary judgment
ruling.
MR. HATCH: Well, that decision was denied. So he is
-- this is improper.
MR. BRENNAN: If I could just continue. I assure Your
Honor I will tie this together.
THE COURT: Go ahead, Mr. Brennan.
MR. BRENNAN: Thank you.
Q. (By Mr. Brennan) So if I could start again, "The
APA Amendment Number 2 excludes from transfer all copyrights
and trademarks except for the copyrights and trademarks
owned by Novell as of the date of the APA required for SCO's
1497
predecessor to exercise its rights with respect to the
acquisition of UNIX and UnixWare technologies. The
amendment does not identify which copyrights are required
for SCO to exercise its rights with respect to the
acquisition of UNIX and UnixWare and provides no date for
the transfer. The amendment mentions copyrights owned by
Novell as of the date of the APA, but it is not retroactive
to the date of the APA. Furthermore, although Amendment
Number 2 states that its effective date is the date of the
amendment, the language of Amendment Number 2 does not state
that a transfer of the copyrights is to occur as of the date
of the amendment." End quote. Now, here is my question to
you.
THE COURT: Ladies and gentlemen, I want to again to
impose here. To the extent that language that was just read
to you from that 2004 decision pertains to the issues in
this case, you are to disregard it. This is being offered
for a limited purpose and that is to allow Mr. Brennan the
opportunity to challenge the testimony of this witness as to
her conclusions about damages. But as to the issues of
contract interpretation, as you will be instructed by the
court subsequently, you are to disregard the language you
have just heard and rely only on those instructions that
will be given to you by the court at the end of the case.
MR. BRENNAN: Thank you, Your Honor.
1498
Q. (By Mr. Brennan) So looking at, as you do now,
at the language of the court's ruling in June of 2004, would
you expect that a potential licensee of a SCO source license
in June of 2004 who read that language might come to the
conclusion that it would not enter into a license agreement
because of the question as to whether or not SCO owned the
UNIX copyrights?
A. No.
Q. So you believe that a potential SCO licensee, in
June of 2004 who read that language issued by the court at
that time, would form no decision or opinion whatsoever as
to whether or not they should acquire a SCO source license?
A. In my analysis, nobody would be able to read this
document because it wouldn't exist.
Q. Because you're in an abstract world, right?
A. Because I am in a world where Novell has done
nothing wrong, and so there would not be a court case, so
there would not be this decision, so there wouldn't be
anything to read. You can't pick and choose what parts of
the but for world you're going to stick with. When you're
calculating damages, you have to define what the parameters
are of that but for world and then calculate the damages in
that context. I can't -- I can't sort of say but, you know,
I'm going to assume that Novell did nothing wrong and yet
all of a sudden there is a court case with decisions
1499
associated with it. It makes absolutely no sense from a
logical perspective.
Q. Let me see if I understand what you're telling
us. Are you telling us that the world, the but for world
that you created, is a world where Novell did nothing wrong?
A. I am saying that in the but for world that I am
looking at, it is one where Novell did not slander the
title. What would SCO's -- SCO's source revenues have been
if Novell had not interfered in their market.
Q. I apologize. I must have misunderstood what you
told us yesterday and this morning. I thought that what you
told us is that SCO's attorneys came to you and instructed
you and asked you to assume that, in fact, Novell had
transferred the UNIX copyrights and had slandered SCO's
claim of title?
A. So you're mixing up the -- there is two different
points here. One is I have to assume liability for there to
be any potential for damages. And then having assumed that
there was, then for the purposes of actually calculating the
damages, you have to assume that they didn't do what it was
that they did. So, you know, both of those have to hold but
they're getting at different issues.
Q. So what I would like to do is compare your but
for abstract world and the real world. Would you concede
that in the real world, in June of 2004, potential SCO
1500
licensees having read or been informed of this decision by
the district court may have chosen not to acquire a SCO
license because there was a serious question as to whether
in fact there had been a transfer of copyrights?
A. In the but for world the document would not exist
and the real world is not relevant to a damages analysis.
Q. The real world is not relevant to what you have
done, right?
A. The real world is not relevant to a damages
analysis including mine.
Q. Let me ask you this. You were relying upon
Dr. Pisano's analysis, right?
A. I incorporate some aspects of his calculations,
correct.
Q. And what he did is he relied upon real world
surveys, right?
A. He used it as a proxy, I think is what he said.
We're going to characterize what he said. He used it as a
proxy, the best that he could get, for an input that he
needed to create his but for world. I also used forecasts
created in the real world.
Q. Thank you. So you used real world forecasts, and
I am asking you to consider real world developments in terms
of litigation and the forecast that you relied upon were
real world forecasts prepared by Deutsche, right?
1501
A. But what you're asking me to do is to start
paying attention to aspects of the real world that couldn't
exist in the but for world. The forecast exists in the but
for world and in the real world. What you're asking me
about doesn't exist in both of those worlds.
Q. It doesn't exist in the abstract, artificial
world, does it?
A. It doesn't exist in the but for world that I have
to take into consideration to do my job as an expert.
Q. Now, you were asked earlier by myself as to
whether you had reviewed a document called Novell's Motion
for Summary Judgment, right?
A. I'm sorry. Can you repeat the question?
Q. Certainly. One of the documents that you said
you considered in forming your opinions was a document that
was filed in this case, a real world filing, a real world
case, and it was Novell's Motion For Summary Judgment
Against SCO, right?
A. I did review that document.
Q. You read it, correct?
A. Um, I think I did.
Q. And you saw Novell's legal arguments?
THE COURT: Mr. Hatch?
MR. HATCH: I think we're going to go into a line of
objection again. We're objecting on foundation. I mean we
1502
would like to have a side bar to discuss it.
THE COURT: We will have a side bar.
(Whereupon, a side bar conference was held.)
MR. HATCH: Your Honor, Mr. Brennan said he was going
to lay a foundation. She has made it eminently clear this
has nothing to do with her calculation. Now he is just
wanting to read into it the record, you know, things that
don't matter to her analysis. I don't think he has any
business going into it. Secondly, I think a curative
instruction to the jury would also include that the judge
was found in error and has been removed from the case and a
new case --
THE COURT: He was not removed. He chose to recuse.
MR. HATCH: He recused himself.
MR. BRENNAN: Under the Federal Rules the case would
have come back to him but for the decision to recuse
himself.
THE COURT: Well, if we do anything of that sort,
we'll do it in a final jury instruction and not at this
point.
MR. BRENNAN: Your Honor, just so we're clear, I will
do the same that I did on the prior line of questioning, no
more, no less. And it is for all of the reasons that we
have identified.
MR. HATCH: He is reading from documents. He hasn't
1503
laid any foundation for it. She indicated it had nothing to
do with her analysis. You know, she is trying to deal with
the real world, trying to do his analysis rather than hers.
THE COURT: You're now going to go to the 2007 summary
judgment?
MR. BRENNAN: Yes.
THE COURT: Remind me again when it was issued?
MR. BRENNAN: It was issued on August 10th, 2007.
That is within the damage period that they're claiming.
That is why it is important.
MR. HATCH: They have taken that into account, her
damages in the but for world, and they're trying to put
something in it that she doesn't consider that the but for
world is if none of this happened. He is now trying to put
this in and she says no. We shouldn't go any further than
this. He shouldn't be able to read into evidence what he
says he can't get out of her. It is not part of it. But to
sit and read, you know, read in language from the decisions
that is -- that is simply 403 and it is not probative.
THE COURT: Go ahead, Mr. Brennan.
MR. BRENNAN: Briefly, Your Honor, because I think I
have made most of these points previously. We have heard in
the last line of questioning that she mixed and matched real
world with the but for world. So it is not a pure
artificial world that she is suggesting it has been
1504
represented. And in addition, this opinion was issued
during the damages period and, in fact, if we look over at
that chart, The SCO Group is seeking in excess of
$50,000,000 in damages for 2007 alone. And the suggestion
has been that parties would continue through 2007 to acquire
SCO source licenses, both RTU and vendor licenses, at a rate
in excess of $50,000,000 in 2007. Clearly, the fact that
Judge Kimball issued a decision granting summary judgment
would have an impact on those damage calculations. We
didn't put them at issue, they did.
MR. HATCH: Couldn't possibly in any way, given her
calculations, they don't exist. He hasn't laid any
foundation that those decisions are anywhere in that number.
THE COURT: He has laid the foundation that at least
the Deutsche Bank Report relies on conclusions about the
real world. And I do believe that those real world
conditions that they rely upon are often considered by the
jury. The dilemma is whether or not these specific court
rulings were relied upon by that report.
Go ahead, Mr. Singer.
MR. SINGER: If I might address this, Your Honor. The
Deutsche Bank Report was in October of 2003. It is
contemplating certain litigation, IBM litigation, perhaps
other litigation, as being risk factors. This case is
January 2004. There is nothing to do with the Deutsche Bank
1505
Report. The assumptions of the Deutsche Bank Report are
fair game, but they have nothing to do with this decision or
any decisions in this case which are reactions to the public
announcement in December 22, 2003, republishing the claim of
slander which led to the January 2004 filing of this lawsuit
and all of the decisions that followed. There is not one
word in the Deutsche Bank Report that relates to this case
which is on the slander of title.
THE COURT: Mr. Brennan, the court is going to require
of you additional foundation to establish that the Deutsche
Bank Report contemplated if not these specific rulings at
least rulings similar to this, all right?
MR. BRENNAN: Okay.
THE COURT: It is based on the court's assumption that
as you pointed out she has relied on that real world report.
Again, if the foundation can be laid that this was the type
of lawsuit and the potential rulings that you are referring
to would be a possible result of that lawsuit, then I
believe I have to allow the testimony to proceed. But only
because of that connection. But you have got to lay more
foundation for that. If you cannot, I will sustain the
objection. And I don't want you reading anything from the
2007 summary judgment decision until the court has ruled
there has been proper foundation laid.
MR. BRENNAN: Very well, Your Honor. Thank you.
1506
(Whereupon, the side bar conference concluded.)
Q. (By Mr. Brennan) Dr. Botosan, when you looked
earlier, if we can go back to Exhibit R21, and we have been
looking at various risk factors, do you recall that?
A. I do.
Q. If we can just revisit those to make sure that we
have all of that. Let's turn, if we could, to page number
ten. Again, this is the Deutsche Bank Report.
THE COURT: Mr. Brennan, you're aware that the jury is
not looking at this?
MR. BRENNAN: R21 should be in evidence, Your Honor.
I apologize.
THE COURT: All right.
MR. BRENNAN: My mistake. I will be more clear. My
apologies.
Q. (By Mr. Brennan) We're back to Exhibit R21 which
is in evidence. I'm going to look at, for example, page
number ten. And there at the top of that page it says UNIX,
Linux, SCO and IBM. Do you see that heading?
A. I do.
Q. Then in the second section it says, "How SCO Got
UNIX: A chronology of System V ownership." Do you see
that?
A. I do.
Q. Let's focus on that, if we might, for just a
1507
moment. It states, "In addition to its work with the
OpenServer, SCO acquired all right, title and interest in
and to the UNIX Software Code. After AT&T sold UNIX to
Novell in 1993, Novell renamed UNIX UnixWare. In 1995, SCO
acquired the UNIX software designed for the Intel processor
as well as UnixWare from Novell. In acquiring UNIX from
Novell, SCO acquired the licensing agreements for the UNIX
OS software source code, object code, and related
schematics, documentation, derivative works, and the sale of
binary and source code licenses. It is this acquisition
that is at the heart of SCO's lawsuit with IBM." Do you see
that?
A. I do.
Q. Now, do you understand from reading that that
both in the IBM case and in this litigation there is a
question of SCO's claim of ownership to UNIX, right?
A. Well, I understand from reading that that the
analysts' beliefs at the time that they were writing this
was that there wasn't a question of ownership.
Q. And, in fact, there was reference made to the
fact that there was going to be other related litigation
regarding SCO's claims. In fact, we read earlier in the
report under the risk section a specific reference by the
analysts to other Linux related litigation; correct?
A. That is correct. They talked about other
1508
litigation.
Q. In fact, if we could now go to Page 7, we looked
at this before, just so we're clear, Page 7, the third
paragraph if we could highlight that reference to lawsuits,
in the last sentence of that paragraph said, "This lawsuit
is a risk and we imagine SCO could be the focus of other
lawsuits." Right?
A. I see that. But I do want to make the point that
not any of this is relevant to the analysis that I did.
This was a risk to SCO, the company. My focus was on the
SCO source revenue. That was not a risk to the SCO source
revenue.
Q. Would you agree that a lawsuit filed by SCO that
put into question its ownership to the UNIX copyrights would
be a risk to SCO Group, Inc.?
A. Well, I think we're back to the same issue that
we were at a few moments ago which is in the but for world,
SCO would not have filed a lawsuit related to the ownership
of the copyrights because in the but for world, Novell would
not have slandered the title which means that SCO would not
have had to file the lawsuit.
Q. So again, what I want to do is compare and
contrast your but for world with the real world. And Your
Honor, I believe that there is proper foundation laid just
from what we have looked at for me to continue.
1509
MR. HATCH: Objection, Your Honor, for the reasons we
discussed before there clearly is not.
THE COURT: I'll overrule the objection. You may go
ahead, Mr. Brennan.
Q. (By Mr. Brennan) Now, we had talked earlier
about your having read Novell's motion for summary judgment
in this very case and you had a chance to review Novell's
legal arguments by reading that motion, right?
A. Yes.
Q. And, in fact, you were interested in the real
world in 2007 because that is why you relied upon Novell's
motion for summary judgment in this case, right?
A. Um, it is important to be cognizant of, you know,
of everything that has gone on. But it doesn't necessarily
mean that it is going to get incorporated into my damages
estimate.
Q. So you felt that it was important to be cognizant
of what was really going on in the real world, but you chose
not to include it in your damages analysis, right?
A. No, that mischaracterizes what I just said.
Q. I'm sorry, maybe I misunderstood you. Let's take
it one piece at a time. You believed, in forming your
conclusions, that it would be important to be cognizant of
what was going on in the real world, right?
A. True.
1510
Q. And you believe that one of the things that you
ought to be cognizant of were actual developments in the
real world regarding litigation over SCO's claim that it had
been slandered in terms of its claim of right to UNIX,
right?
A. I think it is important for me to be
knowledgeable about what is going on in the case, correct.
Q. And you likewise would believe it would be
important for the jury to have that same knowledge that you
sought after, right?
A. Um, that I am -- that is up to the judge.
Q. Fair enough.
A. That is not up to me.
Q. You believe that people in the real world who are
considering acquiring licenses would have an interest in a
legal determination as to whether or not Novell had
transferred the copyrights, correct?
A. But now you're getting back into damages and the
damages are not computed assuming the real world. The
damages are computed assuming the but for world. So now
you're mixing things up again.
Q. Well, so that I don't mix anything up, I want to
be clear I'm in the real world right now. And I would like
to show you a document issued by this court, Judge Kimball,
dated August 10th, 2007. It is entitled Memorandum Decision
1511
and Order. And I'm going to represent to you that this
decision was issued by the District Court in ruling on
Novell's motion for summary judgment that you said you had
reviewed.
MR. HATCH: Your Honor, I'm going to object to this.
He hasn't tied this to her report or her damages study.
THE COURT: The objection is noted but will be
overruled.
Q. (By Mr. Brennan) Just so we're clear, um, when
you -- when you came to the jury yesterday you came up with
this five year period of damages, right?
A. Correct.
Q. And your suggestion was that in 2004, for vendor
license agreements, that your expectation, your projection
would be that for vendor license agreements in that year
alone, SCO would sell some $30,000,000 worth of vendor
licenses, right?
A. I want to make sure that we're accurate. That is
what I recall. But I will pull my numbers out so I have
them close by.
Q. I am happy to have you confirm them. Just so you
know, I'm reading from the chart that you presented
yesterday.
A. Correct.
Q. And also for 2004, your projection was that there
1512
would be these right to use licenses that would generate
revenue to SCO in the amount of $23,000,000 for just 2004,
right?
A. Correct.
Q. And these right to use licenses again would be
licenses that Linux users would buy in order to protect
themselves against a copyright infringement action filed
that SCO might file against them, right?
A. True.
Q. And 2004 where you have this combined total of
revenues, 30,000,000 for vendor license agreements and
23,000,000 for right to use licenses, that is a total of
$53,000,000 in projected revenues in an abstract world;
right?
A. That is, as I said yesterday, based on my
analysis, my best guess of what SCO would have generated in
revenues if Novell had not interfered in the market.
Q. So your best guess is in the artificial world you
have described is that SCO would have sold some $53,000,000
worth of licenses, right?
A. Correct.
Q. But in 2004 alone, we have a -- as we looked at
earlier, language from a ruling by this court indicating
that there were questions about copyright ownership, right?
A. But that ruling would not exist in the but for
1513
world.
Q. It would exist in the real world?
A. Yes, because Novell did something bad.
Q. Well, Novell did something bad in the real world
or in your artificial world?
A. Novell did something bad in the real world and my
damages are calculated assuming that Novell didn't do
anything bad. I just don't understand why we're having such
difficulty with this concept.
Q. I confess I may not be as bright. I thought that
you had --
THE COURT: Mr. Brennan, if I may on that?
MR. BRENNAN: Yes.
THE COURT: Dr. Botosan, is it not true that you rely
upon certain real world documents to reach your conclusions?
THE WITNESS: I do.
THE COURT: Those real world documents included
considerations of real world matters, not just your own
make-believe world; isn't that correct?
THE WITNESS: That is correct.
THE COURT: All right.
MR. BRENNAN: Thank you, Your Honor.
THE COURT: Mr. Brennan, I do want to instruct you if
you go to the 2007 decision, I don't want you to read from
it. I just want you to simply state its conclusions.
1514
MR. BRENNAN: Fair enough, Your Honor. Thank you.
I'll do that.
Q. (By Mr. Brennan) What you have been handed, as I
mentioned, is an order issued by the court on August 10th,
2007. Now, between June 9th of 2004, when the first
decision was issued that we read to you, and August 10th,
2007, are you aware of any other court decisions in that
interim period rendering decisions regarding the issues of
ownership of the copyrights or slander of title?
A. I don't recall any.
Q. So to your knowledge, up to the date of
August 10th, 2007, from the time of June of 2004 when Judge
Kimball issued his first ruling, until a little more than
three years later, there were no subsequent rulings that
dealt dispositively with the issue of copyright ownership or
with the issue of slander of title, right?
A. Not that I'm aware of.
Q. So during that more than three year period, what
the consuming public would know is what had been issued by
the court in June of 2004; right?
A. Um, in reality, yes. But for my damages
calculation, no.
Q. Okay. So mindful of the court's suggestion to
me, I am going to not read language from the court's
decision but I will attempt to summarize. In the court's
1515
decision it granted Novell's --
MR. HATCH: Before he does that, Your Honor, can I
have an ongoing objection to this line of questioning? That
way I don't have to interrupt.
THE COURT: I understand and the court will note that
you object to this line of questioning.
MR. HATCH: I would also ask for a curative
instruction at the end of this as well.
THE COURT: I will do that.
Q. (By Mr. Brennan) Focusing on the District
Court's decision on August 10th, 2007, just so we're clear
you have it in front of you, there was a decision issued
that is 102 pages in length, right?
A. It looks like it.
Q. And the conclusion among others of the court was
to grant Novell summary judgment. That is a determination
that is a matter of law that under the Asset Purchase
Agreement, including Amendment Number 1 and Amendment Number
2, Novell did not transfer the UNIX copyrights to SCO,
right?
A. Can you repeat that, please.
Q. I would be pleased to, if I can get it right.
One of the determinations made by the District Court in its
order dated August 10th, 2007 was to grant to Novell
judgment as a matter of law that Novell did not under the
1516
Asset Purchase Agreement, including Amendment Number 1 and
Amendment Number 2, transfer ownership of the UNIX
copyrights to Santa Cruz Operation or its successor The SCO
Group, right?
A. Can I ask if that was one of the decisions that
was overturned?
Q. You certainly may. I will represent to you two
things. First of all, that what I have just stated to you
is an accurate statement of the court's record. Do you
understand that?
A. Okay.
Q. Any reason to question that?
A. I don't think so.
Q. I'll also represent to you that as the court has
instructed you, that there was an appeal taken and that the
Tenth Circuit Court of Appeal determined that there was a
factual issue that would require trial on that point?
A. Okay.
THE COURT: Which is another way of saying, ladies and
gentlemen of the jury, that that specific finding --
decision, excuse me, not fining but that decision by the
court previously in 2007 was reversed by the Court of
Appeals and that is the reason why we're having this trial.
Q. (By Mr. Brennan) Now, understanding that in 2007
the court, the District Court had issued judgment in
1517
Novell's favor, would you expect in the real world that in
2007 anyone would buy a license from SCO?
A. That is in fact the entire problem right there.
That is the whole --
Q. That is the problem.
A. -- that is the whole basis of the damages
analysis. Because Novell did what it did and SCO couldn't
convince users that it owned its copyrights, that is why
there are damages. That is why there are damages.
Q. If you would listen to my question carefully and
I apologize if I'm not phrasing it well. I'll do my best to
do better. Would you agree with me that in the real world,
that if there are real potential licensees and real
potential customers, if they learned that there had been a
judgment issued in Novell's favor finding that SCO did not
own the UNIX copyrights, that those potential customers or
licensees would not have purchased a SCO source license in
2007?
MR. HATCH: Your Honor, just to be clear, I think it
is ambiguous. Is he asking about the particular finding
here or the fact that it has been reversed and it is of no
effect? I mean I don't know. The question seems a little
odd to me.
MR. BRENNAN: Well clearly, Your Honor, I'm not. The
-- excuse me, the Tenth Circuit decision was not issued
1518
until 2009. I'm asking about 2007.
MR. HATCH: But being --
THE COURT: I think that is clear, Mr. Hatch.
Ms. Botosan, if you would please answer the question?
THE WITNESS: I can. So again, it is not relevant to
the damages analysis in the real world. That -- that is the
point. People wouldn't buy SCO source licenses because
Novell had slandered the title. Because Novell had said
that there weren't copyrights, that the copyrights weren't
owned by SCO which was also the case which yielded those
decisions which in the real world have been overturned. So
but for my damages analysis, again, all of this is
irrelevant because Novell would not have slandered the
title, there wouldn't have been a court case, there wouldn't
have been a question about ownership. The only question
that would have existed would have been about whether the
copyrights were infringed. And that I will grant exists in
the real world and it exists in my but for world. But all
of the rest of this can't exist in the world that I'm
examining.
Q. (By Mr. Brennan) And what I'm asking you to do
is focus your attention on the real world. And the real
world I would like you to focus on is the following. That
SCO filed this lawsuit against Novell on January 20th, 2003;
correct?
1519
A. Incorrect.
Q. Excuse me, 2004, my apologies. I misspoke.
Would you agree with January 20th, 2004?
A. I would.
Q. Thank you. That is a real world fact to your
knowledge, right?
A. That is true, yes.
Q. And that several months later in June of 2004 the
Federal District Court issued a ruling that included the
language that we read together, right?
A. True. And subsequently they overturned it.
There is a lot of things that have happened in the real
world. It is not relevant to my analysis.
Q. And if you will just bear with me, I'm going to
go step-by-step line-by-line. Do you have the patience to
do that with me?
A. I don't know, but we'll give it a shot.
Q. I think I have tried a lot of people's patience.
Let me just take one more shot at it here. Would you agree
that in the real world in 2004 there was a decision issued
by the Federal District Court that included the language
that we read together today?
A. I would agree and I would say that it is not
relevant to my analysis.
Q. And then would you agree with me that from the
1520
date of the issuance of that decision in June of 2004 until
the date of the summary judgment ruling on August 10th,
2007, there were no intervening rulings by the court
dispositively examining the question as to who owned the
UNIX copyrights or whether there had been a slandered title?
A. I would agree with that and state it is equally
irrelevant to my analysis.
Q. And then would you agree with me that on
August 10th, 2007 the Federal District Court issued its
order granting Novell summary judgment on the question of,
among other things, the fact according to that ruling that
Novell had not transferred copyrights to UNIX under the
Asset Purchase Agreement as amended?
A. I would agree with that statement and state that
it is irrelevant to my analysis.
Q. And do you believe that the Tenth Circuit's
ruling is also irrelevant to your analysis?
A. Which ruling is that?
Q. Well, as the court has shared with us, and as I
represented to you, in 2009 the Tenth Circuit Court of
Appeals --
A. Oh, the appeal? That would also be irrelevant
because there wouldn't have been a need for an appeal.
Q. So in your mind the Tenth Circuit ruling is
entirely irrelevant?
1521
A. To my damages analysis, yes.
Q. And that would be for two reasons. Because your
calculation of damages only goes through 2007, right?
A. That is correct. That is the date of my report
and that is when I ended the damages, yes.
Q. And to your understanding, SCO is only seeking
damages through 2007, right?
A. That is my understanding.
Q. So what happened in 2008 or 2009 or 2010 in terms
of the amount of damages and the period for which it is
seeking, those aren't relevant, right? That is 2008, 2009
or 2010, correct?
A. Can you rephrase that?
Q. I would be happy to. That may not have been a
very good question. I'll try again. To your understanding,
SCO is not seeking damages for the years 2008, 2009 or 2010,
right?
A. Correct.
Q. And so for purposes of the damages claim in this
case, the only events that are relevant are those that
occurred in 2003, 2004, 2005, 2006, 2007, right?
A. So are you talking about real events or events
that happened in the but for world?
Q. I'm assuming real events because the numbers that
you put up on the screen were real numbers, right?
1522
A. They were.
Q. Okay. So I'm focusing on real world, real
dollars, real people?
A. Okay. So, yes, that in the damages period those
-- yes, I guess.
Q. So for purposes of your analysis, in the real
world the events that would be relevant for a person making
a decision as to whether to acquire a SCO source license,
whether it be a vendor license or a right to use license,
would be events that occurred between 2003 and 2007, right?
A. So again, for my damages analysis those real
world events, the ones that you're describing, don't matter.
There are real world events that do matter. So, for
example, how much sales did SCO actually generate? That is
in the real world and that matters. And I deducted that off
of my calculation. So there were -- there is information in
the real world that matters, but there is also events in the
real world that can't matter because they're simply --
Q. Too real?
A. -- completely at odds with the but for world.
Q. Okay. All I'm trying to find out from you so
that we're clear is that the range of events, real or
artificial, real or imagined, are those that occurred
between 2003 and 2007, right?
A. I wouldn't agree with that. As I said before,
1523
when I -- when I, you know, as I have done my analysis and
gotten prepared for my testimony, it is important for me to
understand as best that I can what, you know, what has gone
on in the case. And so, you know, you can't -- again, you
can't sort of pick and choose what you want me to pay
attention to and what you don't want me to pay attention to.
MR. BRENNAN: Your Honor, I'm mindful of the clock.
Would you like me to go for another five minutes? I'm
nearing the end.
THE COURT: Yes, if you would, please, but only until
five to or as close to that as you can.
MR. BRENNAN: I will, Your Honor.
Q. (By Mr. Brennan) I would like to switch gears
with you for a minute. Um, now, when you were talking about
your calculations yesterday, you came up with essentially
three computations. One is a projection in your but for
world of what revenues might have been, correct?
A. So what I came up with was my computation, my
best estimate of what SCO's lost revenues -- what SCO's
revenues would have been if Novell had not slandered the
title. And then from that I arrived at the revenues that
they lost.
Q. Okay. So I want to break it into three pieces so
we're clear. Your first calculation was an estimation of
what revenues might have been, right?
1524
A. What the revenues would have been, yes, if they
had not slandered title.
Q. Then you felt that you needed to come up -- those
are revenues and the simple formula for profits is revenues
minus costs equals net revenues or profits, right?
A. I think it was profit, yeah.
Q. So you then had to come up with some calculation
as to what the costs would be that you would subtract from
the revenues, right?
A. Correct.
Q. And the difference between those two would have
been your lost profits number, right?
A. That is correct.
Q. So I want to ask you a couple of questions about
your cost estimation. Now first of all, did you include in
your cost estimation legal fees that might attach to SCO's
attempts to enforce its licensing program?
A. For that I used three categories of expense,
three broad categories of expense, as I explained to the
jury yesterday, cost of goods sold, marketing expenses and
selling, general and administrative expenses. And normal
amounts of legal expenses would be included amongst those.
Q. Now, in terms of legal costs, were those real
numbers that you used, or again were these artificial
numbers based on a but for world?
1525
A. Well, as I explained yesterday, the way that we
would go about estimating the costs would be to try to
determine what the relationship is between -- between costs
and revenues. And so what I did was using SCO's data, real
data, from 2002 through 2007, I ran a progression analysis
that helped me to determine what the relationship is between
a dollar of revenues and how many cents of costs. And so
using that real data, I came up with an estimate of $0.46
per dollar.
Q. Or 46 percent, right?
A. Yes.
Q. So you essentially suggested that SCO was
realizing a profit margin on its operations of 54 percent,
right?
A. That is correct.
Q. Now, in terms of the base of your calculation, I
think you told us yesterday that SCO had entered into two
vendor license agreements in 2003, right?
A. That is correct.
Q. One was with Microsoft, correct?
A. Correct.
Q. And the other was with Sun Microsystems, right?
A. Correct.
Q. And you understand that those license agreements
were for UnixWare, correct?
1526
A. Yes, it was my understanding that they were
UnixWare licenses within the SCO Source Division.
Q. In fact, you heard Dr. Pisano say yesterday that
his understanding of those two licenses were for the
UnixWare, right?
A. Yes, I believe so.
Q. And just so we're clear here, what you have done
is suggested that because SCO entered into these two license
agreements, one with Microsoft and one with Sun Microsystems
for an amount combined in about the range of $27,000,000,
right?
A. Roughly.
Q. That that was the basis for projections for the
future, right?
A. No.
Q. Well, isn't that what Deutsche Bank based its
projections on?
A. No.
Q. Okay. Now those two license agreements, because
they were for UnixWare, did not implicate UNIX copyrights,
did they?
A. I'm not sure I understand your question. I'm
sorry.
Q. You have told me that your understanding is that
the Microsoft agreement and the Sun Microsystems agreement
1527
were for UnixWare, right?
A. They were UnixWare licenses within the SCO Source
Division is my understanding of what those two were. But
they were vendor licenses.
Q They were vendor licenses. When you say within
the SCO Source Division, that is they were -- they were
managed through this division of SCO Group called SCO
Source; right?
A. Correct. And they were reported that way in the
financial statements.
Q. My last question before we take our break, just
so we're very clear, because they were UnixWare licenses
they did not implicate or involve UNIX, right?
A. I just don't understand the question, I'm sorry.
You must be outside of my field of expertise because I
honestly do not understand the question.
Q. Well, you understand that the primary question in
this litigation is whether or not Novell transferred right
of ownership to UNIX copyrights; correct?
A. Correct.
Q. And so my question to you is the UnixWare --
MR. HATCH: Your Honor, I'm going to object. That
misstates it because UNIX and UnixWare has been in evidence
in this case for two weeks.
MR. BRENNAN: Your Honor, I asked the question and she
1528
gives the answer she gives me as did Dr. Pisano yesterday.
THE COURT: You may ask the question.
MR. BRENNAN: This will be the last one. I'm mindful
of the break.
THE COURT: Okay.
Q. (By Mr. Brennan) Just so we're clear, because
you understand that the subject matter of this litigation is
whether Novell transferred ownership of the UnixWare
copyrights to SCO, the subject of the SCO source licenses
was one where SCO asked Linux users to pay a royalty or a
fee to protect them against claims of infringement of the
UNIX copyrights, correct?
A. So my understanding is that when -- so that
UnixWare included everything up to and including UnixWare.
That was my understanding. So UNIX, UnixWare that is all,
um, incorporated in that word that we use which is UnixWare
because it is all the versions up to and including UnixWare.
MR. BRENNAN: I'm mindful of the time, Your Honor.
I'll pause at this moment.
THE COURT: All right. Ladies and gentlemen, I think
you were informed that we'll take a little bit longer lunch
break today until approximately 12:30. Ms. Malley?
THE CLERK: All rise for the jury, please.
(Whereupon, the jury left the courtroom.)
THE COURT: How much more do you think you have,
1529
Mr. Brennan?
MR. BRENNAN: I think I have about 20 minutes, Your
Honor.
MR. SINGER: Is Mr. -- what are we going to do with
Mr. Stone? Because my understanding was he would be here at
12:30. If you have 20 minutes, there will be some redirect.
We're not going to be able to get to Mr. Stone or at least
certainly not finish Mr. Stone.
MR. ACKER: We can do him tomorrow. I can bring him
back tomorrow.
MR. SINGER: Why don't we do this, why don't we do him
all at once and we will put on a deposition or something if
there is 30 minutes left at the end of the day. But I would
rather start with Mr. Stone in the morning rather than start
him --
THE COURT: That is not my understanding of what
Mr. Acker said.
MR. ACKER: I need to check with him, but I think I
can bring him in in the morning.
THE COURT: We will assume that he will not be called
until tomorrow morning. Is that all right, Mr. Singer? Is
that all right?
MR. SINGER: That is fine.
THE COURT: Counsel, I do want to again state about
the court's reason for allowing the line of questioning of
1530
Mr. Brennan. It is true that Dr. Botosan has focused her
report entirely in her make-believe world, but I believe
that it is the right of the defendant to try to draw the
disconnect between her world and the real world. I believe
that the defendants have the opportunity not only to
challenge the premise of her make-believe world, but to
again draw that disconnect. But I do have to caution
Mr. Brennan that there is a limit and I do not want any
specifics, if you intended to go there, about legal fees to
a specific law firm or anything of that sort that is going
to be highly prejudicial.
MR. BRENNAN: Thank you, Your Honor, for the
admonition. Your Honor, the only thing that I had mentioned
of what I intended to do, so that I don't again have any
difficulty with the court which would deeply chagrin me, is
to point out that on these two license agreements that there
was a 20 percent fee that was paid to the firm for those
license agreements which directly impacts the purported
bottom line which directly impacts the projections. In
other words, the cost structure is grossly different than
what was represented in the objections.
THE COURT: I understand that is what you're doing,
but I think you can do that without specifying a law firm.
MR. BRENNAN: I would be happy to do that, Your Honor.
MR. HATCH: Your Honor, one small matter. I say this
1531
with the greatest respect, but I would appreciate it if -- I
think that the term that Dr. Botosan has used and
Mr. Brennan has been a but for world and not a make-believe
world.
THE COURT: All right. You're correct, Mr. Hatch.
MR. HATCH: Thank you.
THE COURT: Mr. Brennan, you should make reference to
it as a but for world as will the court.
MR. BRENNAN: Thank you, Your Honor.
THE COURT: All right.
MR. SINGER: Your Honor, may I? I know you have to go
but can we, perhaps before the jury comes back, revisit the
issue of any reference to attorney's fees? That is no
different than any case where an award might have some
implications.
THE COURT: Isn't it true, Mr. Singer, that she
testified yesterday as to what she presumed the costs of
this program would be?
MR. SINGER: That is true.
THE COURT: And that included legal fees. And she
based it upon certain assumptions. To the extent
Mr. Brennan can establish those assumptions are incorrect, I
believe he has the right to do so.
MR. SINGER: But I think that would be the same as
telling a jury in a case that a certain percentage of the
1532
award is going to have to be used to pay the lawyers because
the only relevancy of those agreements would be --
MR. BRENNAN: I don't want to belabor this. They have
suggested this is a business with a cost structure. That is
what we're talking about.
THE COURT: Okay. I understand your objections,
Mr. Singer. It is noted. But the court will allow the
questioning. I have just cautioned Mr. Brennan to not be so
specific that it becomes prejudicial.
MR. SINGER: Thank you, Your Honor.
THE COURT: Court will be in recess.
(Whereupon, the hearing concluded at 12:00 p.m.)
1533
***** Part 3 *****
1534
THE COURT: Are we ready?
MR. BRENNAN: I'm going to announce that I
finished my questioning.
THE COURT: Okay. Good.
Will we still possibly put Mr. Stone on today,
then?
MR. SINGER: Well, unfortunately, Mr. Stone has
left or I would. So it looks like we're going to be doing
the depos.
MR. ACKER: He's available at 8:30. We'll start
with him first thing in the morning.
THE COURT: Thank you, Mr. Acker.
Ms. Malley, if you would please bring the jury in.
MR. SINGER: We're doing a little bit of
scrambling here because we thought Mr. Brennan had another
20 minutes of examination, so we're trying to -- one way or
the other, we'll make sure we're not wasting any court time.
MR. BRENNAN: I deeply disappointed them when I
told them I was done.
THE COURT: I can tell there is pain written all
over their faces.
THE WITNESS: Me in particular.
THE COURT: I hope someone told Dr. Botosan this.
(Jury present)
//
1535
MR. BRENNAN: Your Honor, I have no further
questions of Dr. Botosan and will turn the witness to
Mr. Hatch.
THE COURT: Thank you, Mr. Brennan.
MR. HATCH: May I, Your Honor?
THE COURT: Yes.
REDIRECT EXAMINATION
BY MR. HATCH:
Q Good afternoon.
A Good afternoon.
Q I had to check.
Mr. Brennan talked to you about a lot. I am only going
to talk to you about a couple of things.
The 2004 court decision that he talked to you about, do
you recall what kind of a motion was at issue in that case?
A It was the motion to dismiss.
Q Yes. Do you know what the ultimate result of that was?
A That it was found in favor of SCO.
Q In favor of SCO. Mr. Brennan didn't tell you that, did
he?
A I don't recall him mentioning that.
Q This 2007 decision that he talked about, do you recall
what kind of a motion that was?
A That was a summary judgment motion.
Q And do you recall what the ultimate outcome of that was
1536
after it went to the court of appeals?
A It was overturned.
Q In favor of who?
A In favor of SCO.
Q Did Mr. Brennan tell you that?
A I don't recall.
Q I believe it was the judge that told you that?
A Yeah. I think I asked about it actually.
Q And ultimately your understanding is that because of
the decisions of the court in both those decisions in favor
of SCO, that's why we're here today, isn't it?
A Correct.
Q Now Mr. Brennan also -- he went through in length that
you had relied on Deutsche Bank. A document that he put
before you was Novell Exhibit R-21.
MR. HATCH: Mr. Calvin, could you put that up.
BY MR. HATCH:
Q Do you recall -- he went through several risk factors
with you; is that right?
A That's correct.
Q And ultimately did you take those into consideration in
your analysis?
A For the risk factors that apply to the product markets,
I did. It's incorporated into the forecasts and it's also
incorporated -- did that go off? I can just talk loud.
1537
It was also incorporated into Dr. Pisano's analysis.
So those risk factors that are specific to the product
market are relevant and are incorporated into the analysis.
The risk factors that he was referring to were risk factors
related to SCO as the company, it's their company risk
factors that don't have to do with the product markets. And
that would be relevant if we were concerned about what SCO's
stock was selling for. But that is not the analysis I did.
The analysis I did was how much lost profit we would get
from the SCOsource.
THE COURT: Sandy, her microphone is not working.
BY MR. HATCH:
Q I think everybody heard us. We won't repeat all that.
A Okay.
Q But even the way Deutsche Bank was looking at it -- and
they listed all the risk factors, right?
A Yes, they did.
Q I want you to look at Exhibit R-21 that Mr. Brennan
showed to you. On that first page under buy, does it
indicate what the price was at the time of this report?
A It does. It says the price at 13 October 2003, $16.01.
Q The date of this report is what date?
A October 14, 2003.
Q So the price the day before this report came out is
$16?
1538
A Correct.
Q I take it the report lists all the risks, all the pros?
A Correct.
Q Given all that, what did Deutsche Bank, still taking
into account all the risks and all the pros, what did
Deutsche Bank list as the prospective target for this stock?
A It was the opinion of the analysts after all the
analyses had been done, that the price target for the stock,
and this is over a 12-month period, was $45.
Q That's right here in this first line under the names,
correct?
A That's correct.
Q Dr. Botosan, I just have one more question for you
because I think we went for -- well, we've been here for
four hours, and there's been a break, I want to put this pen
right here and give you the opportunity, based on everything
that you have been cross-examined on today by Mr. Brennan,
just give you the opportunity to come up and change any of
the numbers that you feel need to be changed.
A No. I don't feel any of the numbers need to be
changed.
Q Okay.
A Except for one. Can you rub the zero out on the bottom
there?
Q I don't know if the Judge will let me do that.
1539
THE COURT: No.
THE WITNESS: That one.
MR. HATCH: We'll leave it there, if it's their
argument.
And, Your Honor, that's all I have.
THE COURT: Thank you, Mr. Hatch.
Mr. Brennan, do you have anything else?
MR. BRENNAN: Yes. Just a minute, Your Honor.
THE COURT: Go ahead.
MR. BRENNAN: Just a few questions, Your Honor.
RECROSS-EXAMINATION
BY MR. BRENNAN:
Q I hate to quibble, but I guess as a lawyer I must for
just a minute. The question that Mr. Hatch asked of you had
to do with the district court's ruling issued on June 4th --
excuse me, June 9th, 2004. Do you recall that?
A I do.
Q Do you have a copy of that in front of you?
A Somewhere.
Yes, I do.
Q Now if you could turn to the last page, above the
judge's signature there is a heading entitled Conclusion.
You understand that what was before the judge was a motion
by SCO Group to remand the case from federal court back to
state court, right?
1540
MR. HATCH: Your Honor, now we're getting into
other motions that haven't been at issue.
MR. BRENNAN: The only reason I am raising this,
Your Honor, she was asked what the ruling was.
THE COURT: To the extent that the witness may
have misrepresented the ruling as to that pertinent part of
this order, you may question, but not beyond the pertinent
part, okay.
MR. BRENNAN: That's all I intend to do, Your
Honor, just to make sure the jury understands.
THE COURT: Go ahead.
BY MR. BRENNAN:
Q So you understand that before the court were three
motions, right?
A I did not understand that. What I thought we were
talking about was the motion to dismiss.
Q So what was before the court was a motion by SCO Group
to have the case sent from the federal court to state court,
right?
A If you purport that.
Q I will make that representation to you.
A Okay.
Q And did SCO win or lose that motion?
A I don't know because I thought we were talking about a
motion to dismiss.
1541
Q And if you look on page 19 of the order, it says,
plaintiff's motion to remand --
THE COURT: Mr. Brennan, I will sustain the
objection.
BY MR. BRENNAN:
Q Well, then, just so we have clarity in terms of what
the consuming public thought about the ruling, I would like
to have you look at Exhibit W-28, in particular at page --
MR. HATCH: Your Honor, beyond the scope.
MR. BRENNAN: Your Honor, this has to do with what
was the ruling and what the public's perception was.
THE COURT: Well, he, on redirect, asked what the
ruling was. That does not open the door to going to what
the public may have viewed about the ruling.
MR. BRENNAN: Well, all I would like to do, Your
Honor, is demonstrate that what was publicized regarding the
ruling to the consuming public. That's all I intend to do.
This is a news article that reports on it to the public.
THE COURT: I am going to sustain the objection.
It goes beyond redirect.
MR. BRENNAN: In light of that, Your Honor, no
further questions. Thank you.
THE COURT: All right.
May this witness be excused?
Mr. Hatch?
1542
MR. HATCH: Your Honor, this witness, it's
possible she will be needed as rebuttal again in the case.
THE COURT: Dr. Botosan, that means you may be
re-called. I would ask you to make yourself available. I
would also instruct you do not discuss this case with
anyone, particularly in the presence of another witness or
potential witness. All right.
THE WITNESS: All right, Your Honor.
THE COURT: Thank you.
THE WITNESS: Thank you.
MR. HATCH: Your Honor, in light of the time, we
would call by deposition Mr. Gasparro. Regrettably, or
maybe not so, we don't have a video for this. We would like
to do it by reading. Mr. Normand agreed to do the answers.
THE COURT: Can we move the easel.
Ladies and gentlemen, on occasion the depositions
are not videos. Those depositions you've seen to this point
have all been videotaped. So it's not unusual for them to
be presented in the form you are about to see, and that is
where Mr. Normand will act the role of the witness in the
case and will read the responses on his behalf.
Mr. Hatch, if you would please make sure to state
the date it was taken.
MR. HATCH: Absolutely, Your Honor. This is the
deposition of Mr. Lawrence Gasparro. It was taken October
1543
7th, 2004.
THE COURT: For the record, could we have Gasparro
spelled.
MR. HATCH: G-a-s-p-a-r-r-o.
(Deposition of Lawrence Gasparro)
Q Mr. Gasparro, when did you first start at SCO?
A 1995.
Q Did you and Mr. Sontag make presentations to customers?
A Yes.
Q Did you educate them on the legal basis for your
actions?
A I believe we were successful.
Q Can you just tell me what it is that you explained to
those customers with respect to the legal action?
A As I recall, we had identified certain segments within
the AT&T source code agreement between AT&T, Novell and SCO.
There were excerpts of that contract inserted into the slide
presentation and a display of the SGI infraction of the
literal copying of the source code into Linux.
Q Do you have an understanding of what the intellectual
property license for Linux that's referred to in this
document is?
A Yes, I do.
Q Can you tell me what that is?
A Yes. The SCO IP, affectionately called IP license for
1544
Linux, was a product that we announced August 5th, 2003 to
provide Linux end users with an option at their discretion
to cover any issues or resolve -- resolve is the wrong word,
but to, in other words, purchase a license to protect
themselves against any risk associated with UNIX source code
in Linux.
Q Can you identify for me the customers that purchased
such a license?
A I can attempt to identify a few for you.
Q Please.
A Computer Associates, EV1 Web Hosting, ISP. There were
a number of smaller organizations, maybe individuals that
obtained this license.
Q Did you sell any of these golden compliance licenses,
to the best your knowledge?
A The EV1 transaction I believe qualified for that, yes.
Q Were you personally involved in the EV1 sale?
A Yes, sir.
Q Who did you deal with at EV1?
A I dealt with the CEO.
Q Who was that?
A Mr. Robert Marsh and counsel.
Q Do you recall who his counsel was?
A I believe it's Mr. Eric Schaefer.
Q Do you know what law firm he might be affiliated with?
1545
A It was an external firm in Houston.
Q Do you know the amount of the sale for that license?
A I do. The transaction was $800,000 plus additional
terms in marketing contribution.
Q Do you have any understanding of how much additional
there was?
A I think the original agreement was three to 600,000.
Q And in going to the -- it may be the last point -- you
were asked earlier about if you received any negative
feedback from your sales force members concerning the
licensing program?
A Yes, sir.
Q And you said that in your mind there was negative
feedback because people weren't purchasing licenses. Was
the SCO licensing program affected by Novell's claim?
A Dramatically.
Q Was the SCO licensing program also affected by IBM's
funding of the Open Source Defense Fund?
A Yes.
Q Was SCO's licensing program negatively affected by
Novell's claims of ownership?
A Yes.
Q My second question, was SCO's licensing program
negatively affected by IBM's payment of $10 million to the
Open Source Defense Fund?
1546
A Yes.
Q With respect to the last questions that Mr. Magnanini
asked you, do you know of specific sales that were lost as a
result of -- well, strike that.
Mr. Magnanini asked you about Novell's claims?
A Yes, sir.
Q What was your understanding of what he meant by asking
that?
A Well, I visited with a number of large corporate Linux
end users in the United States as well as my assigned team
and we were providing proposals for consideration to
corporate accounts and many of the accounts responded
sometimes in writing of written record and/or e-mail or just
in direct conference calls why they would object to
obtaining such a license. And the Novell claim of copyright
was a major factor as to why several customers did not sign
the agreement with SCO.
Q Can you identify the specific customer?
A Yes, I have. There is a list of customers that we
assembled as my sales organization that was approximately 50
to $60 million of licensing opportunities that we created in
the first six months of the licensing program and were
involved in discussions based on those amounts.
Right now a couple of those accounts that cited
ownership issues I believe to be Ford Motor, Google, Cisco,
1547
and there were numerous others, but I'm very familiar with
the dollar amount because I owned that amount 50 to $60
million of licensed opportunity.
Q How did you arrive at that 50 to $60 million amount?
A Thank you. The proposals that -- there are written
records of the proposals that were assembled, that is the
total amount of licensing opportunities that the customers
ultimately denied the licensing acceptance because of
specifically naming Novell in copyright ownerships.
Q I guess I'm trying to ask, how is that number
determined? What is that based on?
A As an example, let's say the list price of a product
was a dollar, the company A had 500, company B had quantity
600, that's how we assembled those numbers. So based upon
volume and unit pricing.
MR. HATCH: Thank you. That's the end of our
reading.
THE COURT: Now you have a new Mr. Gasparro.
MR. JACOBS: A little on our side, Your Honor.
Mr. Acker will be our actor.
THE COURT: I want you to note that counsel are to
be judged by their skills as attorneys and not as witnesses.
MR. JACOBS: Unfortunately.
Q And, Mr. Gasparro, you have in front of you what's been
marked as Trial Exhibit A-15, --
1548
MR. JACOBS: Your Honor, this has previously been
introduced into evidence.
Q -- which is an e-mail from you to Mr. McBride, it
appears, dated May 21st, 2003?
A Yes.
Q Do you recognize this e-mail?
A Yes, sir.
Q The first sentence of your e-mail states, after one
week of talking to our customers and reading independent
articles, we need some immediate position/leverage to
generate IP revenue (Q3) from end users?
A Yes, sir.
Q Can you explain to me what suggestion you're making to
Mr. McBride?
A I think there were, going back, I believe there were a
lot of doubters, it wasn't a very popular position for SCO
to maintain, and so the number of approximate naysayers were
certainly out there.
Q Did you offer Mr. McBride, apart from this e-mail, any
proposals as to how to generate immediate leverage to
generate revenues?
A No. I had very various responsibilities at this time
and I personally accepted this IP revenue task myself at
this time frame.
Q The third paragraph of your e-mail states, should we
1549
consider publishing the results of three independent
auditors without divulging actual code. Can you tell me
what you were referring to there?
A Yes. I recall that SCO had hired a number of auditors
to review UNIX code verse Linux code and found a number of
issues.
Q Do you know when those analyses were performed?
A No, sir.
Q Was it just, ballpark, was it in this May 2003 time
period or was it before?
A Oh, it would have been at some time before May 21st,
but whether not it was January or March I couldn't comment,
I don't know.
Q Did it occur sometime between the fall of 2002 and the
spring of 2003?
A You're asking me to guess and I don't know.
Q Who would have knowledge with respect to when those
analyses were performed?
A I would imagine Mr. Sontag, Mr. McBride.
Q Do you know who the auditors were?
A No.
Q Were you ever shown any of the work that was produced
by the auditors?
A No.
Q Were any of your customers ever shown the work that was
1550
produced by the auditors?
A Not by me.
Q By any members of your sales team?
A No.
Q To your knowledge, was your sales team ever presented
with the results of those analyses?
A No.
Q You next ask: Can we release the reports under
nondisclosure but not identify the actual code infringement.
What were you suggesting be done there?
A I was informed that the auditors had found
discrepancies within the source code and Linux code, and to
assist me in my quest for communicating to the industry what
was going on, needed some -- I was asking for some written
documentation to support our verbal position.
Q Were you ever provided with any written documentation
to support the verbal position?
A No. Per this request, no.
Q The last question that you have is: Can we hire a
popular analyst to review the code infractions and publish a
supported theory of our IP. Do you know if that was ever
done?
A I don't believe that was ever done.
Q I guess just to be clear for the record, is it your
understanding the result of three analyses that were
1551
performed were never shown to anybody under a nondisclosure
agreement?
A I wouldn't know that.
Q At least you were not involved in showing that
analyses?
A I was not involved.
Q In either your discussions or -- well, in your
discussions with your sales representatives regarding this
intellectual property license for Linux, did you ever learn
that customers were inquiring as to what specific SCO
intellectual property existed in Linux 2.4 and Linux 2.5?
A Yes.
Q What was the nature of the questions that the customers
posed to you?
A Exactly what you've just stated, they wanted more
distinct information.
Q When you received those types of inquiries, what did
you do or what did you instruct your sales team to do?
A We asked for additional evidence of code infraction to
provide to the customer.
Q Who did you ask that of?
A It would have been back to Mr. Sontag.
Q Were you provided with any?
A We were informed under nondisclosure the customers
could access SCO's evidence in Lindon, Utah.
1552
Q Do you know what code was show to customers in Lindon,
Utah?
A Do not.
Q Do you know if they were shown the SGI code that we
talked about earlier?
A I don't know.
Q Did you ever visit the Lindon, Utah office to view the
evidence yourself?
A No.
Q Do you know if any of your sales representatives ever
visited the office to view the evidence themselves?
A They did not.
Q Do you know how many customers went to view the
evidence themselves?
A No.
Q Did you refer customers to speak with other individuals
within SCO apart from the sales team about their questions?
A Yes.
Q Who did you refer customers to?
A We have to -- I have to bore you again with time frame.
Q I guess in the -- after August 2003, when you began
selling the Linux license.
A Through my last day at the company?
Q Sure, the last day.
A On limited occasion additional information via
1553
conference call may have included Mr. Sontag, and on at
least one and possibly one or two, counsel from SCO.
Q Sitting here today I take it you cannot identify for me
the specific SCO intellectual property that's contained in
the Linux 2.4 or 2.5 kernels?
A That's correct, Chris.
THE COURT: Thank you, counsel.
Mr. Normand.
MR. NORMAND: Your Honor, we would next present
the deposition of Phillip Langer by video. Mr. Langer was
deposed on November 5th, 2004.
THE COURT: Thank you.
(Deposition of Phillip Langer)
Q When did you first become employed by the SCO Group?
A June, I think, 30th, '98 from the original Santa Cruz
operations.
Q What was your position when you joined Santa Cruz?
A Sales associate.
Q What were your responsibilities in that position?
A I was responsible -- I was responsible to a mentor who
was the corporate account manager for three states in the
Midwest: Illinois, Wisconsin and Indiana. And I was
associated with doing sales tasks, learning cold calling,
learning the sales process for the next half year and then
next year.
1554
Q What types of products were you selling at that point
in time?
A UNIX. UNIX support and services.
Q Would that be UnixWare and OpenServer?
A Yes.
Q Both of those products?
A Yes.
Q What was the next position that you held within Santa
Cruz?
A Corporate account manager.
Q When did you become corporate account manager?
A I think late -- let's see, late -- probably late '99,
2000, right around there in the first quarter.
Q What was your responsibility as the corporate account
manager?
A To deal with large corporate account end users, named
account lists within my state area, which at that time I
think was southern Ohio, Kentucky and Missouri.
Q Again, you were selling UnixWare and OpenServer at that
point in time?
A UnixWare, OpenServer, support and services around then.
Q How long did you hold that position?
A Until -- through December -- or actually through
January of 2004.
Q Through January 2004?
1555
A Yes.
Q In January 2004, what position did you take at The SCO
Group?
A I took the position of the regional director of
intellectual property licensing.
Q What were your responsibilities in that role?
A My responsibilities were sales of our UNIX Linux IP
license.
Q You held that position until you left in August 2004?
A Right, correct.
Q Who did you report to from January 2004 to August 2004?
A Larry Gasparro.
Q Now after February 2004, when you became the regional
director for intellectual property licensing, did you then
have any sales of licenses to customers?
A Yes.
Q Can you tell me which customers you were involved in
selling licenses to?
A I got -- well, we did deal with Questar, which I think
I got credit for, but I didn't have any dealings with. So
it came into my bucket, so to speak, and I probably got the
last contract faxed from them, but I didn't do any of the
selling. And then we did the EV1 deal, and everyone's
entered in. Those were the only two. I can't think if
there was like little onesie, twosie things. I can't
1556
remember, but those were the two significant.
Q Did you have any involvement with Computer Associates?
A No.
Q So those were the only two customers that you can
recall that actually purchased licenses?
A Right.
Q Do you recall who you contacted to purchase licenses
during that time period, from February to August 2004?
A No. I mean, I contacted a lot of people. I couldn't
tell you off the top of my head.
Q And how was the responsibility divided? Did you
contact all the people within this Midwestern region or was
it nationwide?
A I had the west region, which went from Illinois
basically down over, except for northern California,
Washington and Oregon. I had southern California and the
rest of the western states.
Q Did there become a point in time when Novell raised a
question over the title to SCO's IP in UNIX?
A Yes.
Q Do you recall them making those pronouncements
publicly?
A Yes.
Q And did the fact that Novell made those public
pronouncements questioning SCO's ownership of UNIX's IP
1557
negatively impact your ability to sell licenses?
A Yes.
Q Do you know when Novell made this announcement that you
talked about with Mr. Samuels?
A Novell first made the announcement, it was last year in
2003, that they were questioning the claims of the UNIX that
I think we -- we came out with our Amendment 2. They
recanted. Then they came out later, I think it was like
August 2003, that kind of time frame, they started leaking
that they owned it. Then once the suit was filed, it came
to kind of a hold. I mean, we were always -- we started to
get a lot more once Novell started that they owned and they
can indemnify because they had UNIX rights, were making that
public. Then all the licensees -- potential licensees
became very interested in, well, if you don't own it, we're
not going to buy a license from you, which really, you know,
put a hold to selling licenses.
Q So it's your testimony that you were unable to sell
licenses because of Novell's announcement?
A Yeah. I mean, it put a pretty big dampening effect on
how we were able to approach people when the intellectual
property you're trying to license to them is in question of
ownership.
Q Did you ever do anything to show to customers that you
were in fact the owner of the copyrights at issue?
1558
A I mean, we would tell them to look at our Web site for
Amendment 2 and read through the contracts. You can see
that it was transferred. You know, we've been selling UNIX
for six years. Up until now there has never been -- you
know, customers were paying for UNIX. Other licensees had
licensed UNIX's intellectual property. You know, we had
this -- you know, to us, it was a no-brainer. We had owned
it. We had been spelling UNIX. It was ours.
Q Have you --
A So we went into our Web site with our contracts.
Q Did you ever make any presentations to customers about
the ownership issue?
A No, I mean, not specifically on that. We may have
mentioned that, you know, look at our -- I mean, we'd point
them to the contracts and here are the contracts. You take
a look -- have your legal team look over the contracts,
advise you of what to do.
Q Have you personally ever reviewed the contracts that
you are talking about?
A I've looked them over as -- you know, I am not an
attorney, so it's a contract.
Q Did you have any projections of what revenues you could
have obtained were it not for Novell's announcement?
A I don't have any projections on hand. I know we had a
pipeline that we're starting to build, and when the Novell
1559
issue started to come up, I mean, I thought we were going to
be able to do at least -- I mean, a couple million to three
million in my territory I was hoping for. But when that
type of -- once the questioning of the ownership came out,
the pipeline was killed.
Q And this pipeline that you're talking about, are you
using pipeline in the same sense that you were reviewing --
you were using the word pipeline in response to the earlier
exhibit that we looked at? Exhibit 239 I believe it was.
A Similar, in that these were companies I had talked to,
involved with, had talked about or we were in dealings with
to set up meetings. So there was potential there. But, no,
there was no one exactly on the front doorstep ready to
purchase a license.
Q So you didn't have any reasonable expectation of this
revenue?
A We did have an expectation because we were in
involvement with them and they were interested in hearing
about our licensing and possibly buying a license.
Q So -- just so we're clear, when you used the word
pipeline with respect to the Linux sales, you had no
reasonable expectation of sales, but when you used the word
pipeline here, you did have a reasonable expectation of
sales; is that what you're saying?
A Yes, different type of -- when I use pipeline, yes,
1560
different types of pipeline. For the Linux sales, that
would have been new business that was outside my normal
business of UNIX. This was my pipeline of my only business
that I was working on at this time. So this was deals I was
actually in front of daily and I had to close to make
commission. So I was much more involved in that pipeline
than the other.
Q This is starting in February 2004 that you're talking
about the pipelines?
A Yes.
Q Was that before or after Novell made their
announcement?
A That would be -- well, their initial announcement
before we could counter was before I took over this.
Q So you were still -- you were projecting two to $3
million of revenue in your region even after Novell made
their announcement; is that what you're saying?
A Because they recanted. They made their initial
announcement. Then they recanted after Amendment 2 and then
it started to trickle up. And then once a -- once we were
heading to court with Novell, then it became a true -- it
was viewed as the ownership issue is in question, and that
was in -- I think that was in mid January or February -- mid
February, because we had built up this, and then once people
started to hear wind of what this lawsuit was coming down,
1561
because not everybody was dealing with it like everyone
else -- like we are all day to day, then it becomes they
start doing their homework they realize, hey, there's a
question about the ownership.
You know, until that gets really settled and it looks
like that it's not -- you know, it looks like it may be a
possible problem for you, then we're not going to talk about
it until that issue has been cleared up.
Q And just so we're clear, were you projecting two to
three million of revenue annually, for the year, or for a
specific quarter?
A I thought I could do that for the year. I mean, with
some of the accounts we had on, we had large accounts, and
with the list pricing now, that can go up or down, depending
on, you know, who's buying, who's selling.
Q These would all be new customers to SCO, correct, not
old customers?
A Correct.
Q Did any of the potential customers that you approached
give you a specific reason for declining to buy a license
that Novell had claimed to own the copyrights?
A Regal Entertainment Group. I think that's what they
are, Regal Entertainment Group. They were set. They were
moving forward with looking -- looking forward to buy a
license, and they wanted to get it done within the month. I
1562
think this was the end of April. They finally came back and
said we can't purchase a license because we can't buy your
intellectual property because there is not clear title on it
like we do when we buy movies, which have clear copyright
title. So we can't make the same type of intellectual
property investment with you as we would with our other
vendors.
Q Do you know what the size of the potential sale to
Regal was?
A It was -- it was on their front end. It would have
been I think three to -- 300,000, $350,000.
Q Apart from Regal, were there any other customers that
you remember specifically saying that we were not going to
purchase a license because of Novell's announcement?
A I had some letters back from some. I think one was --
I think possibly -- I can't remember. I mean, I can't
remember the exact companies, but I know I had a couple
letters back that said, you know, until your ownership issue
is settled, please do not contact us, then we'll be willing
to sit down and work that out. But if you have an ownership
issue, we cannot buy anything from you.
MR. NORMAND: Your Honor, that completes SCO's
designations.
THE COURT: Thank you, Mr. Normand.
MR. JACOBS: We have a few moments of additional
1563
testimony from Mr. Langer.
THE COURT: Go ahead, Mr. Jacobs.
Q But you don't know the specific code that's allegedly
in Linux that SCO claims rights to?
A No, I don't know specifically.
Q Have you ever asked anyone to review for you what
specific code there is?
A I have asked for more information from some of our
customers, but -- or potential customers, but, no, I have
not seen any.
Q When you asked for more information, who did you ask
for more information?
A I would ask my boss, Larry Gasparro.
Q Were you ever provided with anything more?
A No, not really. We would get just general
explanations, but no in-depth information.
Q First, you mentioned that customers -- potential
customers of the Linux licenses you were selling requested
that you do line-by-line code comparisons for them; is that
correct?
A Yes, they wanted to be able to do their own line by
line.
Q You told them that SCO would not do that for them; is
that accurate?
A No, we couldn't do that.
1564
Q You couldn't do it or you would not do it?
A We would not do it. I don't know if we -- I don't know
if we can or cannot do it, but I know we would not do it.
Q You told those potential customers you would not do
that for them?
A Right.
MR. JACOBS: That completes our additional
testimony.
THE COURT: Thank you.
MR. NORMAND: Your Honor, we would again present,
by play acting, the deposition of Gregory Pettit, taken
October 7, 2004.
MR. HATCH: Did you give the date?
THE COURT: He did.
The spelling of the witness's name would be
helpful.
MR. NORMAND: P-e-t-t-i-t.
(Deposition of Gregory Pettit)
Q Mr. Pettit, are you currently employed by The SCO
Group?
A Yes, I am.
Q What is your current position?
A Regional director, intellectual property licensing.
Q What jobs have you held since graduation?
A I spent a year with Nixdorf Computer, a year with a
1565
company called SDL, four years with Boeing Computer
Services, ten years with Digital Equipment, and 11 plus
years with SCO. The original SCO now The SCO Group.
Q Do you know what SCOsource is?
A SCOsource is an umbrella statement for a group of
people at SCO who are worrying about SCO's intellectual
property in the marketplace.
Q Did any -- during the summer of 2003, did any customer
approach you and ask you about SCO's alleged intellectual
property rights in Linux?
A I'm sure we had discussions with customers who were
interested in understanding why, why we were saying what we
were saying.
Q Do you remember which customers approached you about
this?
A NASDAQ, Getronics, CVS. Those were the folks I can
think of off the top of my head.
Q Of the ones you've called, do you remember which ones
asked for more information or were interested in setting up
a meeting?
A I recall setting up -- actually, I did not get any
successful -- I got one confirmation of a meeting. Sorry.
Q Which one was that?
A Raytheon.
Q I'm sorry?
1566
A Raytheon.
Q Did you or someone else actually meet with Raytheon on
this issue?
A Yes.
Q Did you go to the meeting?
A Yes.
Q Who else went?
A Larry Gasparro.
Q What additional information was given to Raytheon at
the meeting?
A We had a presentation, as I recall, that just touched
on two points, we had problems with our intellectual
property in Linux in two ways; one was copyrighted material
and one was by contract.
Q Were any specific examples of code provided to
Raytheon?
A I don't recall if the Malloc code was shown or just
referred to. I believe it was referred to.
Q So it was just you and Mr. Gasparro at the meeting?
A Yes.
Q What was Raytheon's response to your presentation?
A Basically it was thank you for the information and as a
result of sensitizing them to a potential problem, they were
going to just go off and investigate and understand how they
were using Linux in-house.
1567
Q Were there other customers who asked for more
information but didn't want to set up a meeting quite yet?
A Yes.
Q Do you remember which ones those were?
A Again, are you asking me as a result of this?
Raytheon was the only thing that happened.
Q As a result of this or as a result of any other
communications you might have had about SCO's alleged
property rights in Linux?
A Yes, there were several others. I want to make sure --
I get confused on some of the financial shops. I believe it
was -- we'll come back to them.
Pixar, Cisco --
Q Sorry. Cisco with a C or S?
A C.
-- Merrill Lynch. There were several others who
expressed interest in seeing more material.
Q Did you offer any of the customers a license for the
use of this alleged intellectual property?
A I was asked to prepare a proposal.
Q Asked by who?
A Merrill Lynch.
Q Did you ever prepare a proposal for Merrill Lynch?
A Yes.
Q What were the terms of the proposal?
1568
A For this range of machines, it's this much money. For
this range of machines, it's this much money.
Q What was Merrill Lynch's response?
A They chose not to pursue the proposal because of the
activities of Novell, which confused the marketplace and who
owned the UNIX intellectual property. And that was the
primary reason for them postponing any action on the
proposal.
Q You're looking at what has been marked as Exhibit 162.
Please take a look at that and let me know if you recognize
this document?
A Yes.
MR. HATCH: Your Honor, 162 in that deposition is
SCO Exhibit 188. I would move its admission at this point.
MR. JACOBS: No objection, Your Honor.
THE COURT: It will be admitted.
(Plaintiff's Exhibit 188 was received into
evidence.)
MR. HATCH: Mr. Calvin, just highlight that. Blow
that up for us, the body of it.
Are we ready?
Q The exhibit is a letter from Sylvia Khatcherian from
Morgan Stanley to yourself?
A Uh-huh.
Q Do you remember ever providing Morgan Stanley with the
1569
additional information Ms. Khatcherian is asking for?
A I don't believe we did. Again, the point they made the
licensing program was to work with people who were
interested in working with us. And Morgan Stanley's
position was one of show me more information and, by the
way, disprove press reports SCO's claim of ownership.
Q You've been handed what has been marked as Exhibit 165.
Would you take a look at that that and let me know if you
recognize this letter?
A Yes.
MR. HATCH: Your Honor, Exhibit 165 of the
deposition has now been designated as Exhibit F-27. I move
its admission as well.
THE COURT: F-27?
MR. HATCH: F-27.
MR. JACOBS: It may already be in, Your Honor.
This is the Google letter that I think we saw earlier, F-27.
THE COURT: It is.
It's in already, Mr. Hatch.
MR. HATCH: Thank you, Your Honor.
Q Do you remember if in response to this letter you or
anyone else at SCO provided Goggle with any additional
information regarding SCO's alleged rights to the Linux
code?
A Yes. Again, the specifics of this letter I don't
1570
recall, but we had several in interactions with Michael.
Some of the interaction -- unfortunately, he had sent me
correspondence I hadn't received, so that was the tone of
this letter. But when we finally hooked up, the essence of
the communication was, Michael, we're prepared to come in
nondisclosure, walk you through the material so you can make
an educated decision on what the exposure was.
Q Did you ever have a meeting?
A No.
Q Why not?
A Michael chose not.
Q Did he say why?
A I wasn't the last guy to talk to him so, no, I don't
know what the answer was.
Q Who was the last guy to talk to him?
A I don't know. I know I handed it over to other people
that worked with Michael for a while and then let it go.
Q In conjunction with the Raytheon and your discussions
with them in terms of trying to get them to receive a
license, at that point in time were you having difficulty
with potential licensees as a result of activities by
Novell?
A Absolutely.
Q Did those activities by Novell make it difficult for
you to obtain licenses for companies, including Raytheon?
1571
A Absolutely.
Q Did the activities of Novell include activities that
brought into question whether you, in fact, owned the
intellectual property you were trying to license?
A Yes.
Q Were those questions that were raised by Novell what
caused you having great difficulty, if not impossibility, in
selling any licenses?
A Yes.
MR. HATCH: Your Honor, that ends our reading.
THE COURT: All right.
MR. BRENNAN: Your Honor, with you permission, I
will assume the role of the reader.
THE COURT: Thank you.
MR. JACOBS: This is some brief additional
testimony of Mr. Pettit.
Q Did any of your -- any of the companies you called, did
anyone ask you to provide them with more detail as to SCO's
alleged intellectual property rights?
A I believe that was one of the responses.
Q What did you tell them when they asked?
A I don't -- the interaction wasn't interactive. So this
was a request for a meeting. Most said no thank you.
Occasionally we got a do you have something you can send me.
Q What would you have sent if they asked?
1572
A We would have sent the -- no, actually, I don't think
we would have sent anything at this point. I'm sorry. This
was strictly we were trying to come in and meet with you and
educate you. As it said, we were going to have an
executive, one of the SCO executives, come in and actually
walk them through the issues. It wasn't -- that's what the
intent of this correspondence was.
Q So if someone asked you for more detail, your basic
response would have been someone else will get back to you
on this?
A The reason for the call was so we could come in,
present this information to you. It wasn't meant to be,
here's an information packet.
Q You spoke here of them trying to pull together some
materials to present to Raytheon. Then you said they put
things on hold and they never finished putting together the
presentation. I guess we established that they never
finished the material for Raytheon. Do you know if they
made any similar presentation for other companies?
A Oh, okay. In that context, no.
Q I'm sorry. You don't know or they didn't do it?
A They didn't. Well, actually, I can't speak
definitively. I can speak to my customer community.
Q You don't think they did?
A My customer community, no.
1573
MR. JACOBS: That ends the additional testimony of
Mr. Pettit.
THE COURT: Thank you.
Do you have a five-minute witness?
MR. HATCH: We would probably call Mr. Maciaszek,
and he's certainly not a five-minute witness. He's not too
long, but certainly not five minutes.
THE COURT: We'll go ahead and recess for the
afternoon.
Ladies and gentlemen of the jury, I do have to
specifically stress one thing. During Dr. Botosan's first
testimony today you heard reference to the fact that she got
on the Internet and Googled and used other means whereby she
found out about this case. That is something that has been
covered by this Court in instructing you what not to do. As
I've told you several times, you are not to be doing any
research on your own, you are not supposed to be discussing
this case or doing anything on your own that will give you
any information. You make your decision in this case only
on what you hear in this courtroom by way of testimony, the
law you will be given by the Court at the end of the case.
I would again remind you that you should avoid any reading
of about this case or listening to anything or watching
anything on television or anything else pertaining to this
matter nor should you be discussing the case with anyone.
1574
I believe that's it. I hope you had a nicer lunch
today than normal. It's good advertising for the guy across
the street.
Ms. Malley, if you would please assist the jury
into the jury room.
(Jury excused)
THE COURT: What's your schedule for tomorrow,
counsel?
MR. SINGER: Your Honor, we would pick up with
Mr. Stone, who I understand will be here first thing in the
morning. We'll then have Ms. O'Gara's deposition. I think
that's about 20 or 30 minutes in total. We would then have
Mr. Maciaszek, Mr. Nagle, and Mr. Tibbitts, while at that
point while not resting our case because there will be
witnesses next weak, Mr. Messman, Mr. Keller. I guess being
an optimistic at heart, I am hopeful maybe if there is time
for one witness on the other side, we would ask them to tell
us who their witness would be in case we get to that point.
MR. BRENNAN: Your Honor, our intention at this
juncture, if you get to that, is to call Mr. Terry
Maciaszek, who is our damages expert rebuttal witness.
THE COURT: All right.
MR. BRENNAN: I'm sorry, I misspoke. I hope
Mr. Musika is not here and heard me butcher his name.
That's our intention. My apologies.
1575
THE COURT: All right, counsel, is there anything
before we recess?
MR. ACKER: Good luck this afternoon with the
game, Judge. Is Utah State this afternoon?
THE COURT: I'll hold that good luck for tomorrow
as well. Thank you very much, Mr. Acker.
MR. TIBBITTS: BYU won.
THE COURT: We'll be in recess. We do have a
hearing this afternoon, counsel, so if we could clear things
off, please.
(Whereupon, the trial was continued to Friday,
March 19, 2010 at 8:30 a.m.)
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