Here it is, Novell's appeal brief in SCO v. Novell. It's responsive to SCO's earlier filing, which you can find in our permanent Novell Appeals page. Novell's fundamental argument is that SCO was given its jury trial, and now it wants to retry the case all over again to the appeals court. That is what it is not allowed to do: SCO now seeks to undo the factual findings of the jury and judge. Throughout its brief, SCO makes arguments based on its version of events—a version that would require that factual findings below be ignored or reversed. But SCO is not entitled to re-try its case in this Court. Instead, SCO must demonstrate the jury’s verdict and the district court’s factual findings were unreasonable and unsupported by the evidence. That SCO utterly fails to do. To the contrary, the findings below were consistent with the evidence, and thus should not be disturbed on appeal. We'll work on getting a text version for you soon, but this will get you started.
Here it is:
10/29/2010 - Open Document - [9811224] Appellee/Respondent's brief filed by Novell, Inc.. Original and 7 copies. Served on: 10/28/2010. Manner of service: email, ECF/NDA. Oral argument requested? Yes.
Update 2: The court has set a date for SCO to reply:
11/02/2010 - [9811830] - Minute order filed - Appellant's reply brief due 11/15/2010 by SCO Group. (Text Only - No Attachment)
And here it is, Novell's brief, as text:
****************************
Appeal No. 10-4122
________________
IN THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
________________
THE SCO GROUP, INC.,
Plaintiff-Appellant,
vs.
NOVELL, INC.,
Defendant-Appellee.
_________________
On Appeal from the United States District Court for the District of Utah
The Honorable Ted Stewart, Judge Presiding
(Case No. 2:04-CV-00139-TS)
__________________
APPELLEE NOVELL, INC.’S BRIEF
ORAL ARGUMENT REQUESTED
_______________
WORKMAN | NYDEGGER
Sterling A. Brennan
David R. Wright
L. Rex Sears
[address, phone]
MORRISON & FOERSTER LLP
Michael A. Jacobs
Daniel P. Muino
Nathan B. Sabri
[address, phone]
Deanne E. Maynard
Brian R. Matsui
[address, phone]
Attorneys for Defendant-Appellee NOVELL, INC.
TABLE OF CONTENTS
Page
CORPORATE DISCLOSURE STATEMENT ....................................................... iv
STATEMENT OF RELATED CASES ................................................................. viii
STATEMENT OF CASE .......................................................................................... 1
A. Nature of Case ...................................................................................... 1
B. Procedural History ................................................................................ 2
STATEMENT OF FACTS........................................................................................ 3
A. Factual Background .............................................................................. 3
1. The UNIX and UnixWare Businesses........................................ 3
2. The Asset Purchase Agreement ................................................. 4
3. Amendments No. 1 and No. 2 .................................................... 8
4. SCO's Actions Against IBM ...................................................... 9
B. Proceedings Below ............................................................................. 11
1. First District Court Judgment ................................................... 11
2. First Appeal .............................................................................. 12
3. On Remand ............................................................................... 14
SUMMARY OF ARGUMENT .............................................................................. 17
ARGUMENT ............................................................................. 20
I. THE DISTRICT COURT CORRECTLY DENIED SCO'S
MOTION FOR JUDGMENT AS A MATTER OF LAW ........................... 20
A. Standard Of Review............................................................................ 20
i
B. The Jury's Verdict That The Amended Asset Purchase
Agreement Did Not Transfer Copyrights Is Well
Supported ..................................................... 21
1. Testimony Of Those Involved In Drafting And
Negotiating Amendment No. 2 Confirms It Did
Not Transfer Copyrights................................ 24
a. The jury's verdict is well supported .............................. 25
b. SCO's witnesses were less credible and less
persuasive .................................................... 28
c. The findings do not render Amendment No.
2 meaningless ....................................30
2. Testimony As To The Original Intent Of The APA Confirms That Novell Intentionally Retained The UNIX And UnixWare Copyrights ........................................... 31
3. Copyright Ownership Was Not Required For Santa Cruz To Exercise Its Acquired Rights ..................................... 36
a. SCO’s own witnesses testified that copyrights were not required ......................................... 37
b. SCO did not require the UNIX copyrights to protect its intellectual property ...................................... 39
c. The boilerplate term “all of seller’s claims” did not transfer copyrights ............................................. 42
4. The Technology License Agreement Does Not Change The Intent Of The APA Or Amendment No. 2 ...................................................... 44
5. SCO’s “Course of Performance” Evidence Does Not Trump The Terms Of The Amended APA ....................... 44
II.
THE DISTRICT COURT CORRECTLY DENIED SCO’S MOTION FOR A NEW TRIAL ............................................................ 46
A. Standard Of Review.......................................................... 46
ii
B. The Verdict Is Not "Clearly, Decidedly, Or
Overwhelmingly" Against The Weight Of The Evidence ................. 46
III. THE DISTRICT COURT CORRECTLY DENIED SCO'S
CLAIM FOR SPECIFIC PERFORMANCE ................................................ 48
IV. THE DISTRICT COURT CORRECTLY HELD THAT
NOVELL HAD THE RIGHT TO WAIVE SCO'S RIGHTS
UNDER IBM'S SVRX LICENSE .................................................. 50
A. The Asset Purchase Agreement Established That Santa
Cruz Was Novell's Agent ................................................... 50
B. Novell Did Not Breach the Implied Covenant of Good
Faith and Fair Dealing ....................................................... 54
V. THE DISTRICT COURT DID NOT ABUSE ITS
DISCRETION IN ITS EVIDENTIARY RULINGS .................................... 57
A. The Prior Judicial Decisions ............................................................... 57
B. The Original APA .................................................................. 59
C. Document Relied On By Novell's Expert .......................................... 61
CONCLUSION ................................................................................ 62
ORAL ARGUMENT STATEMENT .......................................................... 64
CERTIFICATE OF COMPLIANCE ........................................................ 65
CERTIFICATE OF SERVICE ............................................................. 66
CERTIFICATE OF DIGITAL SUBMISSION.......................................... 68
iii
CORPORATE DISCLOSURE STATEMENT
Appellee Novell, Inc. has no parent corporation. No publicly held
corporation owns 10% or more of Novell's stock.
iv
TABLE OF AUTHORITIES
Page(s)
CASES
Ag Servs. of Am., Inc. v. Nielsen,
Chateau Chamberay Homeowners Ass'n v. Associated Int'l Ins. Co.,
108 Cal. Rptr. 2d 776 (2001) ............................................................................. 56
Children's Broadcasting Corp. v. Walt Disney Co.,
357 F.3d 860 (8th Cir. 2004).............................................................................. 47
Crumpacker v. Kansas Dep't of Human Res.,
474 F.3d 747 (10th Cir. 2007)............................................................................ 38
Eickmeyer v. Commissioner of Internal Revenue,
580 F.2d 395 (10th Cir. 1978)............................................................................ 31
Kashmiri v. Regents of Univ. of Cal.,
67 Cal. Rptr. 3d 635 (2007) ............................................................................... 44
Kelly v. Metallics West, Inc.,
410 F.3d 670 (10th Cir. 2005)...................................................................... 21, 24
M.D. Mark, Inc. v. Kerr-McGee Corp.,
565 F.3d 753 (10th Cir. 2009)...................................................................... 46, 47
Malletier v. Dooney & Bourke, Inc.,
525 F. Supp. 2d 558 (S.D.N.Y. 2007)................................................................ 63
Pioneer Drilling Co. v. N.L.R.B.,
391 F.2d 961 (10th Cir. 1968).............................................................................. 7
Raytheon Aircraft Co. v. United States,
590 F.3d 1112 (10th Cir. 2009).................................................................... 21, 51
Schrock v. Learning Curve Int'l, Inc.,
586 F.3d 513 (7th Cir. 2009)........................................................................ 40, 42
v
SCO Grp., Inc. v. Novell, Inc.,
578 F.3d 1201 (10th Cir. 2009)................................................................... passim
Sprint/United Mgmt. Co. v. Mendelsohn,
552 U.S. 379 (2008) ........................................................................................... 58
United States v. McIntyre,
997 F.2d 687 (10th Cir. 1993), cert. denied, 510 U.S. 1063 (1994)............ 22, 50
United States v. Valenzuela,
365 F.3d 892 (10th Cir. 2004)............................................................................ 22
Weese v. Schukman,
98 F.3d 542 (10th Cir. 1996).............................................................................. 21
Weston v. Harmatz,
335 F.3d 1247 (10th Cir. 2003).......................................................................... 36
Zokari v. Gates,
561 F.3d 1076 (10th Cir. 2009).......................................................................... 62
STATUTES
17 U.S.C.
§ 103(a) .............................................................................................................. 40
§ 204(a) ........................................................................................................ 11, 12
Cal. Code Civ. P.
§ 1859 ................................................................................................................. 44
OTHER AUTHORITIES
Fed. R. Evid.
Rule 602 ............................................................................................................. 62
Rule 801(c) ......................................................................................................... 63
Rule 403 ............................................................................................................. 58
Fed. R. Civ. P.
Rule 50(b)............................................................................................... 21, 24, 25
vi
J. McCarthy on Trademarks & Unfair Competition
§ 18.2 (4th ed. 2010) .......................................................................................... 28
vii
STATEMENT OF RELATED CASES
SCO Group v. Novell, Inc., Case No. 08-4154, filed August 1, 2008, by
Movant-Appellant Jonathan Lee Riches, dismissed by this Court on October 6,
2008, for failure to prosecute.
SCO Group v. Novell, Inc., Case No. 08-4217, filed December 1, 2008 by
The SCO Group, Inc.
viii
STATEMENT OF CASE
A. Nature of Case
Two years after acquiring the UNIX operating system business for more
than $300 million, Novell sold specified portions of that business to Santa Cruz
Operation, Inc. ("Santa Cruz"). The Asset Purchase Agreement ("APA"), as
amended, outlined that Novell would transfer rights and assets to allow Santa Cruz
to develop and market a flavor of UNIX known as UnixWare. Novell, however,
would retain all existing copyrights. The APA also provided that Santa Cruz
would become Novell's agent with respect to the UNIX licensing business.
Santa Cruz subsequently sold the UnixWare-related assets to The SCO
Group, Inc. ("SCO"). SCO embarked on a campaign to collect license fees from
Linux users based on SCO's claims that Linux infringed UNIX copyrights. SCO
requested that Novell transfer the UNIX copyrights to SCO, a request Novell
rejected. Nevertheless, SCO contacted roughly 1,500 companies, alleging
infringement of the UNIX copyrights. Novell responded that SCO did not own the
copyrights, and SCO filed this action.
After losing on summary judgment in 2007, SCO argued to this Court that it
should be given the chance to present its claims to a jury. The Court gave SCO
that opportunity. The finders of fact (both jury and judge) were presented at trial
and in post-trial briefing with two competing interpretations of the amended APA.
1
SCO argued the deal was an acquisition of the entire UNIX and UnixWare
business. Novell presented evidence that the final deal was more limited, because
Santa Cruz could not afford to purchase the entire business. Instead, Novell
transferred the UnixWare business to Santa Cruz, but retained substantial rights in
the UNIX licensing business, including the right to receive most ongoing UNIX
royalties. To safeguard that royalty stream, Novell deliberately retained ownership
of the existing UNIX and UnixWare copyrights. The amendments to the APA did
not alter that fundamental feature of the APA. The finders of fact agreed with
Novell's interpretation of the transaction.
SCO now seeks to undo the factual findings of the jury and judge.
Throughout its brief, SCO makes arguments based on its version of events--a
version that would require that factual findings below be ignored or reversed. But
SCO is not entitled to re-try its case in this Court. Instead, SCO must demonstrate
the jury's verdict and the district court's factual findings were unreasonable and
unsupported by the evidence. That SCO utterly fails to do. To the contrary, the
findings below were consistent with the evidence, and thus should not be disturbed
on appeal.
B. Procedural History
SCO filed a complaint for slander of title in state court, which Novell
removed to federal court. On cross-motions for summary judgment, the district
2
court entered judgment for Novell and determined damages in a bench trial. This
Court affirmed-in-part, reversed-in-part, and remanded for trial.
After a three-week trial, the jury found for Novell. The judge also found for
Novell on the issues the parties agreed the court would decide after the trial. The
district court denied SCO's motions for judgment as a matter of law or a new trial.
STATEMENT OF FACTS
A. Factual Background
1. The UNIX and UnixWare Businesses
About fifty years ago, AT&T developed the UNIX operating system.
(A2947 ¶3.) By the 1980s, AT&T developed UNIX System V (known as SVRX)
which it licensed to major computer manufacturers, including IBM, Sun
Microsystems, and Hewlett-Packard. These manufacturers were authorized to use
the SVRX source code to develop their own "flavors" of UNIX--i.e., their own
unique UNIX-based operating systems. (A2948 ¶4.)
In 1993, Novell paid over $300 million to purchase the entirety of UNIX
System Laboratories, an AT&T spin-off that owned all of the UNIX business,
including copyrights and licenses. (A2948 ¶5.) Novell subsequently developed a
new flavor, "UnixWare." UnixWare combined the latest release of SVRX with
some components of Novell's NetWare source code. (A2948 ¶6.)
3
Two years after it purchased AT&T's UNIX business, Novell decided to sell
some of it. (A2949-50 ¶¶10-11.) Novell initially intended to divest itself of its
entire $300 million investment. But the buyer Novell identified, Santa Cruz,
lacked the resources to purchase the entire business. (A2950 ¶11.) Instead, Novell
sold Santa Cruz the right to develop UnixWare. Novell retained, however, rights
to most of the UNIX licensing business, including the ongoing royalty stream and
the UNIX and UnixWare copyrights needed to safeguard those royalties. (A2950
¶11.) The ultimate transaction was a limited asset purchase agreement, rather than
a full acquisition. (A2950 ¶11.)
2. The Asset Purchase Agreement
Tor Braham, outside counsel for Novell, was tasked with protecting Novell's
interests in the negotiation and drafting of the agreement. (A2773:2343.) The lead
drafter of the APA, he testified the deal was structured such that Santa Cruz would
acquire the assets and rights it needed to exploit and develop UnixWare going
forward. (A2964-65 ¶48.) Novell retained substantial rights in its already-existing
UNIX licensing business, including the right to receive SVRX royalties. Santa
Cruz became Novell's agent in the collection of those royalties and acquired assets,
such as contracts and employees, to effectuate that role. (A2951 ¶11.) Santa Cruz
did not enter into the SVRX licensing business for itself, and in general could not
even enter into new SVRX licenses. (A2956 ¶28.) Instead, it operated solely as
4
Novell's agent, with Novell retaining control over all components of the SVRX
licensing business. (A2951;A2981-82;A2998 ¶¶11,91,130.)
To "bulletproof" Novell's ongoing interest in the UNIX royalties, Novell
retained ownership of the existing UNIX and UnixWare copyrights.
(A2966;A2992-93;A2995-96 ¶¶51,117,123.) In particular, Novell retained
copyright ownership because of concerns regarding Santa Cruz's long-term
viability; Novell desired to protect its ongoing royalties in case Santa Cruz or a
successor went bankrupt. (A2965 ¶50.)
Under the APA, Novell transferred to Santa Cruz certain assets (listed on the
Included Assets schedule), while Novell expressly retained other assets (listed on
the Excluded Assets schedule). Section 1.1 of the APA provides that Santa Cruz
acquired the "right, title and interest in and to the assets and properties of [Novell]
relating to the Businesses (collectively the 'Assets') identified on Schedule 1.1(a)."
(A3110.) But the APA also provides, "the Assets to be so purchased shall not
include those assets (the `Excluded Assets') set forth on Schedule 1.1(b)."
(A3110;A3164-65.)
The schedules for Included Assets (Schedule 1.1(a)) and Excluded Assets
(Schedule 1.1(b)) each have an "Intellectual Property" subheading, specifying
which intellectual property is included and which is excluded. The only
intellectual property listed as Included Assets on Schedule 1.1(a) are the UNIX and
5
UnixWare trademarks. Copyrights are not listed on that schedule. Schedule 1.1(b)
explicitly excludes from the transaction "[a]ll Patents" and "[a]ll copyrights and
trademarks, except for the trademarks UNIX and UnixWare." (A3165 ¶21.)
Those most closely involved with negotiating and drafting the APA
(including Braham, the primary drafter of the agreement) testified Novell's
retention of copyright ownership and its broad waiver rights with respect to SVRX
licenses were critical components of the deal and protected Novell's ongoing
interests. (See, e.g., A2964 ¶48 (Braham testimony), A2965 ¶49 (testimony of
David Bradford, Novell's General Counsel from 1985-2000), A2965 ¶50
(testimony of James Tolonen, Novell's Chief Financial Officer at time of APA),
A2966 ¶51 (testimony of Michael Defazio, Executive Vice President of Novell at
time of APA), A2966 ¶52 (testimony of Jack Messman, member of Novell's Board
of Directors at time of APA and later CEO).) When the Novell Board of Directors
approved the deal, it did so with an explicit statement in its approved Board
minutes that Novell would "retain all of its patents, copyrights and trademarks
(except for the trademarks UNIX and UnixWare)." (A2957 ¶31.)1
6
The APA also provided in Section 4.16 that Santa Cruz would administer the
collection of all royalties and other fees under SVRX licenses. (A2954 ¶25.)
Santa Cruz was not permitted to amend, modify, or waive any right under any
SVRX license without Novell's prior consent, but Novell could direct Santa Cruz
to amend, supplement, modify, or waive any rights under any SVRX license.
(A2956 ¶28.) Santa Cruz was to act as Novell's agent. (A2977 ¶82.) Section 4.16
was the key provision embodying the deal that the UNIX licensing business would
remain owned by Novell, but be administered by Santa Cruz. (A2977 ¶83.) This
section was intended to "bulletproof" Novell's ongoing financial interest in SVRX
royalties. (Id.)
SVRX licenses consist of three types of agreements--an umbrella software
agreement, a product supplement agreement, and a sublicensing agreement.
(A2979-80 ¶88.) An umbrella software agreement provides the general terms and
conditions that will govern the relationship between the licensee and the licensor.
(A2979;A2323:625.) A product supplement agreement licenses a specific software
product and enables the licensor to develop code on top of it. (A2979;A2323:625.)
A sublicensing agreement allows the licensor to distribute a binary product.
(A2979-80.) These agreements work together. (A2980.) If a company does not
7
have an umbrella software agreement, it cannot have a product supplement
agreement. (A2980.)
3. Amendments No. 1 and No. 2
The APA was amended twice. Amendment No. 1 was executed several
months after the original APA. Although that amendment was a carefully crafted
clean-up amendment, it did not alter the copyright-exclusion provision. (A2958
¶33.)
Amendment No. 2, executed on October 16, 1996, was negotiated by Santa
Cruz's General Counsel Steve Sabbath and Novell's in-house counsel
Allison Amadia. (A2714:2120.) Sabbath initially took the position that copyrights
had been intended to transfer under the APA and the exclusion was an error.
(A2973-74 ¶74.) He sent a draft amendment to Amadia with language to transfer
the copyrights. (A2974 ¶76.) In speaking with Braham and Tolonen, Amadia
learned the exclusion of copyrights was intentional. (A2973-74 ¶¶74-76.)
Accordingly, she rejected Sabbath's proposal, explaining that Novell would not
transfer copyright ownership. She agreed, however, to add language to the list of
Excluded Assets--Schedule 1.1(b)--to confirm Santa Cruz had the rights it needed
under the copyrights to exercise the development rights it acquired under the APA.
(A2974 ¶76.) The final language in Amendment No. 2 amended the copyright
exclusion to read: "All copyrights and trademarks, except for the copyrights and
8
trademarks owned by Novell as of the date of the Agreement required for SCO to
exercise its rights with respect to the acquisition of UNIX and UnixWare
technologies. However, in no event shall Novell be liable to SCO for any claim
brought by any third party pertaining to said copyrights and trademarks." (A2958
¶34.) No modification was made to Schedule 1.1(a), the schedule of assets
included in the transaction.
4. SCO's Actions Against IBM
In the 1980s, AT&T built a substantial business licensing SVRX source
code to major computer manufacturers, including IBM. (A2948 ¶4.) When Novell
purchased UNIX System Laboratories from AT&T, it acquired the SVRX licenses
and resulting royalties. (Id.) Under the APA, Novell retained rights to the SVRX
licensing business, but Santa Cruz was charged with collecting the royalties.
In October 1996, IBM, Santa Cruz, and Novell amended IBM's SVRX
license, granting IBM an irrevocable and fully paid perpetual right to exercise all
rights under its license in exchange for approximately $10 million.
(A2981;A2985-86 ¶¶90,103.) Both Novell and Santa Cruz signed this amendment,
and Santa Cruz received part of the payment. (A2981 ¶90.)
In 2001, SCO purchased Santa Cruz's UNIX and UnixWare-related assets
and rights. (A2228:264;A4471-75.) Santa Cruz warned SCO at the time that it
"may not be able to establish a chain of title from Novell" for any copyrights.
9
(A4473.) Nevertheless, SCO created a new licensing division known as
SCOsource, in an effort to obtain licensing fees from Linux users based on SCO's
claims that Linux infringed UNIX copyrights. (A2983-84 ¶98.)
As part of this effort, SCO repeatedly contacted Novell requesting a transfer
of UNIX copyrights to SCO, which Novell rejected. (A2741-42:2220,
A2742:2222;A2742:2224;A4375.) SCO nevertheless launched SCOsource.
(A2983-84 ¶98.) SCO sent letters to roughly 1,500 companies, including Novell,
alleging infringement. (A2652-53:1890-1891;A4212-13.) Novell viewed SCO's
actions as a campaign against Linux end users and was concerned due to its own
involvement in the Linux business. (A2984 ¶99.) Novell responded that Novell,
not SCO, owned the UNIX copyrights. (A4379.)
In 2003, SCO sued IBM, alleging that IBM had donated UNIX source code
and other confidential information to Linux. (A2984 ¶100.) As part of that
litigation, SCO threatened to terminate IBM's SVRX license. (Id.) IBM contacted
Novell and requested that Novell waive all claims SCO had made or might make
against IBM with respect to IBM's SVRX license. (A2985 ¶102.) After analyzing
IBM's request, Novell sent SCO a letter stating that SCO's claims threatened
Novell, its customers, and the industry in general. Under Section 4.16(b) of the
APA, Novell directed SCO to waive its claims to terminate IBM's SVRX license.
10
(A2986 ¶103.) When SCO refused, Novell sent a second letter waiving such
claims on behalf of SCO, pursuant to Section 4.16(b). (Id.)
Novell wrote a third letter to SCO directing SCO to waive its claim that code
supplied to IBM by AT&T and incorporated into IBM's flavor of UNIX, AIX,
must be maintained as confidential and not contributed to Linux, even though such
code did not contain proprietary UNIX code. (A2986-87 ¶104.) After SCO failed
to waive its claim, Novell waived the claim on SCO's behalf. (Id.)
B. Proceedings Below
1. First District Court Judgment
On cross-motions for summary judgment, the district court ruled for Novell
on key issues. (A355-56.) The court held that Novell owned the UNIX and
UnixWare copyrights. (A315.) The court concluded that the plain language of the
APA did not transfer the copyrights to SCO. (A311.) The court further held that
the APA, particularly Amendment No. 2, lacked the necessary specificity to satisfy
the written-transfer requirement of 17 U.S.C. § 204(a). (A313-16.)
The district court also held that under the APA, Novell could waive "any
rights" under "any SVRX License," including claims based on IBM's alleged
breach of software and sublicensing agreements that were part of the "combination
of agreements" licensing SVRX. (A331,342.) The court also concluded that the
APA required SCO, as Novell's agent and fiduciary, to provide Novell with
11
royalties paid under "all SVRX Licenses." This included payments SCO collected
from Sun and Microsoft. (A350.) To determine the amount of royalties SCO
owed Novell, the court held a bench trial and awarded Novell $2,547,817 of Sun's
$9.1 million payment. (A398.)
2. First Appeal
SCO appealed, and this Court affirmed-in-part, reversed-in-part, and
remanded for trial.
With respect to whether the APA and Amendment No. 2 transferred the
UNIX and UnixWare copyrights to SCO, this Court held that there were triable
factual issues. First, the Court held that Section 204(a) of the Copyright Act does
not preclude ambiguous writings from transferring copyright ownership. Second,
the Court held that interpretation of a written agreement is a question of fact. SCO
Grp., Inc. v. Novell, Inc., 578 F.3d 1201, 1214 (10th Cir. 2009). It observed that a
case "involving a complicated, multi-million dollar business transaction involving
ambiguous language about which the parties offer dramatically different
explanations, is particularly ill-suited to summary judgment." (Id. at 1215). The
Court recognized "that Novell has powerful arguments to support its version of the
transaction" and "there may be reasons to discount the credibility, relevance, or
persuasiveness of the extrinsic evidence that SCO presents." (Id.) Nonetheless,
viewing the conflicting evidence in the light most favorable to SCO, this Court
12
held that "[a] rational trier of fact could surely find that Amendment No. 2 clarified
the APA so as to indicate that at least some copyrights transferred to SCO." (Id.
at 1216.) But the Court also made clear that it merely viewed the evidence as
creating "ambiguity over whether the transfer of copyrights was required to
support SCO's rights under the APA," and that it was not taking a "position on
which party ultimately owns the UNIX copyrights or which copyrights were
'required' for Santa Cruz to exercise its rights under the agreement." (Id. at 1218-1219.) Because the evidence was "subject to conflicting, reasonable
interpretations," such determinations were "for the finder of fact on remand." (Id.)
This Court also held that there was ambiguity with respect to the meaning of
"SVRX License" and Novell's waiver rights under Section 4.16. (Id. at 1220.)
The Court held that the language was not so clear as to preclude SCO's
interpretation, although the Court observed that it was reasonable that the parties
would have agreed to protect Novell's "substantial pecuniary interest." (Id.
at 1224.)
The Court thus remanded for a trial on four enumerated issues: "(1) the
ownership of the UNIX and UnixWare copyrights; (2) SCO's claim seeking
specific performance; (3) the scope of Novell's rights under Section 4.16 of the
APA; [and] (4) the application of the covenant of good faith and fair dealing to
Novell's rights under Section 4.16 of the APA." (Id. at 1227.)
13
3. On Remand
a. The district court held a three-week jury trial, and the jury returned a
verdict for Novell. In response to the question, "Did the amended Asset Purchase
Agreement transfer the UNIX and UnixWare copyrights from Novell to SCO," the
jury answered "no." (A1914-15.) This mooted the remaining jury questions,
which included questions on slander and special damages. (Id.)
b. Because the parties agreed that the judge would decide whether SCO
was entitled to specific performance requiring Novell to transfer the copyrights, the
judge made express findings of fact and conclusions of law regarding copyright
ownership.
Although the court noted that SCO's witnesses expressed the view that the
UNIX and UnixWare copyrights were intended to transfer to SCO (testimony SCO
highlights before this Court), the district court expressly found that testimony less
credible and less persuasive than Novell's evidence. (A2967 ¶53.) Specifically,
the court found that SCO's witnesses, while having a business-level understanding
of negotiations between Novell and Santa Cruz, were not themselves involved in
the negotiation or drafting of the agreement. (A2967;A2975 ¶¶53,79.) Moreover,
the court found that SCO's witnesses had a substantial financial interest in the
outcome of this case, which undermined their credibility. (A2967 ¶53.)
14
In contrast, the district court found that Novell's witnesses had actual and
direct knowledge of the topics on which they testified. None had any financial
interest in the outcome of this lawsuit. The court thus found Novell's witnesses
more credible. (A2967 ¶53.) For example, Braham was the lead drafter of the
APA and was able to explain the intent behind both the copyright exclusion and
the broad waiver and approval language of Section 4.16. Amadia was the lead
negotiator and drafter of Amendment No. 2 and was able to explain the drafting
history and the intent behind that provision. As Novell's Chief Financial Officer at
the time of the original APA and Amendment No. 2, Tolonen signed Amendment
No. 2. Tolonen was the only witness from either side with involvement in both the
original agreement and the amendment. (A2964;A2965;A2973-74 ¶¶48,50,74-76.)
Based on these express factual findings, the court concluded that SCO was
not entitled to specific performance, because such an equitable remedy would
conflict with the jury verdict and the weight of the evidence. (A2990-92 ¶¶110-
15.)
The court also held that Novell was entitled to a declaratory judgment that
Novell possessed broad waiver rights under Section 4.16 of the APA. The court
explained that if SCO's limited interpretation of "SVRX License" were accurate,
SCO would have the unfettered ability to terminate umbrella software agreements,
which would destroy Novell's ability to protect its SVRX royalty stream. Product
15
supplement agreements could exist only between parties who also had entered
software agreements. (A2999 ¶132.)
Finally, the court held that Novell did not breach the covenant of good faith
and fair dealing by exercising its waiver rights under Section 4.16. The court
found that (1) neither of the exceptional circumstances set out by this Court's prior
decision existed, (2) Novell's actions were in good faith, and (3) SCO's argument
rested on the faulty premise that Novell transferred the entire UNIX business to
Santa Cruz, a premise that the jury rejected. (A3002-04 ¶¶142-46.)
c. The district court denied SCO's renewed motion for judgment as a
matter of law or, in the alternative, a new trial. With respect to the motion for
judgment as a matter of law, the court noted that it "must draw all reasonable
inferences in favor of the nonmoving party." (A3007 (citation omitted).) The
court rejected SCO's motion because there was "substantial evidence" in Novell's
favor, and the jury found Novell's version of the facts persuasive. (A3008.)
The court noted that a new trial can be granted only where the verdict is
"clearly, decidedly, or overwhelmingly against the weight of the evidence."
(A3012 (citation omitted).) The court observed that "the mere fact that SCO
presented more witnesses" did not satisfy that standard. (A3013.) The court
concluded that the jury found SCO's witnesses less credible or less persuasive for a
number of reasons, "including their lack of involvement in drafting the APA, the
16
fact that there was little testimony on any actual discussions concerning the
transfer of copyrights, or that many of the witnesses had a financial interest in the
litigation." (A3013.) The court also noted that the drafter of Amendment No. 2,
Amadia, "specifically testified that she informed Mr. Sabbath [Santa Cruz's
negotiator and signer of Amendment No. 2] that Novell would not transfer the
copyrights." (A3013.)
SUMMARY OF ARGUMENT
I. Over the course of a three-week trial, SCO argued the APA was
designed to transfer the entire UNIX and UnixWare business, including copyrights.
But Novell presented substantial testimony and evidence that, because of Santa
Cruz's lack of resources, the final deal was more limited. Specifically, the deal
transferred much of the UnixWare business to Santa Cruz, but left the UNIX
licensing business and copyrights with Novell. Amendment No. 2 confirmed Santa
Cruz had the rights it needed to operate its business accordingly. Novell's
evidence included testimony from the lead drafters of the APA (Braham) and
Amendment No. 2 (Amadia), plus minutes from the Novell Board of Directors
meeting approving the APA and stating copyrights were not intended to transfer.
By contrast, SCO presented witnesses with no involvement in the actual
negotiation and drafting of the APA or no involvement in its final stages. SCO
presented no witnesses who could contradict Novell's position on Amendment
17
No. 2. SCO's primary witness with respect to that amendment did not recall the
relevant paragraph, did not recall negotiating it, and conceded he would not be able
to contradict Novell's witness regarding whether he stated copyrights were
specifically excluded from the APA. Furthermore, SCO's own witnesses admitted
SCO did not require ownership of the UNIX copyrights to operate its software
business or to protect the intellectual property SCO created, contradicting SCO's
core arguments with respect to Amendment No. 2.
After weighing the evidence, both judge and jury determined that Novell's
position was more persuasive. In light of the voluminous evidence in Novell's
favor, the district court correctly rejected SCO's motion for judgment as a matter
of law.
II. A new trial is not warranted because the verdict is not clearly,
decidedly, or overwhelmingly against the weight of the evidence. The jury had
ample reasons to discount SCO's evidence, including SCO's witnesses' lack of
knowledge of the negotiation and drafting of the amended APA, lack of
competency with respect to Amendment No. 2, and in some cases financial interest
in the trial's outcome.
III. The court correctly denied SCO's request for specific performance.
The evidence supported Novell's position that copyrights were not intended to
transfer and were not required for SCO to exercise its rights with respect to the
18
UNIX and UnixWare technologies. Also, specific performance cannot be granted
if it would contradict a factual predicate of a jury's verdict. Contrary to SCO's
assertion, the jury verdict necessarily decided that copyrights were not required for
SCO's business, as this was a central issue on which both parties presented
extensive evidence.
IV. The district court correctly held that Novell had the right to waive
SCO's rights under IBM's SVRX license.
The APA established that SCO was Novell's agent with respect to the UNIX
business and SVRX licenses. That agency relationship is consistent with Novell
having broad control over SCO regarding that portion of the business.
Furthermore, it was undisputed at trial that the waiver provision was intended to
"bulletproof" Novell's interest in the royalty stream from SVRX licenses, and that
a party could not have a royalty-producing product supplement agreement if it did
not also have a software agreement.
The court was also correct to hold that Novell did not breach the implied
covenant of good faith and fair dealing by exercising its right to waive SCO's
claims in connection with IBM's SVRX license. Novell acted in accord with the
APA's terms, and its actions did not render the contract contradictory or illusory.
V. The three evidentiary rulings SCO attacks were well within the district
court's broad discretion.
19
First, the court did not abuse its discretion in permitting limited evidence of
prior judicial decisions. SCO invited the introduction of this evidence by
disregarding the court's repeated warnings. This evidence was necessary for
Novell to cross-examine SCO's damages expert, who ignored the highly publicized
decisions as possible causes of damage to SCO's reputation and business that were
independent of Novell's allegedly wrongful acts.
Second, the court did not abuse its discretion in permitting Novell to
reference the original APA. It would have been nonsensical for Novell and SCO to
ask witnesses who had no involvement in or knowledge of Amendment No. 2
questions about that amendment.
Third, the court did not abuse its discretion in permitting Novell to show a
document relied on by Novell's expert. The document was not used for a hearsay
purpose, but to show that independent of Novell, negative statements about SCO
were being published, whether true or not.
ARGUMENT
I. THE DISTRICT COURT CORRECTLY DENIED SCO'S MOTION
FOR JUDGMENT AS A MATTER OF LAW
A. Standard Of Review
A jury's verdict is entitled to great deference. This Court reviews "the
denial of a motion for JMOL de novo, using the same legal standard as the district
court." Kelly v. Metallics West, Inc., 410 F.3d 670, 674 (10th Cir. 2005). "JMOL
20
is only proper when the evidence and all inferences to be drawn therefrom are so
clear that reasonable minds could not differ on the conclusion." (Id.) This Court
draws "all reasonable inferences in favor of the nonmoving party" and does not
"weigh the evidence, pass on the credibility of witnesses, or substitute [its]
conclusions for that of the jury." Id.; see also Weese v. Schukman, 98 F.3d 542,
547 (10th Cir. 1996).2
A district court's findings of fact are reviewed only for clear error.
Raytheon Aircraft Co. v. United States, 590 F.3d 1112, 1120 (10th Cir. 2009).
This Court does not reweigh evidence or reconsider witnesses' credibility. See
United States v. Valenzuela, 365 F.3d 892, 901 (10th Cir. 2004); United States v.
McIntyre, 997 F.2d 687, 707-778 (10th Cir. 1993), cert. denied, 510 U.S. 1063
(1994).
B. The Jury's Verdict That The Amended Asset Purchase
Agreement Did Not Transfer Copyrights Is Well Supported
In arguing that the court erred in denying its motion for JMOL, SCO
carefully selects and strategically cites testimony to contend that the findings by
the jury and the district court that no copyrights transferred cannot be reconciled
21
with the evidence. (SCO Br. 25-39.) But that argument would require this Court
to re-weigh the evidence. That this Court should not do.
The fact-finders weighed the contractual language, documentary evidence,
and testimony presented at the three-week trial and chose between two conflicting
interpretations of the agreement, which this Court previously deemed ambiguous.
SCO argued the deal always was designed to transfer the entire UNIX and
UnixWare business, including copyrights. SCO contended that Amendment No. 2,
although ambiguously phrased, confirmed that those copyrights did transfer.
But Novell presented evidence that Santa Cruz lacked the resources to buy
the entire UNIX and UnixWare business, which Novell had purchased for more
than $300 million. Novell's evidence showed that the final deal intentionally
transferred only certain assets to Santa Cruz. Novell retained the uncontested right
to ongoing UNIX licensing royalties, with Santa Cruz acting as Novell's agent to
collect those royalties. To protect that significant royalty stream, Novell retained
the existing UNIX and UnixWare copyrights and the power to direct Santa Cruz to
amend, supplement, modify, or waive rights under any SVRX license. Santa Cruz
acquired the valuable right to develop, sell, and license UnixWare, and
Amendment No. 2 confirmed that right.
After considering the extensive evidence, both jury and judge found
Novell's view of the APA transaction more credible. Given the substantial
22
evidence supporting Novell's interpretation, SCO is wrong to now assert that the
factual findings below were unreasonable or lacked an evidentiary basis.
Nor is the judgment inconsistent with this Court's mandate. As this Court
held (at SCO's urging) in the previous appeal, the amended APA was sufficiently
ambiguous to justify looking to extrinsic evidence and negotiators' testimony on
original intent. SCO Grp., Inc. v. Novell, Inc., 578 F.3d 1201, 1210-1211 (10th
Cir. 2009). That the evidence did not support SCO's version of the transaction
provides no basis for the new fact-finding SCO seeks from this Court. Indeed, this
Court previously "recognize[d] that Novell has powerful arguments to support its
version of the transaction, and that ... there may be reasons to discount the
credibility, relevance, or persuasiveness of the extrinsic evidence that SCO
presents." (Id. at 1215.) These reasons proved true, and SCO's reliance on the
discounted testimony supporting its rejected view of the amended APA cannot
support reversal.3
23
1. Testimony Of Those Involved In Drafting And Negotiating
Amendment No. 2 Confirms It Did Not Transfer Copyrights
As the district court expressly found, significant testimony from those
involved in the drafting and negotiation of Amendment No. 2 confirms that the
amended APA did not transfer the UNIX or UnixWare copyrights to SCO.
Before this Court, however, SCO has combed through the record to
selectively cite extrinsic evidence that it contends supports its claim. (SCO Br. 27-30.) SCO's argument is fatally flawed for two reasons. First, it ignores Novell's
substantial evidence to the contrary supporting the findings of the jury and district
court, to which this Court should defer. Second, it overlooks that the fact-finders
were entitled to find SCO's testimony unpersuasive and/or lacking in credibility.4
24
a. The jury's verdict is well supported
Ample testimony supports the finding that Amendment No. 2 did not
transfer copyrights to SCO.
Novell's witnesses testified that Amendment No. 2 was never intended to
transfer ownership of the UNIX copyrights. Both Tolonen (Novell's CFO at the
time of both the APA and Amendment No. 2 and signer of the latter) and Amadia
(former Novell in-house attorney and lead negotiator and drafter of Amendment
No. 2) so testified. (A2692:2036;A2692:2038;A2713-14:2119-2120;A2714:2123.)
In fact, Amadia initially received a draft of Amendment No. 2 from SCO's
Sabbath that would have revised Schedule 1.1(b) to transfer copyright ownership.
But she rejected the proposed language because Novell did not want to transfer the
copyrights to Santa Cruz. (A2714:2120.) Sabbath's proposed revision of
Schedule 1.1(b), if it had been accepted, would have identified as Excluded Assets
"[a]ll copyrights and trademarks, except for the copyrights and trademarks owned
by Novell as of the date of this Amendment No. 2, which pertain to the UNIX and
UnixWare technologies and which SCO has acquired hereunder." (A4753.)
(emphasis added). Amadia told Sabbath that Novell would not alter the original
APA to transfer copyright ownership, and she could only modify the language to
"affirm the rights that [SCO] ha[d] acquired in terms of license grants and rights to
use the technology." (A2714:2120.) Amadia prepared such a revision, which
25
became the final language of Amendment No. 2. (A2714:2121-2123.) This
evidence alone is sufficient for a reasonable jury to find for Novell.
Moreover, SCO's construction of Amendment No. 2 defies basic logic and
ignores this Court's requirement that the agreement be construed as a single
document. SCO, 578 F.3d at 1211. Amendment No. 2 made no change to the
schedule of assets included in the transaction (Schedule 1.1(a), which itself had an
Intellectual Property subsection). That schedule did not transfer any copyrights to
Santa Cruz. Amendment No. 2 merely changed the language of the Excluded
Assets in Schedule 1.1(b). No SCO witness proffered any explanation as to why, if
copyrights were intended to transfer, Amendment No. 2 did not amend
Schedule 1.1(a) to affirmatively include copyrights.
Indeed, Tolonen and Amadia both testified that if Amendment No. 2 had
been intended to confirm the transfer of copyrights, Schedule 1.1(a)'s list of
Included Assets would also have been amended. Amadia testified that if copyrights
were to transfer, she "would have definitely amended Schedule 1.1(a), which listed
the [I]ncluded [A]ssets." (A2724:2160.) Likewise, Tolonen agreed that the way to
transfer the copyrights would have been to include them on the schedule of
Included Assets. (A2692:2037.)
Nor is there any merit to SCO's claim that some of Amadia's testimony
supports its position. SCO quotes Amadia's testimony that "if there are copyrights
26
that are required for SCO to exercise its rights, like the UNIX and UnixWare
trademarks, they were transferred." (SCO Br. 27.) But Amadia stated that
Amendment No. 2 was not referring to the transfer of copyright ownership, but
instead the transfer of certain copyright rights. (See, e.g., A2724:2160 ("the way
that I wrote and intended Amendment Number 2 to be read is that this language
was saying that whatever copyright rights Santa Cruz needed in order to exercise
the rights it was given . . . they would have those rights.") (emphases
added);A2713:2122 ("Q: Did anyone at Novell ever suggest to you that in
connection with amendment number two that Novell ought to transfer ownership
of UNIX copyrights to Santa Cruz Operation? A: No, no one did.") (emphasis
added).)5
SCO also misrepresents Amadia's testimony, claiming that she believed
Sabbath understood the purpose of Amendment No. 2 to be "to clarify that the
UNIX and UnixWare copyrights had transferred." (SCO Br. 15). But SCO omits
the first part of the question, which makes clear that this was only "initially in the
27
beginning of discussions." (Compare SCO Br. 15 with A2726:2169.) As Amadia
explained, "after he executed Amendment Number 2," Sabbath "thought he got
what he needed, which would clear license rights to go forward, to use the code, to
develop it to, you know, own modifications to it, to do all of the things they
intended to do to acquire the assets." (A2726:2169.)
In any event, even if portions of Amadia's testimony were construed to
support SCO's claim that copyright ownership transferred (SCO Br. 4), the fact-
finders were free to rely on and credit her ample testimony that supported Novell's
position. (A2973-75 ¶¶74-79.)
b. SCO's witnesses were less credible and less persuasive
The foregoing evidence is more than sufficient to sustain the jury's verdict
and district court's findings, and this Court should refrain from re-weighing the
evidence. In any event, the fact-finders had good reason to discount SCO's
evidence.
The only SCO witnesses with any involvement in Amendment No. 2 --
Sabbath and Kim Madsen -- had nothing to say regarding the negotiation and
interpretation of Amendment No. 2. Sabbath did not recall the relevant paragraph
in Amendment No. 2, did not recall negotiating it, did not know who would have
negotiated it, and could not recall focusing on that provision before signing the
amendment. (A2401-02:924-925.) Indeed, Sabbath conceded he would not be
28
able to contradict Amadia regarding whether he stated the copyrights were
specifically excluded from the APA. (A2401-02:924-925;A2403:933.)
Despite this lack of memory, Sabbath executed a self-serving declaration in
2004 stating his belief that Amendment No. 2 was intended to confirm that SCO
would obtain ownership of the UNIX copyrights under the APA. (A2397:910.)
But Sabbath was forced to admit that he had also executed, under penalty of
perjury, an earlier declaration that conflicted with his trial testimony and that
conceded Novell retained much of the UNIX intellectual property, quoting the
schedule of Excluded Assets. (A2402:927-928.)
Madsen testified that she "reviewed and commented" on the language of
Amendment No. 2, but had only a general memory of the amendment's execution
and did not have any specific recollection of discussions with Sabbath.
(A2369:802.) When asked what copyrights she believed were "required" for Santa
Cruz to operate its UNIX and UnixWare business in 1996, Madsen responded
only: "We would have acquired all the copyrights." (A2369-70:802-803.)
In short, ample reasons existed for the jury and the district court to reject the
testimony of SCO's witnesses. This Court, with only the cold trial transcript,
should not re-weigh that evidence. (See A2963-64 ¶¶46-47, noting inconsistencies
in testimony of Sabbath and Madsen.)
29
c. The findings do not render Amendment No. 2
meaningless
There is no merit to SCO's claim that Amendment No. 2 is rendered
meaningless if no copyrights transferred. (SCO Br. 25.) As Amadia explained,
Amendment No. 2 affirmed that Santa Cruz had the right to use the UNIX
technology to manufacture and modify UnixWare. (A2716:2128.) As discussed
above, she explained that Sabbath believed he obtained what he wanted out of
Amendment No. 2: the ability to "use the code, ... develop it[, and] own
modifications to it, ... all of the things they intended to do [when Santa Cruz]
acquire[d] the assets." (A2726:2169.)
SCO is wrong to suggest that, because "the term 'license' is not mentioned
in the APA with respect to SCO's rights," Amendment No. 2 cannot be referring to
usage rights. (SCO Br. 20.) The word "license" is not necessary to grant usage
rights. In fact, courts have found licenses where the word "license" was not used
or there was no written agreement. See, e.g., Eickmeyer v. Commissioner of
Internal Revenue., 580 F.2d 395, 399-400 (10th Cir. 1978) (holding that failed
patent assignment constituted mere license even where license terminology was
not used).
Nor did this Court hold that Amendment No. 2 referred only to ownership,
not usage rights. (SCO Br. 7.) This Court's previous ruling made clear that
30
copyrights did not necessarily transfer under Amendment No. 2; rather, it held that
there were triable issues of fact as to copyright ownership. And this Court
expressly took "no position on which party ultimately owns the UNIX copyrights."
SCO, 578 F.3d at 1219. It thus was entirely consistent with this Court's mandate
for the jury and district court to conclude that Amendment No. 2 did something
other than transfer UNIX and UnixWare copyrights.
2. Testimony As To The Original Intent Of The APA
Confirms That Novell Intentionally Retained The UNIX
And UnixWare Copyrights
a. Testimony of the primary APA draftsman further confirms that Novell
intentionally retained the copyrights. The original APA unequivocally excluded
"all copyrights," including the UNIX and UnixWare copyrights, from the
transaction between Novell and Santa Cruz. (A2954 ¶23.) Notwithstanding
SCO's claims that this was a drafting error, both the jury and judge found that this
was no mistake. Ample evidence supports those findings.
Braham, Novell's outside counsel who was the primary draftsman of the
APA, testified that the copyright exclusion was negotiated and agreed upon at
Novell's direction. (A2778:2363.) Braham and Mike DeFazio, former head of the
UNIX and UnixWare business at Novell who later joined Santa Cruz, agreed that
the copyright exclusion was designed to protect Novell's interests in future SVRX
royalties. The copyrights thus were not listed on the schedule of the assets
31
included in the sale (Schedule 1.1(a)). (A2778:2363-64.) Because Santa Cruz was
unable to pay for the entire UNIX and UnixWare business, it purchased the
UnixWare business, with Novell retaining rights and royalties from the UNIX
licensing business. (A2950-51 ¶11.) DeFazio confirmed that the retention of
copyrights was crafted to "bulletproof" Novell's royalty stream. (A2966 ¶51.)
Similarly, Tolonen, Novell's CFO during the time of both the original APA
and Amendment No. 2 and a signer of Amendment No. 2, testified that copyrights
were purposefully excluded because (1) Santa Cruz was small and could not afford
to pay the entire value for all UNIX and UnixWare-related rights and assets, and
(2) Novell was concerned about Santa Cruz's long-term viability and wanted to
ensure Novell's rights would not be jeopardized if a competitor acquired Santa
Cruz. (A2688-89:2021-23.)
This testimony went unrefuted by SCO and unmistakably undermines
SCO's contention that the parties originally intended the APA to transfer
copyrights and that Amendment No. 2 confirmed that intent. None of SCO's
witnesses were directly involved in drafting the original APA, as Braham was, and
SCO did not call any outside lawyers from the Santa Cruz side of the transaction.
The jury weighed Novell's testimony against that of SCO's witnesses and found
Novell's more persuasive. That conclusion is bolstered by the district court's
explicit factual findings that this testimony was credible. (A2975 ¶79.)
32
b. Moreover, Novell demonstrated that Novell's Board of Directors
approved the APA with specific reference to its exclusion of all copyrights.
(A2957 ¶31.)
David Bradford, Secretary to the Board of Directors and General Counsel
for Novell for nearly 15 years, including at the time of the APA and Amendment
No. 2, prepared the Board minutes. (A2797:2434.) He testified that Novell's
Board approved the APA transaction with the proviso that Novell would retain all
copyrights. (A2799:2442.) If Amendment No. 2 had been intended to change this
exclusion and transfer copyrights, that would have been a material change
requiring separate Board approval. Such approval was never sought or obtained.
(A2692:2037.)6
Indeed, this Court recognized that Amendment No. 2 could not be easily
read to change the scope of the APA. The Court noted that "SCO paid no
additional consideration for Novell's agreement to Amendment No. 2," and
33
acknowledged that "[i]f Amendment No. 2 were a change in the agreement (and a
commercially significant one, at that), it is hard to see why Novell would have
agreed to it without compensation." SCO, 578 F.3d at 1211.
The existence of Amendment No. 1 also supports the jury's determination
that the retention of copyright ownership was intended and authorized by Novell.
(A4707-24.) Amendment No. 1 was a carefully reviewed and crafted clean-up
amendment, yet it did not add copyrights to the Included Assets (Schedule 1.1(a)),
nor did it remove copyrights from the Excluded Assets (Schedule 1.1(b)). (Id.)
SCO's witness Robert Frankenberg agreed that
even after the Board meeting that was held at which the
[APA] was approved, after [he] and other members of the
Board had a chance to thoroughly review the [APA], and
even after Mr. Sonsini [senior partner of the Wilson
Sonsini law firm and member of Novell's Board] and
Mr. Bradford, the legal advisors, apprised the Board
about what was contained in the agreement and even
after a nearly three-month period to review it, neither
Novell nor Santa Cruz Operation chose to include UNIX
copyrights in the [APA] when Amendment Number 1
was executed.
(A2199:153-54.)
c. Nor is there any merit to SCO's argument that extrinsic evidence
relating to the original intent of the APA cannot sustain the judgment. (SCO
Br. 25 (asserting that Novell's reliance on original intent testimony "cannot be
reconciled with the fact that Amendment No. 2 replaced the original exclusionary
34
language").) That argument is contrary to this Court's mandate in SCO's first
appeal, and directly contradicts the arguments that SCO advanced (and this Court
accepted) in that appeal.
In its previous appeal, SCO argued "Amendment No. 2 was designed to
bring the language of the transaction in line with the parties' original intent to
transfer the copyrights." SCO, 578 F.3d at 1210 (emphasis added). This Court
explained that if Amendment No. 2 was understood "to clarify the parties' original
intent as to the transfer of copyrights, SCO's extrinsic evidence concerning the
business negotiations may be relevant to resolving ambiguity concerning the
content of the original intent." (Id. (emphasis added).) This Court thus rejected
Novell's argument that the Court "ought not consider any of SCO's extrinsic
evidence bearing on the development of the APA itself, and limit any inquiry
beyond the text of the agreement to the course of the parties' negotiations over
Amendment No. 2." (Id. at 1210.) The Court expressly held that, "to the extent
that it is proper ... to read Amendment No. 2 as clarifying the APA, SCO's
extrinsic evidence of the business negotiators' intent concerning the transaction
ought to be admissible." (Id. at 1210-11.) That holding now is the law of the case.
Weston v. Harmatz, 335 F.3d 1247, 1255 (10th Cir. 2003).
Having received the trial it requested based on the very extrinsic evidence it
sought to have considered, SCO should not now be permitted to flip-flop its
35
position to exclude consideration of that evidence. The district court permitted
SCO and Novell to proffer conflicting extrinsic evidence regarding the original
intent of the APA. SCO, 578 F.3d at 1210. The extrinsic evidence presented by
Novell was accepted by the fact-finders and conflicts with SCO's entire theory of
the case -- that Santa Cruz bought the entire UNIX business and Amendment No. 2
confirmed that understanding.
3. Copyright Ownership Was Not Required For Santa Cruz
To Exercise Its Acquired Rights
On appeal, SCO asserts that the UNIX and UnixWare copyrights were
"required" -- and thus transferred under Amendment No. 2 -- because otherwise
SCO could not protect its intellectual property. (SCO Br. 31.)
That argument fails for two reasons. First, SCO presented no testimony to
support that its current interpretation of Amendment No. 2 -- that it was designed to
allow SCO to bring litigation -- was part of the business that the parties understood
transferred to Santa Cruz at the time Amendment No. 2 was executed. Rather,
SCO's witnesses repeatedly testified that SCO could run its business without the
UNIX and UnixWare copyrights. That testimony is fatal to SCO's arguments on
appeal. Second, SCO ignores that ample evidence supports the conclusion that
SCO does not need to own the UNIX or UnixWare copyrights to protect the
intellectual property rights that it acquired under the amended APA.
36
a. SCO's own witnesses testified that copyrights were
not required
At trial, SCO repeatedly argued that copyright ownership is always required
for a software business, with SCO even claiming in closing argument that a
software business without the copyrights is "a car without an engine" or "a house
without a roof." (A2850:2636.) But such rhetoric does not come close to being
evidence that is "so overwhelmingly preponderant in favor of [SCO] as to permit
no other rational conclusion." Crumpacker v. Kansas Dep't of Human Res.,
474 F.3d 747, 751 (10th Cir. 2007) (citation omitted). Moreover, admissions of
SCO's own witnesses contradicted its hyperbole.
SCO's CEO. Darl McBride, SCO's CEO from 2002 to 2009 and the
architect of SCOsource, admitted that SCO could run its software business without
owning the UNIX copyrights. (A2479:1225-1226.)
McBride issued a statement to the SEC and the investing public expressly so
stating. (A4699.) He confirmed at trial that the UNIX copyrights were not
required for SCO to run its UnixWare and OpenServer software business: SCO
could "run [its] business . . . without the copyrights, just like HP, IBM, all of the
other licensees of UNIX can run their businesses as well." (A2479:1225-26.)
McBride characterized UnixWare and OpenServer as "branches off this tree," and
agreed that before the APA, Santa Cruz had sold OpenServer without owning the
37
UNIX copyrights. (A2436:1057;A2436:1058;A2479:1225.) He further admitted
that SCO could develop and sell its UnixWare products without ownership of the
UNIX copyrights. (A2481:1231.)
McBride testified that SCO was only unable to "run [its] business for the
licensing side" without the copyrights. (A2479:1226.) He asserted that the
copyrights were needed for SCOsource, SCO's new business of licensing--and, if
necessary, suing -- Linux users. (A2437:1062;2479:1226.) But SCO presented no
evidence that suing Linux users was part of the "rights" transferred under the APA.
Rather, even SCO's witnesses testified that the APA was intended to enable Santa
Cruz to develop a new version of UnixWare that could compete with Microsoft
Windows. (A2183:91;A2183:92-93 (Frankenberg);A2218:224-225
(Duff Thompson); see also A2271:429 (Messman).)
SCO's General Counsel. SCO's own witnesses also conceded that its
UNIX-related business could be sold without owning any copyrights.
Ryan Tibbitts, SCO's in-house corporate counsel from 2003 to the present,
acknowledged at trial that SCO was recently involved in a proposed transaction
whereby SCO would sell its UNIX-related business to a third party, yet retain the
copyrights for the new code that SCO had created. (A2642:1850-51.) Under the
proposed deal, the buyer would have acquired SCO's product business and SCO
38
would have retained its new licensing business. (A2644:1859 (SCOsource was
launched as new "licensing line" in 2003).)
On appeal, SCO attempts to retreat from this fatal admission. (SCO Br. 37.)
But SCO's argument cannot ameliorate the fact that Tibbitts's testimony directly
contradicts SCO's core position -- that a software business would never be sold
without the copyrights -- because SCO tried to do just that. The finders of fact
rightfully considered SCO's admission in crediting Novell's interpretation of the
transaction.
b. SCO did not require the UNIX copyrights to protect
its intellectual property
The trial testimony also supports the factual finding that the UNIX and
UnixWare copyrights were not required for SCO to protect its intellectual property.
Both SCO's witness Sabbath and Novell's witness Amadia testified that
SCO owned the copyrights to the new code it created and could use those
copyrights to protect that code against infringement. (A2403:933;A2723:2157.)
Sabbath also acknowledged that SCO would not need anything more than a license
to create derivative works based on the UNIX source code. (A2404:939.) As the
owner of the copyrights in its own software, SCO was able to protect itself against
infringement of that code, and did not require ownership of the UNIX copyrights
to do so. 17 U.S.C. § 103(a) (subject matter of copyright includes derivative
39
works); Schrock v. Learning Curve Int'l, Inc., 586 F.3d 513, 518 (7th Cir. 2009)
(Copyright Act grants author of derivative work protection in original expression
he or she contributes).7
Consistent with McBride's testimony discussed above, SCO's witness
Madsen testified that, for over a decade before the APA, Santa Cruz successfully
distributed the OpenServer flavor of UNIX and developed a substantial business
around that flavor without owning the copyrights in the underlying UNIX code.
(A2373:816-17;A2373:817;A2387:869.) Madsen agreed that Santa Cruz acquired
another flavor of UNIX under the APA: UnixWare. (A2387:869.) This testimony
supports Novell's understanding of the transaction, with which the jury agreed:
under the APA, Santa Cruz had the right to develop UnixWare, another flavor of
UNIX; the right to manage Novell's UNIX licensing business, for a 5%
administrative fee; and acquired certain other enumerated rights and physical
assets, none of which required ownership of the existing UNIX and UnixWare
copyrights.
40
In spite of the testimony recounted above, SCO argues that it requires the
underlying UNIX copyrights to protect the preexisting intellectual property. (SCO
Br. 35.) As the district court explained, however, SCO would need to protect the
preexisting intellectual property only if it were the owner of the entire UNIX
business. But the fact-finders determined SCO was not. (A2996 ¶124.) This
finding accords with the district court's finding that SCO was an agent of Novell's
with respect to the SVRX licensing business and an owner with respect to the
prospective UnixWare business.
Finally, SCO's argument that it required copyrights to exercise source code
licensing rights is without merit. (SCO Br. 35-37.) Once again, that argument
presupposes that it owns the UNIX and UnixWare copyrights. As a matter of law,
SCO could license any new software it created, because it would have copyright
ownership in that content as its author. Schrock, 586 F.3d at 518. But SCO was
not in the SVRX licensing business; it was merely an agent of Novell's and thus
could enter into new licenses of old UNIX code only as Novell's agent.
(A2950;A2978 ¶¶11,84.) SCO did not have independent authority to license old
code or to enforce such licenses. (A2956 ¶28.) It thus did not "require" the rights
to do so.
41
c. The boilerplate term "all of seller's claims" did not
transfer copyrights
SCO claims (SCO Br. 37-38) that it needs the copyrights to pursue the
claims it purportedly acquired through the amended APA's transfer to SCO "of all
of [Novell's] claims arising after the Closing Date against any parties relating to
any right, property or asset included in the Business." (A3879.) That boilerplate
"all of seller's claims" provision did not transfer the copyrights to SCO.
As the district court correctly found, SCO "provided no evidence of any
such claims that it was entitled to pursue." (A2994 ¶120.) The only evidence SCO
presented on this issue was testimony that the enumerated assets Novell actually
sold to Santa Cruz included "legal claims that it would have against parties that
were connected with the business." (A2224:248-49 (Thompson).) Such testimony
that simply paraphrases the "all of seller's claims" provision was insufficient to
support SCO's argument that that provision transferred the copyrights to SCO.
(A2994 ¶120.)8
Moreover, reading the "all of seller's claims" provision to transfer the
copyrights would be inconsistent with the structure of the amended agreement.
42
The "all of seller's claims" provision is part of the schedule of Included Assets,
(A3878-79), which is expressly limited by the schedule of Excluded Assets,
(A3828-29;A3882-83). As amended in Amendment No. 2, the schedule of
Excluded Assets expressly excludes copyrights "except for the copyrights . . . .
required for SCO to exercise its rights with respect to the acquisition of UNIX and
UnixWare technologies." (A3882-83;A4443-45.) As discussed above, the fact-
finders correctly found that SCO does not require the copyrights to exercise its
rights with respect to the UNIX and UnixWare technologies that it acquired. Thus,
even assuming that the "all of seller's claims" language could be read so broadly as
to contemplate transfer of copyrights (and SCO proffered no credible extrinsic
evidence of such an intent), the Excluded Assets provision expressly carves them
out of the amended agreement. Under California law, that specific, deliberately
negotiated contractual provision trumps the general "all of seller's claims"
provision. Cal. Code Civ. P. § 1859; Kashmiri v. Regents of Univ. of Cal., 67 Cal.
Rptr. 3d 635, 653 (2007); see Model Asset Purchase Agreement with Commentary
at 42 (ABA Section of Business Law, 2001) (term "all of seller's claims" is general
boilerplate language).9
43
4. The Technology License Agreement Does Not Change The
Intent Of The APA Or Amendment No. 2
SCO's reference to the Technology License Agreement ("TLA") is of no
moment. (SCO Br. 6, 29-30.) The TLA merely confirms that Novell has the right
to license back rights conveyed to or developed by SCO under the APA; it does not
affirmatively expand the rights transferred under the APA.
SCO's Sabbath testified that the TLA would grant Novell the right to license
post-APA SCO-developed code in which SCO owned copyrights. (A2403:933.)
Joe LaSala, Novell's General Counsel from 2001 to 2008, similarly testified that
the TLA gave Novell a license-back to all assets conveyed to SCO, as well as
additional code to be developed by SCO. (A2672:1964;A2677:1984-85.) In short,
all that was licensed back to Novell under the TLA were the assets transferred
under the APA.
5. SCO's "Course of Performance" Evidence Does Not Trump
The Terms Of The Amended APA
The jury's verdict is not undermined by SCO's so-called "course of
performance" testimony. SCO contends that letters Novell sent to customers after
the APA, changes in copyright notices, and SCO's physical possession of the
copyright registrations demonstrate that copyrights transferred. But testimony
from SCO's own witnesses revealed that (1) the letters at issue merely informed
customers that they needed to deal with Santa Cruz going forward, which was true
44
in light of Santa Cruz's role as Novell's agent to collect royalties, (2) neither
copyright notices nor copyright registrations demonstrate who owns the copyrights
if they conflict with the underlying agreements, and (3) when the APA was
finalized, UNIX staff and property simply remained in the same physical location
in New Jersey. (A2604:1706;A2623:1778-79;A2327:641-42.) Based on this
clarifying testimony, the jury and district court rightly discounted SCO's "course
of performance" evidence and arguments.10
Moreover, copyright notices were changed only on the then-current releases
of UnixWare that Santa Cruz was taking over; they were not changed on older
UNIX or UnixWare releases, the copyrights that SCO now claims transferred
under the APA. Andrew Nagle, SCO's Senior Director of Product Development,
confirmed that SCO did not change copyright notices on older UnixWare or
System V Release 4.2MP because it was SCO's understanding that ownership of
copyrights in older code was established by the legal agreements, not the notices.
(A2622:1775-76.)
45
II. THE DISTRICT COURT CORRECTLY DENIED SCO'S MOTION
FOR A NEW TRIAL
A. Standard Of Review
This Court reviews a district court's denial of a motion for new trial for
abuse of discretion. M.D. Mark, Inc. v. Kerr-McGee Corp., 565 F.3d 753, 762
(10th Cir. 2009). Where a new trial motion asserts that the jury verdict is not
supported by the evidence, the verdict must stand unless it is clearly, decidedly, or
overwhelmingly against the weight of the evidence. (Id.) "When the basis of the
motion for a new trial is that the jury's verdict is against the weight of the
evidence, the district court's denial of the motion is virtually unassailable on
appeal." Children's Broadcasting Corp. v. Walt Disney Co., 357 F.3d 860, 867
(8th Cir. 2004) (citation omitted).
B. The Verdict Is Not "Clearly, Decidedly, Or Overwhelmingly"
Against The Weight Of The Evidence
In this Court, SCO advances the same single argument on which it based its
motion for a new trial. Namely, it contends that "the verdict clearly was against
the weight of the evidence," allegedly because the "overwhelming weight of the
evidence" suggested that the parties intended to transfer the UNIX and UnixWare
copyrights. (SCO Br. 39.) But this argument is refuted by the substantial evidence
that supports the jury's verdict. As discussed above, numerous key witnesses with
knowledge of the amended APA and involvement in its final negotiation testified
46
in support of Novell's understanding of the transaction. The district court found
that Novell's witnesses were more credible than SCO's. (A2967;A2975 ¶¶53,79.)
This testimony plainly supports the jury's verdict. And any conflicting testimony
that SCO proffered (even putting aside the adverse credibility determinations made
against those witnesses) is nowhere near overwhelming so as to provide a basis for
this Court to conclude that the district court abused its discretion.
SCO instead touts that it presented "ten witnesses" on whether copyrights
were intended to transfer. (SCO Br. 16.) But SCO mistakes quantity of witnesses
with quality of testimony. As the jury was instructed, numerosity of witnesses is
not determinative. (See A1929 ("To prove by a preponderance of the evidence
means to prove something is more likely so than not so. It does not mean the
greater number of witnesses or exhibits.").) SCO did not challenge this instruction,
which accurately states the law. (A1841-52.)
Moreover, the jury had ample reasons to discount what SCO's witnesses had
to say. As discussed above, SCO's witnesses had little or no knowledge of the
negotiation and drafting of the amended APA. SCO advanced no competent
witnesses to explain the meaning behind Amendment No. 2. None of SCO's
witnesses could articulate what copyrights they believed were required for SCO to
exercise its rights. (A2967;A2970-73 ¶¶53,64-70.) Rather, SCO's witnesses made
only broad statements that all copyrights would be required to run a software
47
business -- generalizations that were undermined by SCO's own testimony from
McBride and Tibbitts. (Id.;A2973 ¶71.) And the district court expressly found
SCO's witnesses to be less credible, as many had a direct financial stake in SCO
prevailing. (A2967 ¶53.)
III. THE DISTRICT COURT CORRECTLY DENIED SCO'S CLAIM
FOR SPECIFIC PERFORMANCE
Notwithstanding the jury's verdict that the amended APA did not transfer
the UNIX and UnixWare copyrights, SCO claimed that the agreement required
Novell to execute documentation transferring those copyrights. The district court
correctly rejected SCO's request for specific performance because: (1) the jury
already had determined that the amended APA was not intended to transfer the
disputed copyrights; (2) the evidence supported the finding that copyrights were
not intended to transfer; and (3) the evidence demonstrated that the disputed
copyrights were not required for SCO to exercise its rights with respect to the
UNIX and UnixWare technologies. (A2990-2997 ¶¶109-26.)
SCO asserts that the jury's verdict did not preclude SCO's specific
performance claim, contending that the jury did not necessarily decide whether
copyrights were "required" for SCO's business. (SCO Br. 40 n.8.) But, as the
district court explained, the jury verdict resolved this question due to the extensive
evidence directed to (1) whether the parties intended to transfer copyrights, and
48
(2) whether the copyrights were "required" for SCO's business. (A2991 ¶113.)
The verdict "necessarily means that the jury found that it was not the intent of the
parties to transfer ownership of the copyrights from Novell to SCO and that the
copyrights were not required for SCO to exercise its rights." (A2991 ¶114.) As
such, there was no basis for granting SCO's request for specific performance. Ag
Servs. of Am., Inc. v. Nielsen, 231 F.3d 726, 733 (10th Cir. 2000) (necessary to
infer that certain views of evidence were not taken by jury if jury could not have
rationally supported result based on those views), cert. denied, 865 U.S. 1021
(2001).
In any event, ample evidence supports the district court's findings and
conclusions. SCO's appellate argument is based on SCO's one-sided recitation of
the facts that ignores any evidence to the contrary. (SCO Br. 40.) But, as
discussed above, the evidence demonstrated that the parties never intended the
UNIX or UnixWare copyrights to transfer under the amended APA, and that such a
result is entirely consistent with the overall structure of the transaction (see pp. 22-46 supra). The district court expressly found "particularly persuasive the
testimony of Novell's outside counsel Tor Braham, who was the lead drafter of the
APA" and whose "testimony showed that Novell purposefully retained ownership
of the copyrights." (A2992 ¶¶115-16.) Similarly, the district court expressly relied
on Amadia's testimony that Amendment No. 2 did not transfer any copyrights to
49
Santa Cruz. (A2993-94 ¶¶118-20.) This Court is "bound to accept the resolution
of conflicting evidence and the assessment of the credibility of witnesses as they
are found by the trial judge as the trier of fact." McIntyre, 997 F.2d at 707-08.
IV. THE DISTRICT COURT CORRECTLY HELD THAT NOVELL HAD
THE RIGHT TO WAIVE SCO'S RIGHTS UNDER IBM'S SVRX
LICENSE
In the first appeal, this Court held that the language of Section 4.16 of the
APA was ambiguous enough to justify consideration of extrinsic evidence and
remanded for trial on the contract-interpretation issue. SCO, 578 F.3d at 1221,
1227. The Court also remanded for a determination as to whether the general rule
that an express grant of contractual authority cannot be constrained by the
covenant of good faith and fair dealing applied on the facts here. (Id. at 1225.) On
remand, the district court considered the extrinsic evidence and agreed with
Novell's interpretation of Section 4.16. That finding of fact cannot be upset unless
SCO demonstrates clear error. Raytheon Aircraft Co., 590 F.3d at 1120. The
district court also determined that the exceptions to the implied covenant of good
faith do not apply to these facts. (3000-04 ¶¶137-46.) This Court should affirm on
both issues.
A. The Asset Purchase Agreement Established That Santa Cruz Was
Novell's Agent
The scope of Novell's waiver rights largely depends on whose interpretation
of the APA is correct. As discussed above, SCO claimed that Santa Cruz acquired
50
the entire UNIX and UnixWare business from Novell. If that were true, a broad
waiver right with respect to SVRX licenses would undermine Santa Cruz's benefit
of the bargain. But Novell showed that the transaction was actually far more
limited: when it came to the existing UNIX business, Santa Cruz was merely an
agent of Novell, subject to Novell's extensive supervision and control. The APA
expressly provided that Santa Cruz was not in the SVRX licensing business and
had no independent authority to license old code or to enforce such a license.
(A2956 ¶28.) Under this interpretation, a broad waiver right does not undermine
Santa Cruz's benefit of the bargain; rather, it is consistent with Santa Cruz being
Novell's agent. The district court weighed the conflicting evidence and found
Novell's interpretation to be correct. Its findings are amply supported by the
evidence.
As set out in the district court's findings of fact, Novell retained under the
APA the complete rights to control what happened with the UNIX business, and
Santa Cruz would act as Novell's agent to collect SVRX royalties. (A2977 ¶¶81-
83.) SCO's McBride even conceded this point. (A2440-41:1075-1078.)
Likewise, Alok Mohan, CEO of Santa Cruz in 1995 when the APA was executed,
wrote in an e-mail to all Santa Cruz employees on September 19, 1995, that Santa
Cruz became "the owner of the UnixWare product line," but would merely
"manage the licensing business for UNIX prior to UnixWare 1.0 (SVRx)."
51
(A3385.) Mohan's e-mail explains that there were two businesses -- the forward-looking UnixWare product line and the existing UNIX business. It further
explained that, while Santa Cruz would own the forward-looking UnixWare
product line, Santa Cruz would only manage the UNIX licensing business for
Novell. And the district court expressly found Novell's evidence on this point
more credible than SCO's. (A2999 ¶134.)
Nevertheless, before this Court, SCO continues to rely on its rejected version
of the transaction. For example, it argues that Novell's interpretation of
Section 4.16 "would permit Novell to destroy SCO's UNIX-based business" and
that Novell's proposed definition of "SVRX License" would render SCO's rights
illusory. (SCO Br. 46.) But these claims are unsupported by the evidence. Under
the amended APA, Santa Cruz acquired the assets and rights it needed to exploit
and develop UnixWare going forward. (A2964-65 ¶48.) Santa Cruz acquired
assets such as contracts, employees, and other physical property to assist it in its
role as Novell's agent. (A2950-51 ¶11.) Santa Cruz earned a 5% cut of any
SVRX royalties that it collected for Novell, as Novell's agent. (A2954 ¶24.) None
of these rights were upset, undermined, or rendered "illusory" based on Novell's
retention of broad waiver rights over actions that Santa Cruz could take with
respect to SVRX licenses. Novell's broad waiver rights certainly limit SCO's
52
rights in that respect, but such a limitation does not render the right illusory.
(A2978 ¶84.)
If anything, SCO's interpretation would render Section 4.16 illusory. As
this Court accurately has expressed, the disagreement between the parties
essentially boils down to the following question: "whether Novell's waiver rights
extend to all three types of agreements bearing upon the licensing of SVRX
technology -- software agreements, sublicensing agreements, and product
supplement agreements... -- or just to product supplement agreements." SCO,
578 F.3d at 1219. As the district court explained in its findings of fact, the
evidence at trial, including from SCO's own witnesses, demonstrated that these
three agreements work together: if a company does not have an umbrella software
agreement, it cannot have a product supplement agreement. (A2979-80 ¶88.)
SCO's interpretation would thus render Section 4.16 an illusory assurance to
Novell, as it would allow SCO unilaterally to terminate an umbrella software
agreement, rendering the product supplement agreement ineffective. This
interpretation runs counter to the undisputed evidence that the intent of
Section 4.16 was to "bulletproof" Novell's ongoing financial interest. (A2977-78
¶83.)
Several of SCO's witnesses did argue that Section 4.16 was limited to
product supplements. But the trial revealed this testimony to be a post-contract
53
invention of SCO and its witnesses, with no basis in fact. Every SCO witness was
forced to admit that there was nothing in the language of Section 4.16 limiting
Novell's waiver rights to product supplements or binary royalties. Ultimately,
even SCO's witnesses admitted that Section 4.16 was intended to allow Novell to
protect and manage its ongoing financial interests. As explained above, that
function would be rendered entirely ineffective if Novell's control rights did not
extend to all subsets of SVRX licenses. (A2977-78 ¶83.)11
B. Novell Did Not Breach the Implied Covenant of Good Faith and
Fair Dealing
SCO argues that the district court erred in finding that Novell did not breach
the implied covenant of good faith and fair dealing, contending that (1) the court's
interpretation of Section 4.16 makes the amended APA contradictory, ambiguous,
and illusory, and (2) the court's finding that Novell acted in its economic self-
interest does not mean it complied with the implied covenant. SCO is mistaken.
First, as discussed above, the district court's interpretation does not make the
amended APA contradictory, ambiguous, or illusory. Rather, SCO's interpretation
54
would deprive Novell of the ability to protect its royalty stream in the SVRX
licenses, which was the entire purpose of Section 4.16. Furthermore, SCO's
argument that Novell's right to "permit the free and unfettered use" of SVRX
source code destroys SCO's ability to operate a UnixWare business and protect the
technology therein is indistinguishable from its argument that it required the
copyrights. The judge and jury rejected that argument. It was undisputed at trial
that SCO would own the copyrights in the code that it created going forward with
the UnixWare business. (A2973;A2996 ¶¶72,124.) It would thus be able to
protect the technology that it created, while Novell retained the ability to control
the underlying SVRX licenses.
Second, contrary to SCO's claim, the district court did not hold that acting in
one's economic self-interest is independently sufficient to defeat a claim for breach
of the covenant of good faith and fair dealing. The first sentence of the paragraph
cited by SCO reveals what the court actually held: "[T]he Court finds that SCO's
claim for breach of the implied covenant of good faith and fair dealing fails
because Novell acted in good faith according to a reasonable interpretation of the
contract language." (A3003 ¶146 (emphasis added).) The district court further
explained that a breach of the implied covenant requires "objectively unreasonable
conduct, regardless of the actor's motive." (Id. (quoting Carma Developers (Cal.),
Inc. v. Marathon Dev. Cal., Inc., 826 P.2d 710, 727 (Cal. 1992)); see also Chateau
55
Chamberay Homeowners Ass'n v. Associated Int'l Ins. Co., 108 Cal. Rptr. 2d 776,
783 (2001) (breach of covenant of good faith and fair dealing requires showing that
defendant committed conscious and deliberate act, not merely bad judgment or
honest mistake).) The court concluded that Novell's conduct was objectively
reasonable in light of its actions and the language of the APA, and that Novell's
actions were not taken because of influence by IBM or ill-will towards SCO.
(A3003.)
The evidence at trial amply supported the district court's conclusion. Novell
took a careful, step-by-step approach in exercising its rights under Section 4.16(b).
(A2657:1908;A2657:1909-1910;A2658:1911-1912.) Novell consulted outside
counsel and instructed IBM that Novell would waive SCO's claims only if such
waiver right was a correct interpretation of the documents. (A2657:1909-1910.)
Novell's letters to SCO demonstrate Novell's careful approach, as they explained
Novell's position and gave SCO the opportunity to waive particular claims.
(A2663-64:1930-31;A4086;A3620-21;A4087-89;A3623-24;A4101-02.) The
evidence at trial demonstrates that Novell exercised its right to take action on
behalf of SCO not in bad faith, but because Novell genuinely believed SCO's
threats to terminate the agreement with IBM would be detrimental to Novell.
(A2580:1613-14;A2586:1638;A2761:2298-99.) The district court correctly held
56
that this set of facts does not support a claim for breach of the implied covenant of
good faith and fair dealing.
V. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION IN ITS
EVIDENTIARY RULINGS
As a last resort, SCO contends that the district court abused its discretion in
making three evidentiary rulings. These rulings are entitled to "deference" because
of the district court's "familiarity with the details of the case and its greater
experience in evidentiary matters." Sprint/United Mgmt. Co. v. Mendelsohn,
552 U.S. 379, 384 (2008). This deference is particularly important when it comes
to determinations under Federal Rule of Evidence 403. (Id.)
A. The Prior Judicial Decisions
SCO challenges the district court's ruling that permitted Novell to present
limited evidence of the district court's prior rulings, concurrent with an instruction
that the district court's summary judgment order had been subsequently reversed
on appeal. (SCO Br. 53-56.) As discussed below, the district court did not abuse
its discretion, and, in any event, SCO opened the door to the evidence despite the
district court's numerous warnings.
To prove slander of title, SCO needed to show at trial that Novell published
allegedly slanderous statements with constitutional malice -- i.e., knowledge of
their falsity or at least reckless disregard for their truth. (A1952.) Novell
requested and received this standard in a motion in limine, over SCO's objection,
57
and it was incorporated into the jury instructions in this case. (A1321-33.) SCO
does not appeal the application of that standard to its slander-of-title claim.
From opening statements forward, SCO asserted that Novell was committing
slander "to this very day." (A2163:13-14;A2167:32.) But SCO's arguments
ignored the fact that, for a two-year period, Novell was making its statements in
light of the district court's as-yet-unreversed ruling that Novell owned the
copyrights. That ruling (as well as the district court's prior order on Novell's
motion to dismiss) thus undermined SCO's claim that Novell was slandering, with
knowledge of falsity or reckless disregard for the truth, SCO's claimed title to the
UNIX and UnixWare copyrights. Nevertheless, the court did not initially permit
the rulings' publication to the jury, and instead explicitly cautioned SCO that its
arguments were "unwise and inappropriate." (A2363:775.)
Notwithstanding the court's warning, SCO selected a damages period for its
slander-of-title claim that included the two years during which the district court's
judgment that Novell owned the UNIX and UnixWare copyrights remained
unreversed. SCO based its damages calculations on purportedly lost SCOsource
revenue, with estimates partially based on decreased SCO stock value. SCO thus
tried to present a skewed version of the facts that omitted a potential cause of third-party licensing decisions -- in particular, that no one wanted to take a SCOsource
license because a court had ruled in a highly publicized opinion that SCO did not
58
own the intellectual property it was trying to license. In the face of SCO's
arguments to the jury, the court properly exercised its broad discretion to allow
Novell to present the district court's previous decisions as another possible cause
of lost SCO licenses and to cross-examine SCO's damages expert on this obvious
weakness in her testimony. (A2521-22:1387-88.)
Moreover, even though SCO invited the introduction of the prior rulings
(which, in any event, were relevant under the constitutional-malice standard), the
district court emphasized that the prior summary judgment order had been reversed
in a unanimous decision by this Court. (A2522:1391;A2549:1494-95.) This
language decreased any potential prejudicial effect. It ensured that if the jury were
to consider the prior rulings for an improper purpose -- i.e., consider them as
controlling opinions as to which party should prevail at trial--such consideration
would work against Novell. After all, the jurors were informed that a reviewing
court subsequently determined the rulings were incorrect.
B. The Original APA
SCO argues that the district court abused its discretion in allowing Novell to
use the unamended APA in its cross-examination of SCO witnesses who had no
involvement with or personal knowledge of Amendment No. 2. SCO claims that
Novell attempted to confuse the jury and conceal the existence of Amendment
No. 2.
59
As an initial matter, nothing in this Court's mandate precluded Novell from
referencing the original APA. Indeed, at SCO's urging, this Court explained that
extrinsic evidence concerning the original intent of the APA -- before the execution
of Amendment No. 2--could be considered by the fact-finders. SCO, 578 F.3d
at 1209-11.
Moreover, Novell did nothing that might lead the jury to believe that the
original APA remained operative. In its opening statement, Novell's counsel
merely explained the negotiation history of the overall transaction by presenting
the unamended APA, then Amendment No. 1, and finally Amendment No. 2. At
no point did Novell suggest that Amendment No. 2 did not supersede the original
APA. To the contrary, Novell and its witnesses discussed Amendment No. 2 in
detail, summarizing for the jury the testimony of Amadia and Tolonen regarding
the intent of Amendment No. 2. (A2865:2696.) SCO's argument that Novell
"conveyed the misimpression that the original copyright language of the APA was
the only relevant language" simply cannot be reconciled with the record. (SCO
Br. 57.)
SCO's real concern has nothing to do with potential jury confusion. Rather,
SCO wanted it both ways -- SCO sought to question its pre-amendment witnesses
about the intent of the original, pre-amendment APA, then block Novell from
cross-examining those witnesses as to why, if their intent was so clear, they
60
allowed language that explicitly excluded copyright ownership. None of SCO's
witnesses had a coherent explanation. (E.g., A2222:241;A2238:301-02
(Thompson testifies exclusion referred to Netware copyrights, then later testifies
words in agreement are inaccurate);A2962 ¶44 (Burt Levine admits he did not alter
exclusionary language during review).)
Finally, SCO's assertion that its witnesses Frankenberg and Thompson
should have been permitted to opine on Amendment No. 2 is without merit. (SCO
Br. 59.) As the district court correctly noted in its in limine order, neither witness
had personal knowledge of Amendment No. 2. (A1107.) They would have
testified based solely on their readings of that agreement. Such testimony would
have been irrelevant, would not have assisted the trier of fact, and was properly
excluded. Id.; Fed. R. Evid. 602 (no testimony without personal knowledge);
Zokari v. Gates, 561 F.3d 1076, 1089 (10th Cir. 2009) (affirming exclusion of
testimony where witness lacked personal knowledge).
C. Document Relied On By Novell's Expert
SCO argues that Novell's expert witness should not have been permitted to
show the jury a slide of a magazine article on which the expert relied. (SCO
Br. 60.) SCO misinterprets the hearsay rule.
Neither Novell nor its expert sought to prove the truth of the matter
asserted -- i.e., that SCO was actually the "Most Hated Company in Tech." The
61
relevant expert testimony was introduced to counter SCO's claims that, but for
Novell's public statements, users of Linux would have flocked to SCO to acquire
licenses. Novell and its expert sought to show that, whether true or not, negative
statements about SCO were being published independent of Novell, and thus
damage to SCO's reputation and license revenue was not entirely caused by
Novell. Because the basic definition of hearsay does not apply, the evidence was
not hearsay. Fed. R. Evid. 801(c).12
Moreover, even if allowing the document to be shown amounted to an abuse
of discretion (and it did not), it was harmless. The slide was a minor part of a
three-week trial, not unduly emphasized by Novell, and was relevant to causation
and damages, portions of the decision-making process the jury did not even reach.
CONCLUSION
Six years ago, SCO initiated this suit against Novell. After losing on
summary judgment, SCO asked this Court for a trial in which fact-finders could
decide, among other issues, who owned the UNIX and UnixWare copyrights. SCO
62
now has had its day in court, and the jury and judge found for Novell. That
judgment should be affirmed.
Respectfully submitted.
WORKMAN | NYDEGGER
Sterling A. Brennan
David R. Wright
L. Rex Sears
Cara J. Baldwin
[address, phone, fax]
MORRISON & FOERSTER LLP
Michael A. Jacobs
Daniel P. Muino
Nathan B. Sabri
[address, phone, fax]
Deanne E. Maynard Brian R. Matsui
[address, phone, fax]
s/ Michael A. Jacobs
Attorneys for Defendant-Appellee NOVELL, INC.
October 29, 2010
63
ORAL ARGUMENT STATEMENT
While Novell believes the issues in this appeal are straightforward and the
district court's judgment should be readily affirmed, Novell would be pleased to
present oral arguments if the Court deems them appropriate.
64
CERTIFICATE OF COMPLIANCE
I, Michael A. Jacobs, certify that this brief complies with the type-volume
limitation of Fed. R. App. P. 32(a)(7)(B), the typeface requirement of Fed. R. App.
P. 32(a)(5), and the typestyle requirements of Fed. R. App. P. 32(a)(6). This brief
contains 13,997 words, excluding the parts of the brief exempted by Fed. R. App.
P. 32(a)(7)(B)(iii), and is prepared in a proportionally spaced typeface (14-point
Times New Roman).
Dated: October 29, 2010
s/ Michael A. Jacobs
MORRISON & FOERSTER LLP
[address, phone, fax, email]
65
CERTIFICATE OF SERVICE
I, Michael A. Jacobs, certify that on this 29th day of October 2010, a true
and correct copy of the foregoing APPELLEE NOVELL, INC.'S BRIEF was
served via the ECF system and electronic mail in accordance with Fed. R. App.
P. 25(c)(2), Tenth Circuit Local Rules 25.3 and 25.4, and the Court's General
Order dated March 18, 2009, to the following recipients:
David Boies
Robert Silver
Edward Normand
BOIES, SCHILLER & FLEXNER LLP
[address]
Stuart Singer
BOIES, SCHILLER & FLEXNER LLP
[address]
Brent O. Hatch
Mark F. James
HATCH, JAMES & DODGE, PC
[address]
66
Devan V. Padmanabhan
DORSEY & WHITNEY LLP
[address]
Counsel for Plaintiff-Appellant The SCO Group, Inc.
Dated: October 29, 2010 s/ Michael A. Jacobs
MORRISON & FOERSTER LLP
[address, phone, fax, email]
67
CERTIFICATE OF DIGITAL SUBMISSION
I, Michael A. Jacobs, certify that no privacy redactions were necessary for
this filing. This APPELLEE NOVELL, INC.'S BRIEF submitted in digital form is
an exact copy of the written document filed with the Clerk. This digital
submission has been scanned for viruses with the most recent version of a
commercial virus-scanning program (using SymantecTM Endpoint Protection
version 11.0.5) and, according to the program, is free of viruses.
Dated: October 29, 2010
s/ Michael A. Jacobs
MORRISON & FOERSTER LLP
[address, phone, fax, email]
68
1
A few former Novell employees testified that they believed copyright
ownership was intended to transfer. (A2959-60;A2962-63 ¶¶38-40,44-45.) Those
individuals may not have understood that Santa Cruz could not afford the entire
business. (A2967 ¶53.) And the jury and judge were entitled to credit the contrary testimony. Pioneer Drilling Co. v. N.L.R.B., 391 F.2d 961, 964 n. 3(10th Cir.
1968).
2
SCO asserts that this Court has "repeatedly seen fit to reverse the erroneous
denials of motions under Rule 50(b)." (SCO Br. 24.) But two of the eight
decisions SCO cites for that proposition did not even reverse. In all but one of the
six remaining decisions, the Court reversed based on an error of law, not the
absence of sufficient evidence.
3
SCO suggests throughout its brief that the fact-finders' determinations are
wrong where they allegedly conflict with isolated statements from this Court's
prior opinion. But those arguments ignore the context in which the prior appeal
arose. Because this Court was reviewing summary judgment in favor of Novell,
the Court drew all reasonable inferences in the light most favorable to SCO. By
contrast, on this appeal, Rule 50(b) requires the Court to consider only whether the
verdict is supported by the evidence presented at trial, all of which must be viewed
in the light most favorable to Novell. See Kelly, 410 F.3d at 674. Moreover, this Court was careful not to prejudge the issues to be decided at trial. SCO, 578 F.3d at 1219.
4
SCO suggests (without citation to any authority) that Amendment No. 2 is
susceptible to a "straightforward interpretation" that Novell must upset by
"compelling . . . evidence." (SCO Br. 27.) There is no basis, legal or otherwise, to
create a new contract-law standard that shifts the burden to Novell rather than SCO
(the party who must satisfy Rule 50(b)) when the plain language of the amended
APA contains no express transfer of copyrights. Indeed, SCO's argument is
contrary to the law of the case. This Court held, at SCO's urging, that Amendment
No. 2 is ambiguous. The Court thus required consideration of extrinsic evidence
as to the parties' intent to determine whether any copyrights transferred. SCO,
578 F.3d at 1210-1211.
5
SCO's argument that Amendment No. 2 must have included copyright
ownership because it included trademarks is misguided. The UNIX and UnixWare
trademarks were explicitly listed as Included Assets in the APA. Furthermore,
unlike copyrights, trademarks have no value aside from business goodwill.
J. McCarthy on Trademarks & Unfair Competition § 18.2 (4th ed. 2010). If Santa
Cruz was to be the face of the business going forward, trademark ownership would
necessarily need to transfer. The same is not true of copyright ownership.
6
SCO incorrectly asserts that Bradford's testimony was "highly equivocal."
Bradford admitted needing to review documents that he prepared and was involved
with to remember what happened in this specific deal 15 years ago. (A2797:2435).
While SCO highlights one "memo" that did not report on the exclusion of
copyrights (SCO Br. 27 n.4), SCO omits Bradford's explanation that this was
simply a term sheet showing, for purposes of negotiation, what one party might
want; it was only one part of a package sent to the Board; and that the resolution of
the Board was more important than an isolated term sheet. (A2801:2450-
51;A2805:2466-A2806:2468.) In any event, the jury and the judge were entitled to
rely on Bradford's testimony.
7
SCO's argument that most of UnixWare is older UNIX code is a red
herring. (SCO Br. 33.) SCO's witness Andrew Nagle acknowledged that he had
no estimate of the amount of code SCO contributed to the UnixWare product, and
would not be surprised if SCO had added seven million lines of code on top of the
seven million lines of code that existed in 1995. (A2621:1773.) Regardless of the
portion of code SCO created for the product, it is undisputed that SCO owns the
copyrights in the code it creates and can protect those rights without owning the
UNIX copyrights.
8
SCO references claims that it pursued post-closing against Microsoft, and
its allegations of copyright infringement against Linux users. (SCO Br. 38-39.)
but these claims presuppose that Santa Cruz acquired Novell's entire UNIX
business, which the fact-finders rejected. Moreover, these are claims created by
SCO, not Novell, and thus are not "seller's claims."
9
California law governs the APA. (A3875.)
10
SCO selectively quotes general statements from a Novell Hart-Scott-
Rodino filing but, as it did at trial, omits that the APA, including its express
copyright exclusion, was attached to that filing and incorporated by reference.
(A2792:2415.)
11
SCO asserts that because IBM's revenue stream was purchased, Novell no
longer had an interest to protect, implying that the concerns of Section 4.16 thus do
not apply to IBM. (SCO Br. 48.) If that were true, SCO's argument would lead to
the absurd conclusion--completely unsupported by the contractual language--that
the moment a licensee stops actively paying royalties (whether due to buyout,
bankruptcy, or any other reason), all of Novell's rights under Section 4.16 cease to
exist.
12
SCO's citation of Malletier v. Dooney & Bourke, Inc., 525 F. Supp. 2d
558, 666 (S.D.N.Y. 2007), is inapposite, as Malletier involved evidence offered for
the truth of the matter asserted.
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