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SCO v. Novell, Day 15, Friday, March 26, 2010

[Part 1] [Part 2]

This is the text transcript of day fifteen of the SCO v. Novell trial that began on Monday, March 8, 2010 and ran for 15 days, Monday through Friday, for three weeks, with the Hon. Ted Stewart presiding. This day is Friday, March 26, with the closing arguments. Here is Groklaw's eyewitness report from the trial for that day.

The transcript of this day is in two parts: part 1 [PDF] [Text] and part 2 [PDF] [Text].

For transcripts of the rest of the days of the trial, click on the date that interests you:

March 2010
M Tu W Th F
08 09 10 11 12
15 16 17 18 19
22 23 24 25 26

Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 1 of 76
2596
1
               IN THE UNITED STATES DISTRICT COURT
2
               DISTRICT OF UTAH, CENTRAL DIVISION
3
4
   THE SCO GROUP, INC., a Delaware    )
5
   corporation,                       )
6
             Plaintiff,               )
7
      vs.                             )    Case No. 2:04-CV-139TS
8
   NOVELL, INC., a Delaware           )
9
   corporation,                       )
10    
              Defendant.              )
11
   _________________________________)
12
   AND RELATED COUNTERCLAIMS.         )
13
   _________________________________)
14
15
                  BEFORE THE HONORABLE TED STEWART
16
                  ---------------------------------
17
                            March 26, 2010
18
                              Jury Trial
19
20
21
22
23
24
   REPORTED BY: Patti Walker, CSR, RPR, CP
25
   [Address] #146, Salt Lake City, Utah      [Zip]
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 2 of 76
2597
1
                    A P P E A R A N C E S
2
3
4
   For Plaintiff:            Brent Hatch
                             HATCH JAMES & DODGE
5
                             [Address]
                             Salt Lake City, Utah [Zip]
6
7
                             Stuart Singer
                             BOIES SCHILLER & FLEXNER
8
                             [Address]
                             Fort Lauderdale, Florida [Zip]
9
10
                             Edward Normand
                             BOIES SCHILLER & FLEXNER
11
                             [Address]
                             Armonk, New York [Zip]
12
13
      For Defendant:         Sterling Brennan
14
                             WORKMAN NYDEGGER
                             [Address]
15
                             Salt Lake City, Utah [Zip]
16
                             Eric Acker
17
                             Michael Jacobs
                             MORRISON & FOERSTER
18
                             [Address]
                             San Francisco, California   [Zip]
19
20
21
22
23
24
25
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 3 of 76
2598
1 SALT LAKE CITY, UTAH; FRIDAY, MARCH 26, 2010; 8:30 A.M.
2 PROCEEDINGS
3 THE COURT: Good morning.
4 Let me ask, first of all, whether or not you have
5 any disputes over closing argument demonstratives or slides,
6 or whatever else?
7 MR. BRENNAN: Your Honor, we had a chance to look
8 at one another's. I think with some modifications that were
9 just made, we should be in agreement, at least in terms of
10 presentation of the material.
11 THE COURT: I'm not sure that I understand what
12 you mean at least in regards to the presentation of
13 materials.
14 MR. BRENNAN: We don't have an objection to the
15 use of the demonstratives.
16 THE COURT: Do you have an objection to any of Mr.
17 Brennan's?
18 MR. SINGER: No, Your Honor.
19 THE COURT: SCO today filed a motion regarding
20 three issues about closing, and I would agree with their
21 request. I am going to assume the first one is no longer
22 relevant because the parties have agreed as to the
23 demonstratives.
24 MR. SINGER: That's correct.
25 THE COURT: The second is SCO objects to any
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 4 of 76
2599
1 attempt by Novell to argue to the jury that Novell's
2 assertion to ownership applied only to UNIX and not to
3 UnixWare copyrights. Do you wish to address that, Mr.
4 Jacobs?
5 MR. JACOBS: We do not quarrel with that in the
6 context of the closings, Your Honor, but we will be making
7 clear the delineation between the pre-APA UnixWare and
8 post-APA UnixWare.
9 THE COURT: I think the jury instruction now
10 reflects that better than it did before as well.
11 The third has to do with an attempt, frankly, by
12 either side to argue something contrary to law. My
13 assumption is that neither of you will have done that in any
14 event; is that correct?
15 MR. JACOBS: That is correct. Just to avoid
16 confusion during the openings themselves, SCO's motion is
17 drawn to section 204(a) of the Copyright Act, which was the
18 subject of the Tenth Circuit ruling. The Tenth Circuit
19 ruling was that there is no per say requirement under 204(a)
20 of the Copyright Act for something that represents
21 specifically or in substance a bill of sale. We're not
22 arguing that issue under the Copyright Act. We will be
23 arguing that the asset purchase agreement was a promise to a
24 assign, not an assignment, that Amendment No. 2 is dated
25 October 26th, I think, 1996, and that as a matter of
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 5 of 76
2600
1 contract law, just as in the purchase and sale of a house,
2 there was no subsequent evidence of an actual transfer. So
3 we'll be arguing it as a matter of contract law, which the
4 Tenth Circuit did not address.
5 MR. SINGER: Your Honor, this is exactly the type
6 of argument that we filed this motion because we were
7 concerned they might make. The Tenth Circuit specifically
8 held they didn't see anything to this date issue. I think
9 it's expressly in one of the footnotes on this section when
10 this argument was made. There is no difference between
11 making this argument in the context of the Copyright Act or
12 making it in the contract section. The Court of Appeals
13 specifically ruled that Amendment 2 would be sufficient to
14 transfer title, that that was the intent of the parties.
15 So I think, with all due respect, Mr. Jacobs is in
16 the teeth of that decision.
17 THE COURT: Mr. Jacobs.
18 MR. JACOBS: Your Honor, footnote 2 is the
19 footnote I think Mr. Singer is referring to and it's a
20 footnote in the context of the discussion of section 204(a),
21 it is not a holding that the contract could not be
22 interpreted in the way that we're proposing to interpret it.
23 There was no such briefing or argument before the Tenth
24 Circuit. The footnote itself is not definitive at all on
25 the question that we propose to argue as a matter of
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 6 of 76
2601
1 contract interpretation. I could hand it to Your Honor if
2 it would be convenient, you could look yourself.
3 THE COURT: I probably need to look at it.
4 MR. SINGER: We would also submit that this would
5 just be confusing to the jury because there's been no
6 evidence here that they would be drawing any conclusions
7 from that.
8 THE COURT: Mr. Singer, I think that is probably
9 your best argument, that this ought to be handled by you in
10 your reply. But I do want to look at the footnote.
11 MR. JACOBS: Sure. Just for the avoidance of
12 doubt, Ms. Amadia did say had she intended to transfer,
13 there would have been additional documents that would have
14 been required.
15 May I, Your Honor?
16 THE COURT: Yes.
17 If you are not arguing a pure legal issue about
18 the bill of sale or something akin to it but rather the
19 intent of the parties, I believe that footnote would not
20 preclude you from doing so.
21 MR. JACOBS: Thank you, Your Honor.
22 THE COURT: Counsel, let me again remind you, it
23 would be my intent to dismiss juror 13 as the alternate.
24 MR. SINGER: We understand, Your Honor.
25 THE COURT: I am going to hold you to your one
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 7 of 76
2602
1 hour and 15 minutes. My intent will be to instruct the jury
2 and then to have your initial presentation and closing.
3 Will that be by you, Mr. Singer, or Mr. Hatch, or
4 will you be splitting it?
5 MR. SINGER: We will be splitting it, but I plan
6 to reserve 15 minutes for rebuttal.
7 THE COURT: Who will go first.
8 MR. SINGER: I will be going first, Mr. Hatch will
9 be taking over at about the 45-minute mark.
10 THE COURT: All right.
11 Mr. Brennan, will you making the closing?
12 MR. BRENNAN: Yes, I will, Your Honor.
13 THE COURT: Again, after your initial hour, then
14 we'll take a break and come back to Mr. Brennan, and then
15 your rebuttal.
16 MR. SINGER: Would it be possible to have a few
17 minutes break after the reading of the instructions just to
18 set up?
19 THE COURT: Certainly.
20 MR. SINGER: One final question, given that the
21 Court has granted SCO's 50(a) motion and dismissed Novell's
22 counterclaim, and that's been raised in opening and
23 otherwise, will the Court make some mention of that?
24 THE COURT: There is a specific jury instruction
25 that will state, and I'll read it to you, if you've not seen
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 8 of 76
2603
1 it, the claim of Novell that SCO slandered Novell's title is
2 no longer before you and will not be decided by you. Do not
3 concern yourselves with this development and do not
4 speculate about it.
5 MR. SINGER: Thank you.
6 THE COURT: Counsel, let me remind you that the
7 Court will expect proposed findings of facts and conclusions
8 of law as to those issues reserved for the Court on the 16th
9 of April, which is 20 days plus. Okay.
10 All right. Is there anything else before we bring
11 the jury in?
12 MR. BRENNAN: Not from Novell, Your Honor.
13 MR. SINGER: Not from SCO.
14 THE COURT: Ms. Malley.
15 (Jury present)
16 THE COURT: Good morning, ladies and gentlemen.
17 Let me begin by reassuring you that a copy of the
18 instructions that I'm about to read to you will go with you
19 into the jury room, so I do not expect you to memorize this
20 as I go through it. All right.
21 Members of the jury, now that you have heard the
22 evidence, it becomes my duty to give you the instructions of
23 the Court as to the law applicable to this case.
24 It is your duty as jurors to follow the law as
25 stated in the instructions of the Court, and to apply the
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 9 of 76
2604
1 rules of law to the facts as you find them from the evidence
2 in the case.
3 You are not to single out one instruction alone as
4 stating the law, but must consider the instructions as a
5 whole.
6 Neither are you to be concerned with the wisdom of
7 any rule of law stated by the Court. Regardless of any
8 opinion you may have as to what the law ought to be, it
9 would be a violation of your sworn duty to base a verdict
10 upon any other view of the law than that given in the
11 instructions of the Court; just as it would be a violation
12 of your sworn duty, as judges of the facts, to base a
13 verdict upon anything but the evidence of the case.
14 You are to disregard any evidence offered at trial
15 and rejected by the Court. You are not to consider
16 questions of counsel as evidence. You are not to consider
17 the opening statements and the arguments of counsel as
18 evidence. Their purpose is merely to assist you in
19 analyzing and considering the evidence presented at trial.
20 The Court did not by any words uttered during the
21 trial or in these instructions give or intimate, or wish to
22 be understood by you as giving or intimating, any opinions
23 as to what has or has not been proven in the case or as to
24 what are or are not the facts of the case.
25 The claim of Novell that SCO slandered Novell's
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 10 of 76
2605
1 title is no longer before you and will not be decided by
2 you. Do not concern yourselves with this development and do
3 not speculate about it.
4 SCO has the burden of proving its claim by a
5 preponderance of the evidence.
6 To prove by a preponderance of the evidence means
7 to prove something is more likely so than not so. It does
8 not mean the greater number of witnesses or exhibits. It
9 means the evidence that has the more convincing force when
10 taken on a whole compared to the evidence opposed to it. It
11 means the evidence that leads you the jury to find that the
12 existence of the disputed fact is more likely true than not
13 true.
14 Any finding of fact you make must be based on
15 probabilities, not possibilities. A finding of fact must
16 not be based on speculation or conjecture.
17 When I say in these instructions that the party
18 has the burden of proof on any proposition or use the
19 expression if you find or if you determine, I mean that you
20 must be persuaded, considering all the evidence in the case,
21 that the proposition is more probably true than not true.
22 In determining whether any disputed fact has been
23 proven by a preponderance of the evidence you may, unless
24 otherwise instructed, consider the testimony of all
25 witnesses, regardless of who may have called them, and all
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 11 of 76
2606
1 exhibits.
2 If a party fails to meet this burden of proof, or
3 if the evidence weighs so evenly that you are unable to say
4 that there is a preponderance on either side, you must
5 resolve the question against the party who has the burden of
6 proof on that issue and in favor of the opposing party.
7 In this particular civil case, one of the elements
8 of the claim made by SCO, the showing of constitutional
9 malice, has a different burden of proof called clear and
10 convincing evidence. That means that SCO has a higher
11 burden than preponderance of the evidence, but it does not
12 require proof beyond a reasonable doubt. Clear and
13 convincing evidence is evidence that shows it is highly
14 probable that what is claimed is true. It is evidence that
15 produces in your mind a firm belief as to the fact at issue.
16 For such evidence to be clear and convincing, it must at
17 least have reached a point where there remains no
18 substantial doubt as to the truth or correctness of the
19 claim based upon the evidence.
20 You have been chosen and sworn as jurors in this
21 case to try the issues of fact presented by the allegations
22 of the complaint of SCO, and the answer thereto of Novell.
23 You are to perform this duty without bias or prejudice as to
24 any party. Our system of law does not permit jurors to be
25 governed by sympathy, prejudice, or public opinion. Both
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 12 of 76
2607
1 the parties and the public expect that you will carefully
2 and impartially consider all the evidence in the case,
3 follow the law stated by the Court, and reach a just
4 verdict, regardless of the consequences.
5 During the trial I have permitted you to take
6 notes. Many courts do not permit note-taking by jurors.
7 And as instructed at the beginning of trial, a word of
8 caution is in order. There is always a tendency to attach
9 undue importance to matters which one has written down.
10 Some testimony which is considered unimportant at the time
11 presented, and thus not written down, takes on greater
12 importance later in the trial in light of all the evidence
13 presented. Therefore, you are instructed that your notes
14 are only a tool to aid your own individual memory and you
15 should not compare your notes with other jurors in
16 determining the content of any testimony or in evaluating
17 the importance of any evidence. Your notes are not
18 evidence, and are by no means a complete outline of the
19 proceeding or list of the highlights of the trial. Above
20 all, your memory should be your greatest asset when it comes
21 to deliberating and rendering a decision in this case.
22 Both SCO and Novell are corporations and, as such,
23 can act only through their officers and employees, and
24 others designated by them as their agents.
25 Any act or omission of any officer, employee or
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 13 of 76
2608
1 agent of a corporation, in the performance of the duties or
2 within the scope of the authority of the officer, employee
3 or agent, is the act or omission of the corporation.
4 Unless you are otherwise instructed, the evidence
5 in this case consists of the sworn testimony of the
6 witnesses, regardless of who may have called them; and all
7 exhibits received in evidence, regardless of who may have
8 produced them; and all facts which may have been admitted or
9 stipulated; and all facts and events which may have been
10 judicially noticed.
11 Any evidence as to which an objection was
12 sustained by the Court, and any evidence ordered stricken by
13 the Court, must be entirely disregarded.
14 Unless you are otherwise instructed, anything you
15 may have seen or heard outside of the courtroom is not
16 evidence and must be entirely disregarded.
17 There are, generally speaking, two types of
18 evidence from which a jury may properly find the truth as to
19 the facts of a case. One is direct evidence, such as the
20 testimony of an eyewitness. The other is indirect or
21 circumstantial evidence, the proof of a chain of
22 circumstances pointing to the existence or nonexistence of
23 certain facts.
24 As a general rule, the law makes no distinction
25 between direct and circumstantial evidence, but simply
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 14 of 76
2609
1 requires that the jury find the facts in accordance with the
2 burden of proof in the case, both direct and circumstantial.
3 You, as jurors, are the sole judges of the
4 credibility of witnesses and the weight their testimony
5 deserves. You may be guided by the appearance and conduct
6 of the witnesses, or by the manner in which the witness
7 testifies, or by the character of the testimony given, or by
8 evidence to the contrary of the testimony given.
9 You should carefully scrutinize all the testimony
10 given, the circumstances under which each witness has
11 testified, and every matter in evidence which tends to show
12 whether a witness is worthy of belief. Consider each
13 witness's intelligence, motive and state of mind, and
14 demeanor and manner while on the stand. Consider the
15 witness's ability to observe matters as to which he or she
16 has testified, and whether he or she impresses you as having
17 an accurate recollection of these matters. Consider also
18 any relation each witness may bear to either side of the
19 case; the manner in which each witness might be affected by
20 the verdict; and the extent to which, if at all, each
21 witness is either supported or contradicted by other
22 evidence in the case.
23 Inconsistencies or discrepancies in the testimony
24 of a witness, or between the testimony of different
25 witnesses, may or may not cause you to discredit such
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 15 of 76
2610
1 testimony. Two or more persons witnessing an incident or a
2 transaction may simply see or hear it differently and
3 innocent misrecollection, like failure of recollection, is
4 not an uncommon experience. In weighing the effect of a
5 discrepancy, always consider whether it pertains to a matter
6 of importance or an unimportant detail, and whether the
7 discrepancy results from innocent error or intentional
8 falsehood.
9 After making your own judgment, you will give the
10 testimony of each witness such weight, if any, as you may
11 think it deserves.
12 Witnesses who, by education, study and experience,
13 have become expert in some art, science, profession or
14 calling, may state opinions as to any such matter in which
15 that witness is qualified as an expert, so long as it is
16 material and relevant to the case. You should consider such
17 expert opinion and the reasons, if any, given for it. You
18 are not bound by such an opinion. Give it the weight you
19 think it deserves. If you should decide that the opinions
20 of an expert witness are not based upon sufficient education
21 and experience, or if you should conclude that the reasons
22 given in support of the opinions are not sound, or that such
23 opinions are outweighed by other evidence, you may disregard
24 the opinion entirely.
25 In resolving any conflict that may exist in the
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 16 of 76
2611
1 testimony of experts, you may compare and weigh the opinion
2 of one against that of another. In doing this, you may
3 consider the qualifications and credibility of each, as well
4 as the reasons for each opinion and the facts on which the
5 opinions are based.
6 In determining the weight to be given to an
7 opinion expressed by any witness who did not testify as an
8 expert witness, you should consider his or her credibility,
9 the extent of his other her opportunity to perceive the
10 matters upon which his or her opinion is based and the
11 reasons, if any, given for it. You are not required to
12 accept such an opinion but should give it the weight to
13 which you find it entitled.
14 During the trial of this case, certain testimony
15 has been presented to you by way of a deposition, consisting
16 of sworn recorded answers to questions asked of the witness
17 in advance of the trial by one or more of the attorneys for
18 the parties to the case. The testimony of a witness who,
19 for some reason, cannot be present to testify from the
20 witness stand may be presented in writing under oath or on a
21 videotape. Such testimony is entitled the same
22 consideration, and is to be judged as to credibility, and
23 weighed, and otherwise considered by the jury, insofar as
24 possible, in the same way as if the witness had been present
25 and had testified from the witness stand.
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 17 of 76
2612
1 Certain charts, graphs and illustrations have been
2 shown to you. Those charts, graphs and illustrations are
3 used for convenience and to help explain the facts of the
4 case. They are not themselves evidence or proof of any
5 facts.
6 You have heard evidence that there were earlier
7 rulings by this Court concerning the ownership of the UNIX
8 and the UNIX copyrights existent as of the date of the asset
9 purchase agreement. In making these rulings, the Court did
10 not have the benefit of the evidence that you have now
11 heard. These prior rulings have been reversed in a
12 unanimous ruling by the Court of Appeals, which is why these
13 issues are being presented to you in this trial. You must
14 decide this case solely on the evidence presented to you in
15 this trial. The earlier rulings should have no bearing on
16 your determination of which party owns the copyrights at
17 issue in this case. However, the existence of these prior
18 rulings may be considered by you in your determination of
19 special damages and punitive damages, if any.
20 You heard reference to a SCO Group bankruptcy.
21 That is a reorganization proceeding which is pending in
22 another court. SCO continues to operate its business in
23 reorganization and the existence of that proceeding should
24 have no bearing on your consideration of this case.
25 You have also heard reference to a trial involving
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 18 of 76
2613
1 SCO and Novell in 2008. That trial concerned other issues
2 that are not before you.
3 In this case, SCO has alleged that Novell has
4 slandered its title regarding ownership of copyrights over
5 the UNIX and UnixWare computer operating systems.
6 Slander of title requires you to find that:
7 First, there was a publication of a statement disparaging
8 SCO's title; second, the statement was false; third, the
9 statement was made with constitutional malice; and, fourth,
10 the statement caused special damages. I will now explain
11 these four elements in more detail.
12 The first element requires SCO to prove that
13 Novell published a statement that disparaged SCO's title or
14 ownership of the UNIX or UnixWare copyrights existent as of
15 the date of the asset purchase agreement. SCO alleges that
16 Novell made several slanderous statements in 2003 and 2004.
17 The allegedly slanderous statements do not include
18 statements made in pleadings and filings made by Novell in
19 connection with this litigation, which began in January
20 2004. Novell may not be held liable for making such
21 statements made in pleadings and filings.
22 For the statement to have been published, it must
23 have been communicated to someone other than SCO.
24 A statement is not slanderous if the context makes
25 clear that the speaker is expressing a subjective view or an
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 19 of 76
2614
1 interpretation or theory, rather than an objectively
2 verifiable fact. You may determine, however, that the
3 speaker intended to convey a statement of fact even if the
4 speaker has couched its statements in the form of an opinion
5 or belief.
6 In deciding whether a publication disparaged SCO's
7 title, you should not view individual words or sentences in
8 isolation. Rather, each statement must be considered in the
9 context in which it was made, giving the words their most
10 common and accepted meaning. You should also consider the
11 surrounding circumstances of the statement and how the
12 intended audience would have understood the statement in
13 view of those circumstances.
14 The second element of a claim for slander of title
15 is falsity of the statement that disparages title. False
16 means that the statement is either directly untrue or that
17 an untrue inference can be drawn from the statement. You
18 are to determine the truth or falsity of the statement
19 according to the facts as they existed at the time the
20 statement was made.
21 The statement, to be true, need not be absolutely,
22 totally, or literally true, but must be substantially true.
23 A statement is considered to be true if it is substantially
24 true or the gist of the statement is true.
25 In order to determine whether the statements at
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 20 of 76
2615
1 issue were true or false, you must determine which party
2 owned the UNIX and UnixWare copyrights, existent as of the
3 date of the asset purchase agreement, at the time the
4 statements were made.
5 To determine which party owned the UNIX and
6 UnixWare copyrights, existent as of the date of the asset
7 purchase agreement, you should consider the asset purchase
8 agreement and the amendments thereto. I will now provide
9 you instructions on how you should interpret these
10 agreements.
11 Several contracts relating to the same matters,
12 between the same parties, and made as parts of substantially
13 one transaction, are to be taken together. The contracts
14 need not have been executed on the same day to be parts of
15 substantially one transaction.
16 Where contracts are made at different times, but
17 where the later contract is not intended to entirely
18 supersede the first, but only modify it in certain
19 particulars, the two are to be construed as parts of one
20 contract, the later superseding the earlier one where it is
21 inconsistent with the earlier.
22 Here, the amendments, including Amendment No. 2,
23 must be considered together with the asset purchase
24 agreement as a single document. The language of the
25 amendments, including Amendment No. 2, controls whenever its
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 21 of 76
2616
1 language contradicts the asset purchase agreement.
2 In deciding what the terms of a contract mean, you
3 must decide what the parties intended at the time the
4 contract was created. You may consider the usual and
5 ordinary meaning of the language used in the contract as
6 well as the circumstances surrounding the making of the
7 contract.
8 With respect to your consideration of the
9 agreements at issue here, where contract terms are clear,
10 they should be given their plain and ordinary meanings.
11 In deciding what the words of a contract meant to
12 the parties, you should consider the whole contract, not
13 just isolated parts. You should use each part to help you
14 interpret the others, so that all the parts makes sense when
15 taken together.
16 You should assume that the parties intended the
17 words in their contract to have their usual and ordinary
18 meaning unless you decide that the parties intended the
19 words to have a special meaning.
20 With respect to who owns the copyrights at issue,
21 you may consider what is called the extrinsic evidence of
22 the intent of the parties to the amended asset purchase
23 agreement. Extrinsic evidence is the evidence of what
24 parties to a contract intended apart from the language they
25 used in the contract.
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2617
1 One type of extrinsic evidence is testimony or
2 documents showing what the people who were negotiating the
3 contract said or did or understood at the time of the
4 transaction.
5 Another type of extrinsic evidence is called the
6 parties course of performance. Course of performance is how
7 the parties interpreted and applied the terms of the
8 contract after the contract was created but before any
9 disagreement between the parties arose.
10 In determining which party owns the property at
11 issue, and your consideration of the amended asset purchase
12 agreement, you may consider the nature of a copyright.
13 Copyright is the exclusive right to copy. The
14 owner of a copyright has the exclusive right to do and to
15 authorize the following: One, to reproduce the copyrighted
16 work in copies; two, to prepare derivative works based upon
17 the copyrighted work; three, to distribute copies of the
18 copyrighted work to the public by sale or other transfer of
19 ownership, or by rental, lease or lending.
20 The term owner includes the author of the work, an
21 assignee, or an exclusive licensee. In general, copyright
22 law protects against production, adaptation, distribution,
23 performance, or display of substantially similar copies of
24 the owner's copyrighted work without the owner's permission.
25 A copyright owner may enforce these rights to
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 23 of 76
2618
1 exclude others in an action for copyright infringement.
2 Even though one may acquire a copy of a copyrighted work,
3 the copyright owner retains rights and control of that copy,
4 including uses that may result in additional copies or
5 alterations of the work.
6 Possession of certificates of copyright
7 registrations is immaterial to ownership of the copyrights,
8 but may be considered for other purposes, such as the intent
9 of the parties.
10 A copyright owner may transfer, sell, or convey to
11 another person all or part of the copyright owner's property
12 interest in the copyright. A property interest in a
13 copyright includes the right to exclude others from
14 reproducing, preparing a derivative work, distributing,
15 performing, displaying, or using the copyrighted work.
16 To be valid, the transfer, sell, or conveyance
17 must be in writing. The person to whom a right is
18 transferred is called the assignee. The assignee may
19 enforce this right to exclude others in an action for a
20 copyright infringement.
21 The copyright owner may also transfer, sell, or
22 convey to another person any of the exclusive rights
23 included in the copyright. To be valid, the transfer, sell,
24 or conveyance must be in writing. The person to whom this
25 right is transferred is called an exclusive licensee. An
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 24 of 76
2619
1 exclusive licensee has the right to exclude others from
2 copying the work to the extent of the rights granted in the
3 license and may bring an action for damages for copyright
4 infringement.
5 Nonexclusive licenses, on the other hand, do not
6 transfer copyright ownership and can be granted orally or
7 implied from conduct. An implied license can only be
8 nonexclusive. A nonexclusive licensee cannot bring suit to
9 enforce a copyright.
10 An implied nonexclusive license may arise when,
11 one, a person, the licensee, requests the creation of the
12 work, two, the creator, the licensor, makes the particular
13 work and delivers it to the licensee who requested it, and,
14 three, the licensor intends that the licensee-requestor copy
15 or distribute his work.
16 The third element of slander of title requires SCO
17 to prove by clear and convincing evidence that Novell's
18 statement disparaging the ownership of the UNIX and UnixWare
19 copyrights, existent as of the date of the asset purchase
20 agreement, was made with constitutional malice. That is,
21 SCO must prove that the statement was published with: One,
22 knowledge that it was false; or, two, reckless disregard of
23 whether it was true or false, which means that Novell made
24 the statement with a high degree of awareness of the
25 probable falsity of the statement, or that, at the time the
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2620
1 statement was transmitted Novell had serious doubts that the
2 statement was true. Clear and convincing evidence leaves no
3 substantial doubt in your mind that the constitutional
4 malice is highly probable, as previously explained in
5 Instruction No. 13.
6 In determining whether Novell published the
7 statement knowing the statement to be false or with reckless
8 disregard for the truth, you should take into account all
9 the facts and circumstances. You should consider whether
10 the statement was fabricated or the product of the party's
11 imagination. You may also consider whether the party knew
12 about the source of the information and whether there were
13 reasons for the party to doubt the informant's veracity,
14 whether the information was inherently improbable, or if
15 there were other reasons for the party to doubt the accuracy
16 of the information.
17 In determining whether there was knowing falsehood
18 or reckless disregard for the truth, however, it is not
19 enough for you to find that the party acted negligently,
20 carelessly, sloppily or did not exercise good judgment in
21 researching, writing, editing, or publishing the statement.
22 An extreme departure from the standards of investigating and
23 reporting ordinarily adhered to by responsible publishers
24 does not, standing alone, constitute knowledge of falsity or
25 reckless disregard for the truth. The reliance on one
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2621
1 source standing alone does not constitute knowing falsehood
2 or reckless disregard for the truth, even if other sources
3 would be readily available, and even if, in applying
4 reasonable reporting of care, you believe those other
5 sources should have been contacted.
6 Spite, ill will, hatred, bad faith, evil purpose
7 or intent to harm does not alone support a finding of
8 constitutional malice.
9 The mere fact that a mistake may occur is not
10 evidence of knowing falsehood or reckless disregard for the
11 truth. Reckless disregard for the truth or falsity requires
12 a finding that the person making the statement had a high
13 degree of awareness that the statement was probably false,
14 but went ahead and published the statement anyway. The test
15 is not whether the person acted as a responsible publisher
16 under the circumstances. While exceptional caution and
17 skill are to be admired and encouraged, the law does not
18 demand them as a standard of conduct in this matter.
19 Unless you find by clear and convincing evidence,
20 under all the circumstances, that Novell acted knowing the
21 statement to be false or with a high degree of awareness of
22 its probable falsity, there can be no liability.
23 The final element of a claim for slander of title
24 requires a showing that the statement disparaging SCO's
25 ownership of the UNIX of UnixWare copyrights, existent as of
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 27 of 76
2622
1 the date of the asset purchase agreement, caused special
2 damages to SCO.
3 This requires SCO to establish an economic loss
4 that has been realized or liquidated, as in the case of lost
5 sales. Special damages are ordinarily proved in a slander
6 of title action by evidence of a lost sale or the loss of
7 some other economic advantage. Absent a specific monetary
8 loss flowing from a slander affecting the salability or use
9 of the property, there is no damage. It is not sufficient
10 to show that the property's value has dropped on the market,
11 as this is not a realized or liquidated loss. The law does
12 not presume special damages.
13 Special damages in the form of lost sales may be
14 shown in two ways: A, proof of the conduct of specific
15 persons or, b, proof that the loss has resulted from the
16 conduct of a number of persons whom it is impossible to
17 identify. There is a separate test you must apply for each.
18 First, when the loss of a specific sale is relied
19 on to establish special damages, SCO must prove that the
20 publication of the disparaging statement was a substantial
21 factor influencing the specific, identified purchaser in his
22 decision not to buy.
23 In order for the disparaging statement to be a
24 substantial factor in determining the conduct of an
25 intending or potential purchaser, it is not necessary that
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2623
1 the conduct should be determined exclusively or even
2 predominantly by the publication of the statement. It is
3 enough that the disparagement is a factor in determining his
4 decision, even though he is influenced by other factors
5 without which he would not decide to act as he does. Thus
6 many considerations may combine to make an intending
7 purchaser decide to break a contract or to withdraw or
8 refrain from making an offer. If, however, the publication
9 of the disparaging matter is one of the considerations that
10 has substantial weight, the publication of the disparaging
11 matter is a substantial factor in preventing the sale and
12 thus bringing financial loss upon the owner of the thing in
13 question.
14 The extent of the loss caused by the prevention of
15 a sale is determined by the difference between the price
16 that would have been realized by it and the salable value of
17 the thing in question after there has been a sufficient time
18 following the frustration of the sale to permit its
19 marketing.
20 Second, in the case of a widely disseminated
21 disparaging statement, SCO need not identify a specific
22 purchaser and recovery is permitted for loss of the market.
23 This may be proved by circumstantial evidence showing that
24 the loss has in fact occurred and eliminating other causes.
25 A decline in stock price is not an appropriate
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2624
1 claim for special damages.
2 You are entitled to award punitive damages if you
3 deem them to be appropriate.
4 Before any award of punitive damages can be
5 considered, SCO must prove by clear and convincing evidence
6 that Novell published a false statement knowing it was false
7 or in reckless disregard whether it was true or false, and
8 that Novell acted with hatred or ill will towards SCO, or
9 with an intent to injure SCO, or acted willfully or
10 maliciously towards SCO.
11 If you find that SCO has presented such proof, you
12 may award, if you deem it proper to do so, such sum as in
13 your judgment would be reasonable and proper as a punishment
14 to Novell for such wrongs, and as a wholesome warning to
15 others not to offend in a like manner. If such punitive
16 damages are given, you should award them with caution and
17 you should keep in mind they are only for the purpose just
18 mentioned and are not the measure of actual damage.
19 The fact that I have instructed you on damages
20 does not mean that I am indicating that you should award
21 any. That is entirely for you, the jury, to decide.
22 Any damages you award must have a reasonable basis
23 in the evidence. They need not be mathematically exact, but
24 there must be enough evidence for you to make a reasonable
25 estimate of damages without speculation or guess work.
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2625
1 The burden is upon the party seeking damages to
2 prove the existence and amount of its damages and that its
3 damages were caused by the acts of the opposing party. You
4 are not permitted to award speculative damages.
5 You have heard evidence concerning specifics about
6 the parties' rights and obligations under section 4.16 of
7 the amended asset purchase agreement. You are instructed
8 that those issues of specific rights and obligations under
9 section 4.16 are for the Court to decide and you are not to
10 concern yourself with them. You may consider section 4.16,
11 as well as all other provisions, in interpreting the amended
12 asset purchase agreement.
13 It is the duty of the attorney on each side of the
14 case to object when the other side offers testimony or other
15 evidence which the attorney believes is not properly
16 admissible. You should not show prejudice against any
17 attorney or his or her client because the attorney has made
18 an objection.
19 Upon allowing testimony or other evidence to be
20 introduced over the objection of any attorney, the Court
21 does not, unless expressly stated, indicate any opinion as
22 to the weight or effect of any such evidence. As stated
23 before, the jurors are the sole judges of the credibility of
24 all witnesses and the weight and effect of all evidence.
25 When the Court has sustained an objection to a
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2626
1 question addressed to a witness, the jury must disregard the
2 question entirely, and may draw no inference from the
3 wording of it or speculate as to what the witness would have
4 said if he or she had been permitted to answer any question.
5 During the course of the trial, I may have
6 occasionally asked questions of a witness, in order to bring
7 out facts not then fully covered in the testimony. Do not
8 assume that I hold any opinion on the matters to which my
9 questions may have related.
10 A copy of these instructions will also accompany
11 you to the jury room. Do not write on the instructions.
12 You will notice during are deliberations that
13 there may be gaps in the numbering of the instructions. The
14 instruction numbers are for the convenience of the Court and
15 the parties, and you are not to be concerned by them.
16 Upon retiring to the jury room, you must select
17 one of your members to act as your foreperson. The
18 foreperson will preside over your deliberations and will be
19 your spokesperson here in court.
20 The verdict must represent the collective judgment
21 of the jury. In order to return a verdict, it is necessary
22 that each juror agree to it. Your verdict must be
23 unanimous.
24 It is your duty, as jurors, to consult with one
25 another and to deliberate with a view to reaching an
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 32 of 76
2627
1 agreement if you can do so without violence to individual
2 judgment. Each of you must decide the case for yourself,
3 but do so only after an impartial consideration of the
4 evidence in the case with your fellow jurors. In the course
5 of your deliberations, do not hesitate to reexamine your own
6 views and change your opinion if convinced it is erroneous.
7 But do not surrender your honest conviction as to the weight
8 or effect of evidence solely because of the opinion of your
9 fellow jurors for the mere purpose of returning a unanimous
10 verdict.
11 Remember at all times, you are not partisans. You
12 are judges, judges of the facts. Your sole interest is to
13 seek the truth from the evidence in the case.
14 Your verdict must be based solely upon the
15 evidence received in the case. Nothing you have seen or
16 heard outside of court may be considered. Nothing that I
17 have said or done during the course of this trial is
18 intended in any way to somehow suggest to you what I think
19 your verdict should be. Nothing said in these instructions
20 and nothing in any form of verdict prepared for your
21 convenience is to suggest or convey to you in any way or
22 manner any intimation as to what verdict I think you should
23 return. What the verdict shall be is the exclusive duty and
24 responsibility of the jury. As I have told you many times,
25 you are the sole judges of the facts.
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2628
1 The Court has prepared a verdict form for your
2 convenience. You are instructed that your answers to the
3 interrogatories on the verdict form must be consistent with
4 the instructions I have given you and with each other.
5 When you have reached a unanimous agreement as to
6 your verdict, your foreperson will fill in, date and sign
7 the verdict form upon which you have unanimously agreed.
8 When you have reached unanimous agreement as to your
9 verdict, the foreperson shall inform the bailiff and you
10 shall return to the courtroom.
11 If it becomes necessary during your deliberations
12 to communicate with the Court, you may send a note by the
13 bailiff. But bear in mind that you are not to reveal to the
14 Court or to any person how the jury stands, numerically or
15 otherwise, on the question before you, until after you have
16 reached a unanimous verdict or agreement.
17 The attitude and conduct of jurors at the outset
18 of their deliberations are matters of considerable
19 importance. It is rarely productive or good for a juror,
20 upon entering the jury room, to make an emphatic expression
21 of his or her opinion on the case or to announce a
22 determination to stand for a certain verdict. When one does
23 that at the outset, his or her sense of pride may be
24 aroused, and he or she may hesitate to recede from an
25 announced position if shown that it is wrong.
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2629
1 During your deliberations, you are able as a group
2 to set your own schedule for deliberations. You may
3 deliberate as late as you wish or recess at an appropriate
4 time set by yourselves. You may set your own schedule for
5 lunch and dinner breaks.
6 However, I do ask that you notify the Court by a
7 note when you plan to recess for the evening.
8 You have now been instructed on the law, ladies
9 and gentlemen. Again, a copy of the instructions, what I
10 just read to you, will accompany you to the jury room.
11 It is now time for closing statements, and we'll
12 begin with SCO. And because SCO is the plaintiff in the
13 case and, as I just instructed you, has certain burdens to
14 carry by way of the weight of evidence and such, the
15 plaintiffs have the opportunity to go both first and last in
16 their closing statements, meaning that SCO will go ahead now
17 with part of its closing. We'll then hear from Novell, and
18 then SCO will be given the last word.
19 Mr. Singer, if you would like to proceed.
20 MR. SINGER: Thank you, Your Honor.
21 Ladies and gentlemen, it's been a long three weeks
22 and we appreciate your close attention to this case. I know
23 it's not been the most exciting case at times, but I assure
24 you it's a very important case. It's very important to SCO,
25 it very important to individuals like Bill Broderick, John
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 35 of 76
2630
1 Maciaszek, and Andy Nagle, men who have been with the
2 company for 20 years, going all the way back to AT&T, and
3 they are still there at SCO turning out UnixWare, providing
4 products for companies all over the country and the world,
5 and trying in a difficult situation to have the company
6 proceed.
7 These individuals and the customers, and some of
8 these have been long time or current customers, McDonald's,
9 NASDAQ, BMW, that business depends on the copyrights,
10 depends on having ownership of intellectual property that is
11 at the heart of their business.
12 You are going to be asked in this case two basic
13 important questions. It will be your responsibility to
14 decide, first, to declare that the UNIX, UnixWare copyrights
15 that existed back at the time of this transaction went with
16 the rest of the business, except for this royalty stream,
17 and belonged to SCO. That is very important and critical on
18 its own. And, second, you will be asked to determine, if
19 you agree with us, that there's been a slander on SCO's
20 title, to determine that and award a reasonable amount of
21 damages to compensate SCO in connection with that slander.
22 Now as the Court has instructed you, you are the
23 judges of the facts and, in doing so, you must determine
24 credibility. And credibility is, in part, a question of the
25 consistency of witnesses with one another. And I would like
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 36 of 76
2631
1 to give you an example of one of the things you can look at.
2 You'll recall Mr. Stone when he was testifying
3 here about whether or not when they waived rights of SCO
4 that benefited IMB, whether that was done unilaterally or
5 whether it was done at IBM's request. Mr. Stone answered
6 no, it wasn't at IBM's request. We acted on our own. No
7 input from IBM at all.
8 Then a few days later you heard from Mr. LaSala,
9 the former general counsel of Novell who admitted on the
10 stand that, in fact, Mr. Marriot, a lawyer for IBM,
11 specifically asked Novell to assert those rights to waive
12 SCO's claims; in fact, said it was urgent. You also learned
13 that even internally, with Mr. LaSala's testimony, there was
14 an inconsistency because when he was first asked about that
15 in February 2007, he denied it. Only later in May, when we
16 pursued the issue, he admitted it. That's credibility.
17 That's an issue you can consider in determining who to
18 believe in this case.
19 Another example, Mr. Stone again, on a basic
20 point. This is not something people can be confused about.
21 Were you asked to leave the company. Yes, I was. I asked
22 Mr. Messman the same question, was Mr. Stone asked to leave
23 Novell. Answer, no. Someone is not telling the truth.
24 Now the questions that you will need to answer in
25 this case will be set out in the verdict form that you will
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 37 of 76
2632
1 receive along with a copy of the instructions and the
2 evidence, and the very first question will be did the
3 amended asset purchase agreement transfer to UNIX and
4 UnixWare copyrights from Novell to SCO. I would like to
5 address that question at the outset.
6 Amendment No. 2, we submit, is the key to
7 answering that question. Amendment No. 2 replaced the
8 language that was inconsistent with what was the intent of
9 the transaction, the intent of the parties who put this deal
10 together that those copyrights would be transferred with the
11 UNIX and the UnixWare business. Amendment 2 replaces the
12 old language, which is gone, and that is the operative
13 language.
14 Now Judge Stewart read you an important
15 instruction that makes that clear, which is the instruction
16 I have on the screen, and it makes clear that it is the
17 language of the amendments, including Amendment No. 2,
18 controls wherever its language contradicts the asset
19 purchase agreement.
20 Of course you knew that from the face of it, that
21 it says it replaces the old language. It took out this
22 copyright exclusion and put in language that, we submit to
23 you, is consistent with what the parties intended, that the
24 copyrights required for the business were now part of what
25 were the included assets.
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2633
1 Now you might remember about three weeks ago
2 Novell's counsel telling you that it was important to listen
3 for the rest of the story. I think he invoked Paul Harvey.
4 I was thinking about that statement all during the first
5 week of this trial, and I was doing that because it seemed
6 that all during that week Novell was focused on this
7 language in the schedule of excluded assets, excluding
8 copyrights, when the rest of the story was that language
9 didn't exist anymore. That language was replaced by
10 Amendment No. 2. So the language that they have spent more
11 hours in this trial on than anything else is simply not in
12 the agreement and hasn't been in there since 1996. That's
13 really the rest of the story on this because under the plain
14 language of the asset purchase agreement with Amendment 2,
15 it is very clear that the assets, the copyrights
16 transferred.
17 You have a schedule of included assets, which
18 you've seen many times and you will be able to look at when
19 you deliberate, it says, all rights and ownership of UNIX
20 and UnixWare on all these products, including the UnixWare
21 products, and you haven't heard any evidence there are any
22 products on there that -- products missing from that list.
23 This includes what we're talking about, that all rights and
24 ownership of UNIX and UnixWare are transferred.
25 And then you had the old language that excluded
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 39 of 76
2634
1 copyrights and trademarks. Now you have the current
2 language replaced by Amendment 2 which says that Novell gets
3 to keep copyrights, except for the copyrights and trademarks
4 owned by Novell as of the date of the agreement required for
5 SCO to exercise its rights with respect to the acquisition
6 of UNIX and UnixWare technologies. That really is the heart
7 of this case. With Amendment No. 2, it is clear that those
8 copyrights were transferred.
9 Now I would submit to you that Novell has admitted
10 the fact that SCO, in light of Amendment No. 2, owns those
11 copyrights, and they did that on two occasions. The first
12 occasion that that was admitted goes back to June 6th of
13 2003 when Novell issued the press release, when they -- of
14 course, you've heard about Amendment No. 2 when they said
15 they didn't have it and it turns out they did have it. They
16 didn't know it was signed. They claimed they had a signed
17 copy in the files. But the important point here on
18 copyright ownership is their recognition that it appears to
19 support SCO's claim that ownership for certain copyrights of
20 UNIX did transfer to SCO in 1996. So that's the first time.
21 The second time that that was admitted was in
22 front of you a few days ago on March 23rd, and that was when
23 Allison Amadia admitted -- and certainly she started out in
24 her testimony being adverse to SCO and in favor of Novell.
25 Then under Mr. Normand's cross-examination, listen to what
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 40 of 76
2635
1 she said. She was asked, now you agree that under the plain
2 language of Amendment 2 Novell has included in the transfer
3 of assets the copyrights required for SCO to exercise its
4 rights in UNIX and UnixWare. Her answer was, the way I
5 wrote and intended Amendment No. 2 to be read is that this
6 language was saying that whatever copyright rights Santa
7 Cruz needed in order to exercise the rights it was given,
8 then they would have those rights.
9 Then a little bit later near the end of her
10 cross-examination she was asked, so if there are copyrights
11 that are required for SCO to exercise its rights, like the
12 UNIX and UnixWare trademarks, they were transferred,
13 correct. Her answer was yes.
14 Now there is no real dispute, ladies and
15 gentlemen, that the copyrights are required for the UNIX and
16 UnixWare business. You have heard a lot of evidence on
17 that. It has included Bob Frankenberg, the Novell president
18 and CEO, who said it was ludicrous to think about selling
19 software without selling the copyrights.
20 Doug Michels, the SCO founder and vice president,
21 equated it to breathing oxygen, that it's so essential.
22 There is no way this deal would have happened without
23 getting the copyrights.
24 Jim Wilt, who was the lead negotiator for Santa
25 Cruz, says that, you know, when you walk out the door, I
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 41 of 76
2636
1 assume your head goes with you. That's how he equated it.
2 And, of course, the copyrights have to go with the company.
3 Steve Sabbath was asked, if you didn't own the
4 copyrights, how could you go after somebody that's pirating
5 your software, how could you enforce your rights to the
6 technology.
7 Bill Broderick said, if we couldn't protect our
8 software, we'd be out of business. This is how you protect
9 your software.
10 Now with Amendment No. 2, the APA makes sense.
11 Without it, the agreement doesn't make sense. The software
12 business without the copyrights, well, I would suggest to
13 you that's like a car without an engine, or maybe a house
14 without a roof, or maybe even suggest that it's an ice cream
15 sundae where you only get the cherry and not the ice cream,
16 as Mr. Braham suggested a couple days ago. It doesn't make
17 any sense.
18 Now with Amendment No. 2 all of the things fit
19 together and makes sense, beginning with the very recital at
20 the beginning of the document that says that this is the
21 sale of a business, the UNIX and UnixWare business, the
22 support of those products, all of that is what it being
23 sold. It is the intent that all of the business relating to
24 that be transferred. So it's consistent with the overall
25 intent of the deal.
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 42 of 76
2637
1 There's been some discussion about the
2 consideration received. I suggest to you that it makes
3 sense because of the amount of money which Novell received.
4 Back in the opening you might remember seeing this slide
5 from Novell, the first one on the left-hand side, where it
6 suggests the purchase price was just the stock. The stock
7 itself was worth a lot of money, 40, $50 million. You
8 wouldn't even receive that if you weren't transferring the
9 copyrights. But if you look at the entirety of that section
10 of the asset purchase agreement, you see that there was
11 another part to the payments which included the royalty
12 stream that would occur in the future, both from the
13 existing UNIX products and the UnixWare products.
14 If you look at Mr. Bradford's memo to the board
15 right before Novell approved this transaction, he identified
16 those four royalty streams, which turn into a lot of money.
17 The stock is worth about 40, $50 million, $50 million a year
18 in the UNIX royalties, the estimated present value of
19 $60 million or so in the UnixWare royalties. So this was a
20 sale of a business. This wasn't simply serving as an agent,
21 as Mr. Braham suggested, to collect for someone else.
22 For instance, you've got here all the title to the
23 UNIX licenses. If you have a real estate agent handle your
24 house, you don't give them title to sell it. I don't know
25 of any real estate agents who would pay me something like
Case 2:04-cv-00139-TS Document 869 Filed 04/19/10 Page 43 of 76
2638
1 $100 million to handle a transaction. This agency was very
2 limited to the collection of royalties that Novell was going
3 to keep, and the rest of this was the sale of a business.
4 Now Amendment 2 also is needed to make sense of
5 something you've heard me refer to and my colleagues refer
6 to throughout the trial, the license back provision, and
7 that's because -- and Novell has never been able to explain
8 this, it makes no sense for Novell to have kept the
9 copyrights and then the license back right to use them. If
10 they kept them, they wouldn't need the license back. That
11 is clear evidence that this was intended to be a sale of the
12 copyrights.
13 The license back of assets appears right in the
14 asset purchase agreement in section 1.6. Now Novell tries
15 to say, well, it only applied to the new products, so that's
16 why you had the license back. But the plain language of the
17 license back says, all of the technology included in the
18 assets, which means they are getting a license back to the
19 assets being sold. They wouldn't need a license to use that
20 if it wasn't for the fact they were selling the copyrights.
21 And, in fact, if you look at the technology
22 license agreement, it says specifically, as between Novell
23 and SCO, ownership of licensed technology shall reside in
24 SCO. We think that makes it very clear, and you have heard
25 a lot of witnesses say when I asked them or Mr. Normand
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2639
1 asked them that does it make any sense to have a license
2 back if you retained the copyrights, and everyone agreed
3 with that.
4 Now Amendment 2 -- with Amendment 2, the agreement
5 also makes sense in light of -- let's see, there we are.
6 With Amendment 2, the agreement also makes sense in light of
7 the testimony of the witnesses that you've heard. Now I
8 told you a few weeks ago in the opening, pointing to this
9 chart, that you would hear from ten witnesses drawn from
10 both the Santa Cruz and the Novell side of the transaction
11 who would agree that it was intended that the copyrights
12 were sold. All ten of those witnesses, either through video
13 deposition or through live testimony here, have so
14 testified.
15 I would like to start with the Santa Cruz side
16 because there's been a lot of attention here paid to what
17 Novell intended and what was going on at Novell's board
18 meeting. That's really not the issue before you. The issue
19 before you is what the two parties to a contract intended.
20 So you have to look at both parties' intent and how they
21 expressed that to each other. And there is no confusion at
22 all on the Santa Cruz side there. All of these executives
23 and negotiators testified consistently that this deal
24 required the transfer of the copyrights.
25 You remember Doug Michels. I think that was
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1 pretty memorable videotaped testimony, wasn't it? He was
2 perplexed that anyone could even raise the issue.
3 Copyrights are like breathing oxygen. I'm going to read you
4 a little bit of his testimony. He says, I guarantee you, we
5 put copyright notices in every document we wrote. How could
6 we do that if we didn't own the copyrights? We put
7 copyright notices in every module of source code we wrote.
8 They all said we own the copyrights. We own the
9 intellectual property, and every action we took represents
10 that. I don't do a very good imitation of him.
11 THE COURT: Mr. Singer, remember, if you read too
12 fast, the court reporter will have difficulty.
13 MR. SINGER: I will try to read slower as well.
14 Michels also said, we took over the business. We
15 were in the business of selling intellectual property. We
16 were in the business of supporting the intellectual
17 property. We were in the business of providing marketing
18 materials. We couldn't do any of that without owning the
19 copyrights.
20 He was asked if any attorney from Santa Cruz ever
21 told him that Novell was asking for -- that he had to go to
22 Novell and ask them for the copyrights. He said, I think I
23 would have laughed them out my office.
24 Now you recall that you also heard testimony from
25 Steve Sabbath who said, when we bought the UNIX business
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2641
1 from Novell, all copyrights came with the product and
2 Amendment No. 2 was meant to confirm that, and he testified
3 to that.
4 In addition, you had Kimberlee Madsen. Ms. Madsen
5 has no interest in this litigation. She works for Apple.
6 She came here and testified clearly to you that the
7 copyrights were going with the assets. She was asked, do
8 you have a view, as you sit here, as to whether the parties
9 intended that the copyrights would be retained by Novell.
10 Answer, no. The intent was clearly to be that the
11 copyrights for the UNIX and UnixWare were to be transferred
12 to The Santa Cruz Operation.
13 And you heard Mr. Mohan, Mr. Wilt also. So there
14 is no question on the Santa Cruz side of the equation that
15 everyone agrees that the copyrights were part of the deal.
16 Now in a typical case you would expect to see the
17 Santa Cruz executives and attorneys saying one thing and the
18 Novell executives and lawyers saying something completely
19 different. The incredible thing about this case is that you
20 have numerous senior executives and lawyers who were with
21 Novell at the time who agree with Santa Cruz, who agree that
22 the copyrights were intended to be sold.
23 Now you have heard from Robert Frankenberg, the
24 chief executive officer at the time, on the first day and
25 again on the last day of testimony. I think he's probably
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1 the most important witness in this trial. Ladies and
2 gentlemen, in the future, when I think of a stand-up guy,
3 I'm going to be thinking of Bob Frankenberg. He has no
4 financial or other interest in this. A lot of CEOs would
5 simply duck something like this and say they don't remember,
6 it's a long time ago. He didn't do that. He has given you
7 forthright testimony, both on the first day of trial and
8 yesterday, that this was a deal to sell the copyrights along
9 with the rest of the business.
10 He acknowledged that he missed that line item in
11 one part -- one word in a board resolution that he thought
12 was probably referring to the NetWare copyrights, but that
13 it was clear, because he was the guy at the top, that this
14 was a sale of the business, including the copyrights.
15 That's why the error had to be fixed a year later with
16 Amendment No. 2.
17 His testimony is consistent with the testimony of
18 Duff Thompson, of Ty Mattingly and Ed Chatlos, the people
19 most involved in the negotiation of the deal. They were the
20 people out there in California for months negotiating this.
21 These were the people who looked at Alok Mohan and the other
22 Santa Cruz people across the table and said, you are getting
23 the business lock, stock and barrel, except, of course, for
24 those royalties which were going to help pay for it. These
25 were the people who came here and testified that there had
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2643
1 never been any suggestion made in that process of Novell
2 holding back the copyrights.
3 Now Novell suggests some of these witnesses, who,
4 remember, are their own executives, should be discredited
5 because some of them later went to the business and
6 therefore had a financial interest in SCO. What I would
7 submit to you, though, is their testimony is consistent with
8 individuals who have no such interest, Mr. Levine,
9 Mr. Frankenberg. I think they insulted Mr. Chatlos, their
10 senior director, by suggesting because his wife had a little
11 stock that somehow he isn't telling the truth when he said
12 this was the deal he negotiated. And Mr. Thompson, who you
13 can judge, was a forthright witness.
14 Basically, what Novell is telling you is that you
15 would have to believe that all ten of these witnesses, all
16 ten, half of whom are former senior executives, were either
17 mistaken or lying in order to agree with what Novell would
18 have you believe in this case.
19 Now how did this happen? How did the problem
20 happen that required Amendment 2? I think we have gotten a
21 little more insight into that over the last several days. I
22 think you see what happens when you have a set of lawyers
23 rushing to document a deal under a lot of time pressure.
24 This is Tor Braham's forced march. Mr. Braham ignored
25 months of negotiations between the parties that preceded the
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1 last two weeks, which is when he got involved, as simply
2 discussions about a potential transaction that he didn't
3 really have to pay attention to.
4 He also ignored the term sheet which I asked him
5 about, a term sheet which, if you look at it when you look
6 at all the evidence, he had, which, before he got to work on
7 9-11-95, or within that period he got to work, said what the
8 business people had negotiated, and it says, UnixWare and
9 SVRX, the intent is to provide all rights to SCO including
10 rights to modify, rights to sublicense binary copies, rights
11 to distribute source code. And, ladies and gentlemen, if
12 you compare that to the instruction that Judge Stewart read
13 and you'll have with you, you'll see that lines up very
14 closely to what the rights are that an owner of a copyright
15 has.
16 Now going back to Mr. Braham's forced march, what
17 are the other things that indicate how this problem
18 happened? The excluded assets schedule, which has
19 originally had this exclusion of copyrights, it wasn't even
20 provided until the week before the signing. The fact that
21 he testified to you that on a big issue like this there was
22 no push back from Santa Cruz shows that this wasn't
23 discussed, it was missed. Can you believe a situation where
24 Novell pops up a few days before the closing and says, we're
25 going to sell you the business, but we're going to hold the
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1 copyrights, and Santa Cruz says, yeah, that's fine, it
2 doesn't push back? It doesn't make any sense. This was
3 just missed in a schedule.
4 Mr. Bradford's September 18th, 1995 board memo
5 didn't mention that either, which explains why
6 Mr. Frankenberg and other people on the board who aren't
7 looking at the minutia of the resolution but are looking
8 what their general counsel sent to them in advance of the
9 meeting, it didn't mention anything about retaining the
10 copyrights.
11 And then there was one more piece of evidence that
12 was interesting. When Mr. Braham testified, I asked him
13 about this copy he made notes on during the board conference
14 call and, interestingly enough, as you'll see, because
15 that's in evidence as Exhibit V-3, even that copy that their
16 lawyer was making notes on during the call, supposedly
17 supporting the exclusion of copyrights, had no copies of the
18 schedules at all attached to them. So if that's the same
19 copy people were looking at at the time, they wouldn't have
20 even had the schedule that had this erroneous copyright
21 exclusion on it.
22 Now you do have someone who says I remember
23 exactly that at the board meeting they said the copyrights
24 were excluded. You will have to determine the credibility
25 of that, because that was Jack Messman, the chef executive
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2646
1 officer who approved the slanderous statements.
2 I put his testimony up here to draw attention to
3 the fact that while he remembers that clearly when I asked
4 him about that in his deposition, he didn't even know which
5 decade this meeting occurred in. He says I think in the
6 board presentation they made to us in, whenever it was, '81
7 or '83. But yet he has a distinct recollection of this one
8 point, which, by the way, isn't reflected in the board
9 minutes as having been discussed, and he recalls nothing
10 else, the same Mr. Messman who you could judge his
11 credibility for when he was here before you.
12 So I think this is how the error was made, and I
13 think you can see that in the rush of those last few days,
14 excluded asset schedule had a term that was inconsistent
15 with the intent of the deal, either by mistake or perhaps
16 even accepting you have some overzealous lawyers who acceded
17 that, and then it was fixed with Amendment No. 2. And not
18 only does that bring everything in the asset purchase
19 agreement together and make sense, it also makes the deal
20 sensible in light of what was told to the public.
21 Novell's version of the events can't be squared
22 with the official press release it issued jointly with Santa
23 Cruz. And while it says it's a SCO press release, Mr.
24 Frankenberg said and was quoted in there that this was the
25 approved joint release. They are the acquiring party. They
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1 said, SCO will acquire the UnixWare business and UNIX
2 intellectual property. That's the core intellectual
3 property.
4 The Wall Street Journal, which said, the deal
5 includes the purchase by Santa Cruz Operation of most
6 trademarks and intellectual property associated with UNIX
7 software. A lot of people read The Wall Street Journal at
8 Novell. No one popped up, never heard anyone say The Wall
9 Street Journal has this wrong. That didn't happen either.
10 Novell's version can't be squared with the report
11 to the United States government in Novell's
12 Hart-Scott-Rodino filing. True, they put the schedules in
13 the APA attached to the back of the document, but they were
14 summarizing the deal for the United States government in the
15 text. When they summarized it, they said, the assets to be
16 acquired by Santa Cruz were all rights and ownership of UNIX
17 and UnixWare. This is a big thing, the copyrights. If that
18 was excluded, don't you think they would have put in the
19 text we keep the copyrights, except the copyrights. Mr.
20 Braham had no explanation for that whatsoever.
21 Even IBM recognized that SCO had the copyrights,
22 an irony there. The documents that you've seen in the last
23 few days, including yesterday, are documents where IBM, in
24 certain positions it was taking in this dispute that came up
25 a year later, said, SCO is protected by copyrights. You can
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2648
1 show us the source code because you have copyright
2 protection. So none of what the outside world was looking
3 at would be consistent with what Novell would have you
4 believe.
5 Now, ladies and gentlemen, you have also been
6 instructed by the Court that you should consider the course
7 of performance. How a party acts is sometimes more
8 important than anything else. It's an indication of their
9 intent. And the instructions said that the course of
10 performance is something that you can look at to determine
11 by their actions whether the copyrights were intended to
12 stay with Novell or to go Santa Cruz.
13 And what have we heard about that? This has
14 virtually been undisputed testimony from three different
15 individuals, three individuals who have been with the UNIX
16 business all the way back to the 1990s. Bill Broderick,
17 Andy Nagle and John Maciaszek. You've heard Bill Broderick
18 say, we sent letters out to all these customers. This is an
19 example of the Prentice-Hall letter. Novell sent it out, a
20 lot of different people signed them, and it said, as you may
21 know, Novell transferred to SCO its existing ownership in
22 the UNIX System-based offerings, that included all releases
23 of UNIX and all the UnixWare releases at the time. It
24 doesn't make sense if it wasn't true you tell the customers
25 that.
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1 You heard Mr. Nagle talk about how during the
2 transition period they actually changed the code on the
3 software, not just on the outside of the box but in the
4 software itself, the code that reflects who owns those
5 programs, and they did that for the UnixWare program that
6 was being built at the time at Novell. They didn't have any
7 new code after the sale in it. That only makes sense if you
8 are transferring the ownership of that old code as of the
9 time of the deal. There's no refutation of that.
10 Of course, you can also look for intent at what
11 happened with the copyright registrations. You'd think that
12 Novell would have kept them. That's sort of important.
13 They were with Santa Cruz. They have been sitting on that
14 desk during the trial. You saw them in the testimony
15 through Mr. Maciaszek.
16 Now all of this testimony shows that the answer to
17 question number one should be yes, that under the amended
18 asset purchase agreement, the transfer of the UNIX and
19 UnixWare copyrights from Novell to SCO occurred.
20 The next question you will need to answer -- and
21 let me, before I move onto the next question, say that first
22 question is very important because it will mean if you
23 answer that yes, that SCO can go about rebuilding its
24 business with the ownership of the copyrights it needs for
25 that business.
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1 The next question you'll need to answer is whether
2 Novell slandered SCO's ownership of the UNIX and UnixWare
3 copyrights. Now if you agree that SCO owned the copyrights,
4 there is not much question here that a slander occurred. In
5 fact, you have multiple slanders. You have what could be
6 characterized as a campaign of slander.
7 It started on May 28th, 2003 with the statement
8 that SCO is not the owner. There is the one moment of truth
9 on June 6th, and then a resumption in letters in August of
10 obtaining copyright registrations by filing with the United
11 States Copyright Office they own the copyrights. Other
12 statements in December and January. Mr. Stone's statement
13 on March 16th publicly that we still own UNIX. There is no
14 question those statements are false. They are definitive
15 statements by Novell.
16 So the question, then, is whether or not these
17 statements were made with what is called constitutional
18 malice. You've been instructed on that. We submit that you
19 will find that they were made with reckless disregard for
20 the truth and, after June 6th, with actual knowledge of
21 their falsity.
22 Now we call this constitutional malice because
23 this is what takes into account the concerns of the First
24 Amendment. There is a right to engage in free speech. But
25 there is not a right to make statements that are false, that
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1 are made recklessly or with knowledge that they are false.
2 That's the difference. That is the balance of the free
3 speech that we hold dear in our constitutional system with
4 the protection against slander, defamation and falsehoods.
5 Now the instruction shows that we have to prove,
6 and we believe we have, that the statement was made with
7 knowledge that it was false or with reckless disregard of
8 whether it was true, which means that there was a high
9 degree of awareness of the probable falsity or that at the
10 time the statement was made Novell had serious doubts that
11 the statement was true.
12 And we think that fits to a T what happened with
13 the May 28th slander, because let's think about the
14 statement that went out in the press release. You heard
15 testimony that they knew there was an unsigned Amendment 2
16 in their possession, but in a rush to get this out on May
17 28th, they didn't do their checking to see whether or not
18 that Amendment No. 2 had, in fact, been signed. They went
19 ahead. They could have easily determined that it was
20 signed. Do you think they could have called Wilson Sonsini,
21 the lawyers who negotiated the deal, to determine if it was
22 signed? Do you think Mr. Messman could have called Bob
23 Frankenberg, his predecessor? There are a lot of ways they
24 could have determined that was signed. Could they have
25 checked their files a little more clearly? We submit that
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1 that constitutes recklessness, making the statement on May
2 28th, 2003.
3 However, the statements after May 28th, 2003 were
4 not just reckless, and one more point about that. Mr.
5 LaSala said he turned the company upside down for a signed
6 version. I suggest that submits they knew this was a very
7 important document. This would determine the issue.
8 So they get the document from SCO on June 5th, and
9 all during this period they never ask SCO -- they're about
10 to put out a statement, they are talking to them for months,
11 did they ever say we have this unsigned copy of Amendment
12 No. 2, do you happen to have a signed version? No word of
13 it. They just go public on May 28th.
14 June 5th they receive from SCO a copy of the
15 signed Amendment No. 2. Mr. McBride testified before you,
16 and I think you will find it credible when he says
17 Mr. Messman, when confronted with the signed version,
18 admitted that SCO owned the copyrights. It's credible, we
19 believe, because the very next day he said that publicly in
20 this press release where, on June 6th, the amendment appears
21 to support SCO's claim that ownership of the copyrights did
22 transfer in 1996.
23 Now they want you to believe they didn't mean what
24 they said on June 6th. Ladies and gentlemen, the June 6th
25 statement was not just a casual statement. You heard it was
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1 reviewed by Joe LaSala, general counsel. It was written by
2 him. This is not a complicated amendment. It's about one
3 paragraph long. They had the unsigned version for some
4 time. It didn't take Novell months to figure out what it
5 meant. It took Novell months to try to turn it around to
6 figure out a way to suggest that it doesn't mean anything so
7 they could go back to a campaign of slander, which was
8 launched later in 2003. And this is then done, because of
9 the June 6th, 2003 press release, with knowledge of falsity.
10 They were cautious at first with the internal
11 letters on June 26th and August 4th. And then later, for
12 reasons that you can conclude were coincidental or
13 otherwise, they went public again on December 22nd. And, in
14 fact, the claim that they made in March, we still own UNIX,
15 an outrageous claim, not even limited to the copyrights, but
16 we still own UNIX, was echoed by Mr. Messman on that witness
17 stand. We still own UNIX, when the company had been sold,
18 the business had been sold eight years earlier. So these
19 statements were false, knowingly false, and we submit to you
20 were made with constitutional malice.
21 Indeed, the falsity of the claim, which includes
22 the copyrights that they registered with the United States
23 Copyright Office saying they owned them and which includes
24 Mr. Stone's statement on March 14th sarcastically saying,
25 sorry, Darl, we still own UNIX, all of these are knowingly
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2654
1 false because we know what they thought. We know on June
2 6th they recognized the ownership of these copyrights were
3 with SCO.
4 But the falsity of this is proven by another piece
5 of evidence that I think is very important. There are
6 Novell witnesses, people who work for Novell, who have
7 stated that it is so absurd to claim to own the copyrights
8 while having sold the business that it would be unethical to
9 take that position.
10 Ed Chatlos in his testimony when he was asked did
11 you ever get the lawyers' authority to hold back the
12 copyrights, absolutely not, no. And he said, the deal I
13 negotiated with SCO included the copyrights, so we modeled
14 it to include the copyrights. From a personal standpoint,
15 it would have been unethical to exclude them.
16 Burt Levine, an in-house counsel involved in
17 drafting of the operative agreements, he said, well, I
18 believe that being an ethical company, you couldn't resort
19 to withholding something that the transferee in this case
20 would be entitled to. If it is that clear that it causes
21 internal Novell lawyers and negotiators to say it would be
22 unethical to suggest that you're holding back the copyrights
23 while selling the business, then these types of allegations
24 made by Novell have to be concluded to be knowingly false.
25 Now if you find a false statement and you find
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2655
1 constitutional malice, we submit that you will have found,
2 then, that Novell is liable for slander of title and you
3 should then consider whether we have proven damages. And
4 there are two types of damages that you need to be concerned
5 with, special damages and punitive damages.
6 Special damages are the damages that are intended
7 to compensate SCO. Here, the damage done to SCO is damage
8 to SCO's SCOsource program. It was started by Darl McBride
9 after he was told by Linux supporters within his own company
10 that certain UNIX libraries were being used to run Linux and
11 that some companies had call him and wanted to see if they
12 could get a license to do that. As time progressed, SCO
13 found more of its intellectual property in Linux.
14 They decided, rather than trying to stop people
15 from using Linux, they would want to obtain a license, a fee
16 in the marketplace, that they had the right to do, for their
17 intellectual property. Now how much UNIX is in Linux will
18 be decided in the courts. That is not an issue that you
19 will need to decide in this case.
20 A lot of companies, as Professor Pisano told you,
21 have expressed that they wanted protection against
22 infringement, at least the risk of infringement. You'll
23 recall Mr. Tibbitts told you that when they were selling the
24 SCOsource program, that they had a code room that people
25 could come to and see the code. And after looking at that,
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1 a number of those individuals and companies decided to take
2 a license.
3 We're not talking about unsophisticated companies
4 here. You had licenses entered into with Microsoft and Sun
5 and Computer Associates, actually demanded a license as part
6 of another deal. If there was nothing to those claims, they
7 wouldn't be out there doing that.
8 After looking at that proof -- and some of that
9 SCO presented to customers. An example of what SCO
10 presented to customers was shown early in the trial. These
11 were comments from industry analysts who had visited the
12 code room. One of them, Information Week, stated that, my
13 impression is that SCO's claim is credible, says Laura
14 DiDio, a Yankee Group analyst who was shown the evidence by
15 SCO Group earlier this week. It appears to be the same
16 code. According to EE Times in June 2003, if everything SCO
17 showed me today is true, then the Linux community should be
18 very concerned, said Bill Claybrook, research director for
19 Linux and open-source software at Aberdeen Group in Boston.
20 Computer Weekly, from what I've seen, I think people should
21 be taking the SCO accusations seriously.
22 Now there is also evidence that Mr. Tibbitts
23 testified to that he obtained from IBM's Web site which
24 indicated that Linux was derived from UNIX, which is no
25 surprise and just sort of the start of the issue, and he
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1 sent letters in December of 2003 with examples of code. And
2 some of that code you've heard, the Malloc code from Silicon
3 Graphics, essentially admitted had been infringed.
4 So the important point here is this isn't an issue
5 that's going to be decided in this trial. The marketplace
6 can decide that issue of whether or not individual companies
7 want to obtain a license from SCO or whether they want to
8 wait further and see how that issue is resolved, or simply
9 decide never to do that. You heard Mr. Pisano, based on the
10 surveys, indicate what percentage of people fell into which
11 buckets. That's the way a licensing program works.
12 Now you've also seen, however, that members of the
13 open source community have viciously attacked SCO for trying
14 to protect its intellectual property. I would submit to you
15 that Novell has brought some of those attacks into this very
16 court proceeding here. It remains that SCO has valuable
17 business relationships with business partners, big companies
18 like McDonald's, NASDAQ. It entered into, as I mentioned,
19 agreements in 2003 with Microsoft, Sun, Computer Associates.
20 And so while there are elements in the community that really
21 hated SCO for saying that Linux, which they thought was
22 free, incorporates intellectual property of UNIX, that would
23 not have prevented the SCOsource program from making sales.
24 Indeed, I would suggest to you, ladies and gentlemen, if
25 there wasn't any real competitive threat to Novell's Linux
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1 activities, this campaign of slander would never have been
2 embarked upon.
3 There is a difference -- you heard Professor
4 Pisano testify about this, there is an important difference
5 between a slander that goes to ownership and simply
6 expressing views that there is or is not infringement or how
7 much infringement exists. One is opinion. The other is
8 fact. If someone says that I sold you this business and you
9 didn't get the copyrights, that is just as much a slander on
10 title if the person who sold you your house says you didn't
11 get title to the house when you bought it. That, when it
12 comes from such a credible source, the former owner of the
13 business, is deadly. That type of slander killed the
14 SCOsource business.
15 Now Mr. Hatch will talk to you in a few minutes
16 about the customers that were lost and the amount of damages
17 that were inflicted, but I would like to say a few words
18 first about punitive damages, because there's another type
19 of malice called personal malice that's important for
20 punitive damages, and that is the intent to injure. The
21 intent here to injure SCO. Unfortunately, there is no
22 shortage of evidence of that type of intent. Unfortunate
23 for SCO in the sense this is what they were dealing with
24 back in 2003.
25 The defendants, we submit, issued two of these
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2659
1 slanders on the same day as SCO's earnings reports. Now
2 Novell and its witnesses suggest to you that this is a
3 coincidence. They are entitled to argue that. And you're
4 entitled to reject that and to say it is not a coincidence
5 when there are only four days during the entire year that
6 SCO announces its earnings and Novell makes two public
7 announcements of its assertion that it owns the UNIX and
8 UnixWare copyrights, and both of those public announcements
9 occur on two of the four days when SCO was announcing its
10 earnings. I would submit to you that that is not
11 coincidence, that that is an intent to injure. That is
12 malice.
13 That is before you even get to Maureen O'Gara's
14 testimony that Chris Stone admitted to her that the press
15 release was timed for May 28th to damage SCO's stock price.
16 Sure, the PR people at SCO, they had one journalist who was
17 willing to take on some of this community hate, said why
18 don't you take a jab at PJ and things like that, but there
19 is no reason to believe she invented this. It's
20 consistent -- it's consistent with what actually happened on
21 May 28th the same day as the earnings release, they issued
22 this slander, and they did it to, quote, confound SCO's
23 stock positions. And Chris Stone did it while he was
24 chortling, I think was the word. That's malice, ladies and
25 gentlemen.
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1 There's also Jack Messman's admission that they
2 tried to publicize this press release in May as widely as
3 possible. That exhibited intent to harm SCO. It's not
4 enough to say, well, we wanted to make money, we wanted to
5 get our story out there. That's not a defense for spreading
6 a falsehood as widely as possible. There is evidence that
7 these acts were made to injure SCO because of SCO's taking
8 on of IBM.
9 Novell's attempted waivers of SCO's legal rights,
10 while they are an issue that the Court will deal with in
11 terms of whether those were proper, you can consider the
12 fact that they made those waivers as elements of intent,
13 that those were made in the same year, at the same time that
14 a $50 million investment in Novell's Linux purchase was made
15 by IBM. You can consider the attempt by Mr. Stone and
16 Mr. LaSala to cover up the fact that these were done at
17 IBM's request by not telling the truth about it the first
18 time around. And that is also evidence of malice and effort
19 to hurt SCO in order to help a third party.
20 So thank you for your attention, ladies and
21 gentlemen. I'll have the opportunity to address you for a
22 little bit at the end of the closing arguments, but at this
23 time I would like to turn the podium over to Mr. Hatch.
24 MR. HATCH: As Mr. Singer just talked about, the
25 SCOsource licensing program began to have sales. There was
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1 testimony of sales to Sun, Microsoft and other companies.
2 These were real sales, tens of millions of dollars.
3 SCOsource was off to a strong start. Now I would like to
4 talk about what happened next.
5 Now you heard Mr. McBride testify about the
6 Hewlett Packard deal. You were shown the contract, which is
7 here on your screen, and this deal was near completion. Now
8 you were shown a red line here, markings, because Mr. Byers
9 of Hewlett Packard, he personally had typed in these
10 changes, and this was his offer on behalf of Hewlett Packard
11 to contract with SCO for $30 million. You will notice here
12 it's six separate payments of $5 million each.
13 Now Novell showed you some e-mails that said that
14 Hewlett Packard was weighing the pros and cons of doing this
15 deal. They were looking at the risk factors that were out
16 in the community. But the bottom line, even with all those
17 risks, they were still considering this deal, and they made
18 a $30 million offer. The negotiations continued, and then
19 all of a sudden that changed.
20 Mr. McBride told you that Novell had inserted
21 itself into this deal. Why? They told HP that they were
22 going to reassert copyrights ownership, and with that this
23 $30 million contract was gone.
24 Mr. McBride testified, we went deep into the
25 discussions here, and ultimately Mr. Byers came back and
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1 informed me that it was difficult for Hewlett Packard to
2 complete the transaction as long as Novell was out there
3 saying they still owned the UNIX copyrights.
4 Likewise, SCO had begun negotiations with Google.
5 You heard that testimony. Google was the largest Linux user
6 in the world with over 500,000 servers. That would have
7 been a significant contract as well. Google pulled out of
8 that deal referencing that Novell's slander was a
9 substantial factor in not doing that deal.
10 Mr. McBride also testified that he personally met
11 with Michael Dell. Michael Dell is the CEO of Dell
12 Computers, another large company. After being excited about
13 that partnership, the deal died shortly after Novell's
14 December 22nd, 2003 reassertion of its ownership rights in
15 these copyrights. Now that was the primary reason that that
16 deal died.
17 You also heard testimony from three of Novell's --
18 excuse me, SCO's salesforce, Mr. Later Gasparro, Mr. Phil
19 Langer, and Gregory Pettit. You may remember that was the
20 day that Mr. Normand got to play two of those individuals
21 for us. Mr. Gasparro, you will recall, he had testified
22 that he had actually made earlier SCOsource sales. He
23 actually had concrete sales of product. He talked about EBI
24 Web hosting and others. He testified that he had somewhere
25 between 50 and $60 million of licensing opportunities in the
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1 first six months of the program, Ford Motor, Google, Cisco.
2 But after Novell's claims of ownership, the salespeople
3 started getting negative feedback, as he described it, and
4 the results of the SCOsource program after Novell's claim of
5 ownership was dramatically affected in a negative way.
6 Mr. Gasparro told you that he visited with a large
7 number of corporate Linux users. He said that in calls,
8 letters and e-mails, he would be told that Novell's claim of
9 ownership was a major factor why customers didn't sign deals
10 with SCO.
11 Mr. Phil Langer, he is another SCO salesman, he
12 testified that he had over $3 million in the sales pipeline.
13 After the Novell slander, there was a strong negative impact
14 on sales and sales dried up. He specifically talked about
15 one deal with Regal Entertainment who wanted to do a deal
16 between 300 and $350,000, but then told SCO, we can't go
17 forward, we can't buy your intellectual property because
18 there is not clear title on it like we do when we buy movies
19 that we have clear copyright title to.
20 The third salesman was a man named Gregory Pettit.
21 He was a regional salesman. He said he had the exact same
22 problems as all the other salesmen. You may recall that he
23 was -- he said he was negotiating deals with other major
24 companies like Raytheon and Cisco. He specifically
25 testified as to Merrill Lynch, but that deal couldn't be
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1 done while SCO was being faced with Novell's claim of
2 ownership.
3 Now the judge has instructed you that evidence --
4 that specific customers didn't do deals with SCO is one of
5 two ways that SCO can prove special damages in this case.
6 Consistent with the Judge's instructions, we have shown
7 through these three salesmen, Mr. McBride and others, that
8 Novell's conduct was a substantial factor in these
9 customers' decisions not to go forward with the deals.
10 Now Novell's conduct doesn't have to be the only
11 reason, as the Judge has talked about. There can be other
12 reasons. There are always lots of reasons a customer
13 doesn't do things. Novell's conduct must simply be a
14 substantial factor for the customer's decision not to do a
15 deal with SCO. That was certainly true here.
16 Now the second way the Judge instructed you that
17 you could find damages is by proving -- using the type of
18 analysis that Dr. Pisano and Dr. Botosan used. I'm going to
19 discuss their calculations in just a minute. But just for a
20 moment, I want to talk to you about the things you heard
21 from Mr. Musika. He recited pretty much every nasty
22 remark -- Mr. Singer talked about that, almost every nasty
23 remark that people were out making about SCO in an effort to
24 say that sales were lost for some reason other than Novell.
25 Now we've acknowledged from day one that people
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1 dislike SCO. It was a small Utah company that was standing
2 up for itself with property rights. It was trying to
3 protect its business from larger, more powerful competitors.
4 That's it's right. But here's what you need to remember
5 about the bad things other people claimed about SCO.
6 Dr. Pisano and Dr. Botosan both took all of those
7 factors into consideration. They never said, ever, that
8 100 percent of the people who were potential customers would
9 buy SCOsource products. That would be unreasonable. That
10 wouldn't be conservative. You heard them testify that the
11 numbers were somewhat less than that, taking all of these
12 factors into consideration.
13 Now what Mr. Musika didn't want to admit, because
14 it didn't clearly fit his zero damages model, is that
15 despite some of these factors, some of the largest companies
16 in technology, Sun, Microsystems, Microsoft and others, had
17 actually done deals knowing all these things that Mr. Musika
18 talked about. Of course, these companies understood the
19 risks, that they took a license. That speaks volumes about
20 what other companies would have done if Novell hadn't
21 slandered the title.
22 Now that's exactly what Dr. Pisano found. You
23 remember his chart. He's taking all things into
24 consideration. He said there would be between 19 and
25 45 percent of the total potential market of likely buyers of
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1 SCOsource products. That was him taking into account, as
2 you can see here, not just one independent study, but three
3 of them. You will notice that all of them came in this 19
4 to 45 percent range.
5 Now you heard Dr. Pisano's testimony. He was
6 here. He listed in his discussion in a pretty dramatic
7 fashion that he had taken into account every one of the risk
8 factors that Mr. Musika claimed, and he showed clearly
9 through hard scientific data that this 19 to 45 percent of
10 potential customers were there. His number wasn't zero.
11 Now as Mr. Singer pointed out, you will be given
12 this jury verdict form. In question number three you will
13 be asked what is the amount of special damages, if any, that
14 you award SCO as a result of Novell's slander of SCO's title
15 to the UNIX and UnixWare copyrights. You'll be asked to put
16 a number on that line. So what is the best and proper
17 measure of those damages?
18 Dr. Botosan and Dr. Pisano came here to help you
19 with that, to help distill some complex business economic
20 concepts into real numbers. Now Dr. Pisano -- excuse me,
21 Dr. Botosan did her calculations in front of you. I told
22 you at the beginning I would have her come here and show you
23 exactly how she made her calculations. She did that for
24 you. She calculated two streams of revenue, vendor
25 licenses -- and you'll recall, those were the larger
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1 licenses that even independent analysts said there were
2 probably a sale of at least 15 of those in the time period
3 we're talking about, at $10 million each. That would have
4 been $150 million, just that. But you recall that
5 Dr. Botosan said, I want to be conservative and I'm going
6 to -- consistent with the internal forecasts, I'm going to
7 estimate somewhat less than that. And you'll recall that
8 her number was just a little bit more than half of what the
9 independent analysts are saying.
10 For right to use licenses, she used several
11 internal, independent forecasts to reach her conclusions.
12 And then she showed you that she double-checked her work
13 with Dr. Pisano's numbers, remember, using one of the
14 independent forecasts, and then she went back and she used
15 Dr. Pisano's numbers of potential sales to double-check her
16 work. She did the calculations in front of you, and her
17 number was not zero, but her numbers were consistent when
18 she double-checked it.
19 Now Dr. Botosan's estimates were conservative.
20 Growth, remember she chose a flat growth number. She used a
21 number of licenses that was much lower than even the
22 independent analyst was going to use. You'll recall that on
23 price, she could have used higher prices. We've heard
24 testimony that there were sales as high as $1399 for some of
25 these, $695. Deutsche Bank said going forward prices would
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1 come down, they would be selling somewhere between 100 and
2 $300. They said $200 per unit would be the most likely
3 price. Dr. Botosan said I'm going to be very conservative.
4 I'm not here to give some giant number. She picked the
5 lower of those numbers.
6 So to the extent she cherry-picked, she
7 cherry-picked conservative. That's why she said I'm
8 building conservatism on top of conservatism. I'm starting
9 with a low base and I'm not letting it grow. So there are
10 two levels of conservatism buried in those numbers, and her
11 numbers reflect that.
12 Well, when Novell's turn came to talk about
13 damages, Mr. Musika did not do any calculations for you.
14 Even though his task was the same as Dr. Botosan, to show if
15 Novell had slandered what would the damages be to SCO, he
16 just highlighted the risk factors that Dr. Pisano had
17 already told you that he had taken fully into account.
18 Now you heard Musika admit that Dr. Botosan used
19 the correct "but for" analysis. There was a lot of issue
20 about that. But when he finally came to her, he admitted
21 not only that it was correct, but he personally had used it
22 in other cases, used the "but for" analysis. But then in
23 this case he didn't use it. He didn't make a single
24 calculation. He refused to admit that even $1 was lost.
25 You will have to decide whether that was really likely,
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1 whether that's reasonable or whether that's fair.
2 He rejected Dr. Pisano's analysis of the market
3 completely and found zero lost licenses. Is that
4 reasonable? Is that fair?
5 Now Dr. Botosan put her numbers up, and this is
6 the same as on the board. She had a lower range, as you'll
7 recall, just short of $114 million, and an upper range of
8 $215 million.
9 If you will go to the next slide.
10 We ask you to award our client somewhere in that
11 range, that would be fair, and that would be the number you
12 would put here in number three on the verdict form.
13 Now you are going to have one more task. Mr.
14 Singer, you heard him talk about malice, you heard him talk
15 about the bad acts of Novell, and consistent with what the
16 judge has instructed you, you are allowed to award punitive
17 damages.
18 Now punitive damages are an additional and special
19 type of damages that are intended to keep a party from doing
20 bad acts again, to teach them a lesson. So let Novell, in
21 this instance, know that it can't conduct business this way
22 in the future.
23 You are going to see -- and these are pages from
24 Novell's most recent filing with the United States
25 government, their 10-K, and this exhibit has been admitted
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1 during trial, you will have access to that, you can see
2 Novell has a worth of about a billion dollars. And you are
3 allowed to consider that when you make a decision to make an
4 appropriate award.
5 Mr. Singer has discussed in detail the evidence
6 that Novell recklessly and knowingly asserted its ownership
7 on that May 28th day, the time that SCO was going to issue
8 its earnings statement, and they announced it in that way to
9 maximize the damages to SCO.
10 Now Novell later knew for a certainty, as Mr.
11 Singer pointed out, that it didn't own the copyrights, that
12 SCO did, and yet it reasserted to the world through a press
13 release, with malice, its false claim of ownership on
14 December 22nd, 2003. That was the second time. It was the
15 second time designed to maximize the hurt to SCO, on the day
16 of their annual earnings report.
17 You are able to send a message through an award of
18 punitive damages, and the message and the amount are up to
19 you.
20 Could you go back to the verdict form.
21 Number four is where you do that, it says, what is
22 the amount of punitive damages, if any, that you award SCO
23 as a result of Novell's slander of SCO's title to the UNIX
24 and UnixWare copyrights. We leave you to take into account
25 Novell's worth. We leave that number to you.
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1 Thank you very much.
2 THE COURT: Ladies and gentlemen, we'll now take
3 our recess and we'll return and have Mr. Brennan.
4 Ms. Malley.
5 (Jury excused)
6 THE COURT: Mr. Singer, you'll have 12 minutes in
7 your rebuttal.
8 MR. SINGER: Thank you.
9 THE COURT: We'll take 15 minutes.
10 (Recess)
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

Part 2:

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1 (Recess)
2 (WHEREUPON, a sidebar conference was begun.)
3 MR. BRENNAN: Your Honor, just two items. We
4 observed during the opening closing argument that there were
5 a number of sounds coming from the gallery, and we could
6 hear a specific individual laughing and making certain
7 comments. I wonder if it is appropriate to perhaps
8 encourage the gallery not --
9 THE COURT: Absolutely. I did not hear that or I
10     probably would have stopped it. Thank you for bringing that
11 up.
12 MR. BRENNAN: The second is, and we probably
13 should have brought this up before, but particularly with
14 the fact that we're near the end and we will have the
15 alternate excused, what are the rules of engagement that
16 ought to be observed by the parties in terms of contact with
17 jurors?
18 THE COURT: I always tell the jury that they are
19 permitted to discuss the case with counsel, but they are not
20 required to. I leave it up to them.
21 MR. BRENNAN: We just wanted to make sure that we
22 were both operating on the same --
23 THE COURT: That is what I will tell them.
24 MR. BRENNAN: That is agreeable.
25 THE COURT: Thank you.
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1 (WHEREUPON, the sidebar was concluded.)
2 THE COURT: Ladies and gentlemen, and this is
3 addressed to those of you in the courtroom, not counsel, it
4 was just brought to my attention that during the closing
5 argument thus far that there has been some response, audible
6 and otherwise, to the arguments that have been made. I need
7 to tell you that that is very inappropriate. If I had heard
8 that I probably would have stopped the argument and I would
9 have instructed the court security officer to remove you
10 from the courtroom.
11 So just by way of a caution, do not react in any
12 way to especially anything that might be observed or heard
13 by the jury. That is totally inappropriate. Okay.
14 Ms. Malley, if you would please bring the jury in.
15 (WHEREUPON, the jury enters the proceedings.)
16 THE COURT: Go ahead, Mr. Brennan.
17 MR. BRENNAN: Thank you, Your Honor.
18 Ladies and gentlemen, I also wish to thank you for
19 your attention during this three-week period. No doubt
20 there has been sacrifice and difficulty in arranging your
21 schedules to be here. On behalf of Novell we appreciate it,
22 and we comment that this system of justice that we have in
23 this great land is entirely dependent upon people like you
24 who are willing to make the sacrifice, to endorse an
25 inconvenience, to hear a dispute and hear it fully and then
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1 to make a decision.
2 It is true at the outset that I asked you to wait
3 for the rest of the story, and I do hope to sum up today
4 what the rest of that story is.
5 I should also indicate, that as the judge has
6 shared with you, because the burden of proof falls squarely
7 and heavily on the plaintiffs, SCO in this case, I will not
8 have a chance to address you a second time, and so I'll have
9 to simply ask you if there is any further argument that is
10 made by SCO's counsel, at least to anticipate what you think
11 Novell might say in response, since I won't have that
12 opportunity.
13 I am the first and I may be the last lawyer in my
14 family. We'll see how that turns out. But when I grew up
15 there was often a statement that was used, and sometimes I
16 used it myself, something like don't make a federal case out
17 of it. The suggestion was was that if there was a minor or
18 trivial disturbance, that that paled in comparison to a
19 federal case.
20 Well, here we are in federal court, this is a
21 federal case, and unlike some of those minor annoyances or
22 disturbances that I saw as a child, this really is a big
23 deal. It is a big deal for a couple of reasons. I would
24 like to suggest a few of those to you.
25 First of all, what you have heard during the
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1 course of this trial is that was something known as the
2 SCOsource license program. What that program was intended
3 to do was to reach out to users of the Linux operating
4 system and extract from them a payment. And that SCOsource
5 program has threatened many, many, many Linux users across
6 the world, and because of that a huge uproar has resulted.
7 It has been highly publicized. There have been
8 many comments made about it. This case has been closely
9 followed. This is of great significance to people beyond
10 Novell. The threat to the open source community is
11 presented by this case. And for that reason Novell, as I
12 will share with you, has felt compelled to respond in the
13 public marketplace with its view and opinion and position
14 regarding this case.
15 Now, secondly, this case is frankly a gateway to
16 other litigation. You heard and saw in the presentation of
17 some of the evidence that there are other cases out there
18 awaiting to be heard. If SCO is successful in this case,
19 and there is some determination of ownership of copyrights,
20 contrary to what we believe the evidence is, then there will
21 be other suits filed. At least of threat of suit hangs over
22 all Linux users, particularly in the marketplace. So this
23 is the entree to many, many other cases if there is an
24 adverse determination made here in this one.
25 The third point is this case presents a very
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1 important fundamental question regarding the meaning and
2 sanctity and reliability of contracts. When I mentioned it
3 the first day I held up for you the contract at issue in
4 this case, carefully drafted, meticulously written, lawyers
5 on both sides representing their clients to the best of
6 their ability. But if we're going to disregard the words of
7 the contract, and we're going to look to some other source
8 other than that which the parties wrote, and, in particular,
9 if we're going to try to devine what people might have
10 thought or hoped or wished in hindsight that they had put in
11 the agreement but didn't, to gain an advantage now 15 years
12 later, then the whole reliability of contracts it
13 threatened.
14 It does not a take a broad imagination to consider
15 the chaos that would result if two parties, ably
16 represented, were to reach an agreement and express their
17 agreement in writing and then later, much later, have that
18 written agreement challenged by outside thoughts or
19 improvications. This case represents the fundamental
20 question as to whether a party can rely upon the written
21 contract.
22 Now, there is also a fourth issue here. This
23 case, and it is a unique one, and in some ways it is a
24 thrill to be a lawyer in this case, because although this
25 case has come to you in a commercial transaction it involves
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1 a fundamental constitutional right, and that is the right of
2 free speech guaranteed to all citizens, including
3 corporations, to speak freely their position on a matter of
4 public interest.
5 The First Amendment guarantees the right that
6 individuals and businesses and, of course, as the
7 instruction suggests, that businesses are comprised of
8 individuals, and a corporation is a collection of many who
9 work for it, and its shareholders, and so these really are
10 individuals, and whether or not an individual, whether
11 through a corporation or acting on his or her own, has the
12 freedom in the marketplace when there is a matter of public
13 controversy to stand and state their position without fear
14 of reprisal or monumental damage claims because of speaking
15 what one believes. This case presents that question.
16 Now, with that in mind, and in the limited time
17 that I have, I am going to try to walk through and distill
18 three weeks of evidence as briskly as I can and highlight
19 some of the important points that I think will help and
20 guide and assist you in making these very important weighty
21 decisions. I recognize I cannot compress three weeks of
22 evidence into the hour that I have. I'll do my best. I'll
23 rely upon your ability to recall some of the evidence that
24 you have heard and witnesses that I am not able to touch
25 upon.
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1 At the conclusion I too will turn to the verdict
2 form that you will receive, and suggest to you what I would
3 recommend on behalf of Novell would be the appropriate
4 result for you to consider and make as you deliberate.
5 Now, the first question that is presented is this
6 fundamental point of whether or not the amended asset
7 purchase agreement, this contract, transferred the UNIX and
8 UnixWare copyrights as of the date of the asset purchase
9 agreement from Novell to SCO. The answer is it did not.
10 How do we know that? Well, first of all, we do need to look
11 at the parties' intent. There are two parties to this
12 contract.
13 You saw time and time again, and I apologize for
14 the repetition, but you saw the minutes of the board of
15 director meeting where Novell, governed by its board of
16 directors, met and considered the asset purchase agreement
17 before it was signed, and very clearly presentations were
18 made to the board, and there is a resolution which states
19 without equivocation that Novell will retain all of its
20 patents and copyrights and trademarks. That very language,
21 and you'll see it in Exhibit Z-3 when you have a chance to
22 retire to the jury room and look at it, that very language
23 is what actually appears in the contract.
24 I hold this book up again, and you'll have a
25 chance to look at Schedule 1.1-A which sets forth in four
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1 short pages the list of assets that were sold. The contract
2 speaks very clearly that only the assets listed in that
3 schedule were the ones being sold. This was not the sale of
4 an entire business, it was the sale of specified assets, and
5 that is what the contract tells us.
6 You'll also have a chance to then turn to Schedule
7 1.1-B, which is the express list of excluded assets. Over
8 and again you have heard that all copyrights and trademarks
9 except for the trademarks UNIX and UnixWare were excluded.
10 Now, one of the things that was passed by us
11 quickly in the early presentation, but I trust it didn't get
12 past you, is that this asset purchase agreement signed on
13 September 19, 1995 did not go without review. There was
14 almost three months from the time it was signed until the
15 time that the deal closed on December 6, 1995 where everyone
16 involved had a chance to review it. If somebody somehow
17 thought the wool had been pulled over their eyes, or they
18 didn't understand or there was a mistake or a
19 misrepresentation or an omission, both sides had full
20 opportunity to review it.
21 In fact, they did. You'll see when you retire to
22 the jury room and you can look at Exhibit T-5 which is the
23 amendment number one to the asset purchase agreement. It
24 covers in a span of some ten or 12 pages modifications made
25 to the initial asset purchase agreement. Importantly,
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1 Schedule 1.1-A which identified the assets was not modified
2 to include copyrights, and significantly Schedule 1.1-B,
3 which expressly excluded copyrights, was not changed either.
4 There can be no suggestion, no credible suggestion
5 that somehow the wool was pulled over somebody's eyes. Both
6 sides had a full chance to review it and both sides had a
7 chance to make suggested revisions, and there was not even a
8 suggestion, let alone an agreement, that the excluded
9 copyrights ought to be modified.
10 Now, in addition, on December 6, 1995 there was a
11 document that was entered into that actually transferred the
12 assets. The asset purchase agreement itself transfers
13 nothing. Instead, it is a promise that Novell would
14 transfer assets, but the actual document that accomplishes
15 that was the bill of sale. The bill of sale that you saw,
16 Exhibit W-5, references the transfer only of the assets.
17 The assets are, again, described in the asset purchase
18 agreement, so to really understand what was sold one would
19 have to look to the bill of sale and say what does the bill
20 of sale say? The bill of sale tells us that to understand
21 what was sold we look to the asset purchase agreement, the
22 assets, Schedule 1.1-A. So that is straightforward and
23 clear.
24 Now, there is also something that was passed by,
25 and you'll recall that Novell acquired the entire UNIX
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1 business from AT&T, not an asset purchase agreement, but a
2 full merger, and Novell held those assets for about two
3 years and then there was a limited transfer of some of the
4 assets in 1995. Then a couple years after Novell sold some
5 of the assets to the Santa Cruz Operation, and Santa Cruz
6 Operation turned around and decided to sell whatever it
7 acquired from Novell to a company called Caldera, now known
8 as SCO.
9 Well, if we were to look at the agreement that
10 Santa Cruz Operation entered into with Caldera or SCO, we
11 would see in Exhibit 010 that the seller, Santa Cruz
12 Operation, could not represent to SCO that it had a chain of
13 title with respect to all of the intellectual property.
14 That includes the copyrights. So when Santa Cruz Operation
15 sold what it had to its buyer, SCO, Santa Cruz Operation
16 realized it could not make an entire sale.
17 Now, was this a mystery? Was this something
18 unknown to SCO? Absolutely not. Let's fast forward to
19 January 4th, 2003. You may recall this. Mr. McBride, who
20 was not involved in any way with the asset purchase
21 agreement or either of the amendments, does join SCO in
22 2002. One of the first things that he does is he wants to
23 see whether he can change the business. The business that
24 SCO had been engaged in up to that date was it was selling
25 UNIX and UnixWare in particular, and it was even servicing
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1 the Linux world and helping Linux users and customers.
2 The business was not going well, and so Mr.
3 McBride said is there something different that we can do?
4 Is there another business we can pursue contrary to the one
5 we have been engaged in? The idea came to him, well, maybe
6 we can try to turn on our customers, our Linux users, and
7 we'll go after them and try to extract payments. We'll go
8 after the open source community rather than aid them. So he
9 employed consultants, and one of them was Mike Anderer, who
10 advised Mr. McBride in no uncertain terms in January of
11 2003, that there was far less that had been transferred to
12 SCO than Mr. McBride would have hoped. In fact, it is an
13 asset purchase that excludes all patents, copyrights and
14 just about everything else. We need to be really clear on
15 what we can license. It may be a lot less than we think.
16 Well, SCO relies on the wrong documents. Let's
17 take a quick look at some of the things that SCO has
18 suggested to you. First of all, what was presented was the
19 so-called term sheet. First of all, where did that term
20 sheet come from? It was presented first in court when
21 Mr. Ty Mattingly came, and you'll recall that he found some
22 documents in his garage, not previously presented during the
23 course of the trial, and one of the documents in his garage
24 was this term sheet. The term sheet wasn't the final
25 agreement. The term sheet didn't represent what the parties
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1 signed off on. If anything, it was a preliminary sketch of
2 a possible agreement, but it has been suggested to you that
3 the term sheet was the final agreement. Not so. The final
4 agreement was what the parties agreement to and signed.
5 Well, also suggested to you as evidence that the
6 parties, contrary to what they said in their agreement
7 signed, was that there was a press release, a joint press
8 release. Well, of course, it was not a joint press release,
9 it was one issued by SCO and it has its logo and Novell is
10 not even a party to it.
11 And then it was suggested to you that, well, maybe
12 what indicates a transfer of the copyrights is the
13 technology license agreement, which is one of the exhibits
14 to the asset purchase agreement. This slight of hand was
15 performed. The suggestion was that, well, maybe what Novell
16 was doing was it was taking a license back of the assets
17 that it sold, and that means certainly the copyrights might
18 have transferred because otherwise why would Novell take
19 back that which it retained? That was the argument. The
20 fact of the matter is that when you look at the technology
21 license agreement, which you'll have a chance to do in the
22 jury room, the license back provision related to assets that
23 had been transferred. Clearly Novell and SCO agreed that
24 when Novell transferred assets, Novell would have a license
25 back to those assets. But the assets that were transferred
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1 didn't include the copyrights. That is what Schedule 1.1-B
2 clearly said. So that was a slight of hand. I think you'll
3 see past that quickly.
4 Now, in terms of the witnesses that were
5 presented, there was a board put up in front of you about
6 various witnesses, but if one looks carefully and listens
7 carefully one will quickly devine as well that the witnesses
8 that were presented to you either were not involved in the
9 final negotiations, had not even read the asset purchase
10 agreement, or were misinformed.
11 Well, let's look at who the actual witnesses were
12 who were involved in the asset purchase agreement. You
13 heard no mention of Jim Tolonen. He came here in court. He
14 supervised the preparation of the asset purchase agreement
15 as the chief financial officer of Novell. He testified that
16 Novell had purposefully excluded the copyrights from the
17 transfer. It wasn't a mistake. It wasn't a slight of hand.
18 It wasn't an omission. He was present at the two board
19 meetings held after the asset purchase agreement was entered
20 into and at those board meetings reported on it. He is
21 actually the one who signed amendment number two to the
22 agreement, and he has no financial interest in the outcome
23 of this case. He left Novell in 2000.
24 Well, should we rely upon Mr. Tolonen? Mr.
25 Frankenberg said he did. In his testimony he indicated that
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1 he relied upon Mr. Tolonen's recommendation and advice. Mr.
2 Frankenberg even said that he would expect that Mr. Tolonen
3 would be in a position to accurately state what the position
4 of Novell was relative to the asset purchase agreement.
5 Well, you heard from David Bradford, the general
6 counsel of Novell. He came to court and he testified, and
7 he is no longer with Novell, he has no financial interest in
8 this case, but he told you that he had supervised the
9 drafting of the asset purchase agreement, that he gave
10 specific instruction to Novell's outside counsel to preserve
11 the copyrights, and that he prepared the board meeting
12 minutes and was at the board meeting when that very
13 presentation was made, and that the board minutes were
14 accurate. Mr. Frankenberg, of course, confirmed all of that
15 as well. Mr. Bradford was deeply involved and he knew what
16 happened.
17 You had the benefit of hearing from the lawyer who
18 actually wrote the asset purchase agreement. He came here
19 to court and testified extensively. If anyone would have
20 known the language that was used and whether it was done
21 perfectly, Mr. Braham would have been the one to do that.
22 He testified that there was a specific strategy employed by
23 Novell to protect its interests in this license stream,
24 these SVRX license streams, and so the asset purchase
25 agreement was carefully crafted in a particular way to
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1 protect that. Mr. Braham has no financial interest in the
2 outcome.
3 Less there be any question as to whether Mr.
4 Braham actually was involved, you saw the drafts. Now, it
5 is hard to read the writing, and I feel badly for my own
6 secretary who has to read some of my writing, but Mr. Braham
7 wrote from start to finish and commented on the very
8 specific terms of the asset purchase agreement.
9 This is important. Mr. Braham made it clear who
10 his client was, not a single individual at Novell, but the
11 client was the board of directors. The board of directors
12 of the company makes the decisions and is the ultimate
13 governing body. Mr. Braham shared with us that the board is
14 the one that approved the asset purchase agreement. And
15 then in terms of others who came that were not directly
16 involved, you heard him identify the fact that Mr. Thompson
17 was more involved in looking after the interests of SCO than
18 Novell, and that others who had been involved certainly in
19 the process, Ed Chatlos and Ty Mattingly, that they had not
20 been as deeply involved when the agreement came to the final
21 negotiations, and whatever views they had were not relevant
22 to the board's decision.
23 Mr. Chatlos wasn't even at the board meeting. Mr.
24 Mattingly was present, but as you have heard and we will
25 highlight in a moment, does not remember things that were
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1 said. The board minutes speaks as to what really did
2 happen.
3 Now, we also had a chance to hear from Allison
4 Amadia. She is the one who drafted amendment number two.
5 She is the one who commented on the initial language
6 suggested by SCO's attorney. She is the one who knew best
7 what the intent of Novell is along with Mr. Tolonen, and she
8 has no financial interest in the outcome of the case.
9 Now, let's compare that to the witnesses that were
10 presented to you on SCO's behalf. Duff Thompson was made
11 reference to. You'll recall that Mr. Thompson had not been
12 with Novell for very long. He had been previously at Word
13 Perfect and when he came over there wasn't a place for him
14 as general counsel at the company, because Mr. Bradford was
15 the general counsel while this deal was being negotiated.
16 He had already, as he testified, decided to leave the
17 company. You heard the testimony that he had checked out.
18 In fact, he was already planning to go to SCO and to be on
19 its board of directors. You heard the testimony that Mr.
20 Thompson was on SCO's litigation committee which approved
21 the filing of this lawsuit against Novell. Mr. Thompson
22 owns at least 110,000 shares of SCO stock.
23 We did get some good entertainment out of
24 Mr. Michaels. The important thing is what did he actually
25 say? Here is a portion of what Mr. Michaels actually
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1 testified to. He had no specific memory as to any specific
2 agreement. He didn't even know what amendment number two
3 was. He had not read the asset purchase agreement when it
4 was prepared. He had never read it. And he had no comment
5 on the asset purchase agreement. What we're going to do is
6 look to the parties' agreement here, and we need to look to
7 witnesses who actually read it and knew it and understood it
8 and negotiated it. Whatever wishes or hopes or dreams
9 Mr. Michaels may have had, he was not involved in the
10 preparation of the asset purchase agreement.
11 We did hear from Mr. Mattingly formerly with
12 Novell. You heard that he owns SCO stock. You heard that
13 he was not involved by his own testimony in the details or
14 the crafting of the asset purchase agreement. You heard
15 that he had no involvement in the preparation of either
16 amendment number one or amendment number two. You heard
17 that he has no memory of what even happened at the September
18 18th, 1995 board meeting.
19 Well, let's look at some of the other witnesses.
20 Steve Sabbath did not appear in court but you did have a
21 chance to hear a portion of his testimony through videotape
22 deposition. Now, it is very critical that we look at what
23 Mr. Sabbath actually said. I would like to share with you a
24 couple of snippets. As you recall his testimony, Mr.
25 Sabbath had signed a declaration under penalty of perjury
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1 regarding what his views were. He had signed that in
2 connection with the previously filed litigation involving
3 I.B.M.
4 When asked about this he said, question, do you
5 recall executing this declaration? Answer, I do, yes.
6 Question, referring to that sworn declaration, you say in
7 paragraph 11 of the declaration, quote, under the asset
8 purchase agreement Novell retains significant UNIX related
9 assets following the sale. For example, Schedule 1.1-B of
10 the asset purchase agreement provided that much of the UNIX
11 System V intellectual property would not be transferred.
12 That was his sworn statement. It didn't end with that.
13 In that same declaration that was referred to in
14 his videotaped testimony the following quote was elicited
15 from his sworn statement. Quote, as described above in
16 relation to the related agreements and amendment number two,
17 Novell retained certain rights under the UNIX System V
18 licensing agreements as well as certain UNIX System V
19 intellectual property. This is the very lawyer at SCO who
20 prepared the initial draft of amendment number two and
21 signed it. So when he was first asked to make a statement
22 under penalty of perjury, he confirmed, just as Novell has
23 presented it to you in this courtroom, that Novell retained
24 its intellectual property rights relative to UNIX.
25 Let's go back to Mr. Frankenberg. We were told by
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1 SCO's counsel that in their view he is the most important
2 witness in the case. Well, if they believe that let's look
3 at bit at what Mr. Frankenberg said. You'll recall both the
4 first day he appeared and even here yesterday that I had the
5 chance repeatedly to ask him about what the board had done
6 and what it had approved. I asked him straight on whether
7 the language in the asset purchase agreement signed by the
8 parties, signed by him, was consistent with what the board
9 of directors had approved. He said yes. And then there was
10 some suggestion maybe that, bizarrely, even somehow that the
11 board of directors of Novell was acting beyond its
12 authority. To make sure that that was not the claim, I
13 asked him and he said, no, of course not, they were not
14 acting beyond their authority.
15 This is the testimony that you heard just
16 yesterday. I apologize for the length of the question.
17 Here is what he said. I asked him in this courtroom 24
18 hours ago this. So let me just see if I understand what
19 you're saying. Is it your contention that although what was
20 discussed with the board was an express exclusion of
21 copyrights, and although the words that were in the asset
22 purchase agreement expressly excluded the transfer of
23 copyrights, and the minutes of the board of directors
24 meeting excluded all copyrights, somehow in your mind you
25 either saw or thought you heard something different than the
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1 express provisions? Is that essentially what you're telling
2 us? Yes, it is.
3 Here is the problem. Imagine the difficulty any
4 one of us would face if we were to make some sort of
5 purchase or enter into some transaction, and we wrote it
6 down and both parties signed it, and we thought we could
7 rely on it, and then later someone were to suggest, well, I
8 know that is what it says, and I heard the words telling me
9 that that is what was agreed to, but I had something else in
10 mind, and now I want to step away from it and not honor it.
11 That is what is going on. That is the mischief in this
12 case, from the most important witness, according to the
13 plaintiff.
14 Now, Mr. Chatlos, and we don't want to place this
15 out of proportion, but it must be known, as was elicited in
16 testimony, that Mr. Chatlos's wife does work for SCO. He
17 and his wife will make money if they win this case.
18 Importantly, when we look to what was actually agreed to,
19 and we look to the intent of Novell, he was not present at
20 the board of directors meeting. He was not involved at that
21 level. So his view or belief or suggestion has to be
22 wondered a bit about.
23 We also did hear from Kim Madsen, who was an
24 assistant to Mr. Sabbath at SCO. She had no specific memory
25 or intent of the negotiation of amendment number two. She
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1 did not remember what was felt or believed or thought by
2 that, and she testified that she had no specific
3 recollection of discussing with Mr. Sabbath what he might
4 have thought about amendment number two.
5 Now, there are others who came to court and
6 testified. We heard from SCO's former chief executive
7 officer, the one who we were told was in essence the sponsor
8 of this SCOsource license program, what his interest is, and
9 he told you how many millions of dollars he would make if
10 SCO were to prevail. He acknowledged that he had a
11 financial interest in the outcome of this case. Unlike
12 other witnesses, it is not ending with that.
13 Mr. McBride, by his own admission, had no
14 involvement in the preparation of the asset purchase
15 agreement or any of the two amendments to it. He simply was
16 not a party to it. He can't be looked to to understand what
17 the intent of the parties was at any time.
18 Now, we also had a chance to hear from Mr.
19 Tibbitts, who is the general counsel of SCO. He too has a
20 financial interest in the outcome of this litigation. He
21 too stands to gain if SCO prevails, but he too, like Mr.
22 McBride, having joined SCO not until 2003, had no
23 involvement whatsoever in the preparation of this agreement.
24 So, again, who we heard from was a parade of
25 witnesses who either weren't there, far removed from the
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1 activities, not directly involved, not present at the board
2 of directors meeting, or have a personal financial interest
3 in the outcome of the case.
4 Now, you may ask the question, why would Novell
5 have decided to exclude the transfer of copyrights when it
6 entered into this agreement? Even posing the question
7 sounds one sided. Keep in mind there were two parties to
8 this transaction. The question might as easily be asked why
9 did SCO agree not to transfer the copyrights? Because they
10 did agree to that. Well, I think you'll find and you'll
11 recall that there are significant, valid business reasons.
12 Let's first turn to Mike DeFazio. He was not on
13 the list of witnesses that SCO's attorneys put up, but he
14 was a critically important witness. You'll recall that he
15 appeared by videotape deposition as well. Mr. DeFazio, as
16 he testified, was the general manager of the UNIX business
17 unit at Novell at the time that this transfer took place.
18 He previously had worked for AT&T and he then came to Novell
19 with that acquisition and he was asked, was it your
20 understanding that the A.P.A. at the time was intended to
21 transfer the copyrights for UNIX to Santa Cruz? His answer
22 was no. The A.P.A. as it was written retained it and it was
23 my understanding that the retention was the way that the
24 team crafted the words to implement the goal of
25 bulletproofing this financial asset stream, to protect it.
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1 Now, that is exactly what Mr. Braham told you.
2 What was the rationale for excluding the copyrights? He
3 testified that it was to protect Novell's interests, it was
4 a concern that SCO might move into bankruptcy, and if it did
5 there would be real entanglement and difficulty for Novell
6 to protect its interests in those SVRX licenses, and there
7 was also concerns about Microsoft.
8 One of the other things that was passed by is this
9 important fact. The suggestion has somehow been made that
10 Novell must have sold the entire business. Well, that is
11 contrary to what the words say. It is also contrary to the
12 practical economic realities. Novell paid over $300 million
13 to acquire the business and what it got in return was about
14 $50 million in stock. It retained what it already held, and
15 that was rights to license fees, and then the other portion
16 of possible consideration was if SCO actually succeeded in
17 what it bought, and that was the right to develop the
18 UnixWare, and if SCO had succeeded and it developed this
19 merged product, as you'll see reference to in the asset
20 purchase agreement, and made a profit, then Novell would
21 have at a certain level been able to participate in that.
22 SCO did not succeed and Novell did not receive any of those
23 funds.
24 Well, back to Mr. Frankenberg, apparently the
25 most important witness in the case. He was asked, despite
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1 his testimony, whether it was possible that in fact the
2 asset purchase agreement purposefully had excluded the
3 copyrights and he finally was able to acknowledge, yes, that
4 is a possibility. We asked him several times about the
5 asset purchase agreement exclusion and whether that is what
6 the board had agreed to. He acknowledged, yes, that is what
7 the board had agreed to.
8 Now, there were some people that you did not hear
9 from in this trial. I wonder if you were curious about
10 them. You heard that Novell's in-house counsel, David
11 Bradford, working with Jim Tolonen, the chief financial
12 officer, worked with outside counsel of Novell to prepare
13 this asset purchase agreement. Santa Cruz Operation was not
14 without its representatives. In fact, they hired a very
15 talented set of lawyers from a very large law firm, a
16 prominent law firm at the time, the Brobeck Phleger firm.
17 You heard about Ed Leonard, this very experienced senior
18 partner, Jeff Higgins and Scott Lester who worked with them,
19 and none of them appeared in this case. None of them
20 appeared by deposition testimony. Those are empty chairs.
21 That must tell you something about it if SCO was
22 not able or willing to present any witnesses to suggest
23 anything contrary to Novell's presentation. There was a
24 complete failure or lack of evidence by SCO with respect to
25 the actual negotiations on the asset purchase agreement.
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1 They have the burden of proof. They should have been
2 required to present witnesses. They should have come
3 forward with those who are on the other side of the table if
4 they actually were going to try to substantiate this rumor
5 or innuendo that there was a mistake or that Novell slid
6 something passed them. Those very talented lawyers were not
7 here. Nor did they go and ask the questions so that they
8 could present it to you.
9 We do agree that amendment number two is of
10 critical importance. Let's look at what amendment number
11 two says and what it does not say. You may recall that the
12 very first draft of this agreement resulted when Steve
13 Sabbath, Santa Cruz's in-house counsel, contacted Ms. Amadia
14 and said words to the effect, according to her testimony,
15 there has been some clerical error. We need to fix that
16 now, more than almost a year after the agreement was signed,
17 and he sent over some language.
18 Well, what was the language that he proposed?
19 This compares the language that he proposed with what
20 actually was agreed to. You'll see in red the language that
21 Novell struck out and which it rejected, and the language
22 that was struck out was this very broad terminology about
23 this amendment number two which pertained to the UNIX and
24 UnixWare technologies. Mr. Sabbath also suggested and which
25 SCO has acquired hereunder.
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1 Mr. Sabbath by the words he used wanted to have a
2 document signed to suggest that in fact there had been a
3 transfer of copyrights, but that was not the case and the
4 language we have rejected that. So the final language of
5 the asset purchase agreement very clearly contradicts the
6 claim that SCO has been making in this case that there was a
7 transfer of the UNIX and UnixWare copyrights.
8 Instead, the language is all copyrights and
9 trademarks except for the copyrights and trademarks owned by
10 Novell as of the date of the agreement required for SCO to
11 exercise its rights with respect to the UNIX and UnixWare
12 technologies.
13 Well, what was required? First of all, what was
14 meant? We turn again to Mr. Tolonen. If we were to compare
15 the people involved, Mr. Tolonen, the business
16 representative, the chief financial officer who signed the
17 asset purchase agreement, and Novell's legal representative,
18 Ms. Amadia. On the other side of the transaction, Mr.
19 Sabbath. What testimony did you hear on either side?
20 Very clearly Mr. Tolonen said we did not intend to
21 transfer ownership of the copyrights to Santa Cruz. He made
22 reference to the fact that when the suggestion was made by
23 Santa Cruz that such a transaction be entered into that it
24 was rejected. Then he testified that amendment number two
25 so clearly was not intended to transfer ownership of the
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1 copyrights, that he did not go back to the board of
2 directors to get approval for it, and he testified that to
3 change the asset purchase agreement, to undo that which the
4 parties had agreed to, to actually include the transfer of
5 copyrights would have been such a material change, a big
6 deal, that Novell's board of directors would have had to
7 have been involved and they were not.
8 Let's go back to Ms. Amadia, the one who wrote the
9 agreement. In your mind are you positive that Novell did
10 not intend to transfer the copyrights? I am. How can you
11 be so sure? Because I negotiated it, I drafted it, and that
12 was not my intent. I didn't have the authority to do
13 otherwise.
14 Well, so we have looked at the two people at
15 Novell involved, the senior executive, Mr. Tolonen, the
16 lawyer, Ms. Amadia, and who is on the other side? Back to
17 Mr. Sabbath. What did he tell you about the intent and
18 meaning of the second amendment? Question, and to the best
19 of your recollection who at Santa Cruz would have been
20 involved in negotiating the language of paragraph A of
21 amendment number two? I don't know. Question, can you
22 recall prior to signing amendment number two focusing on
23 paragraph A to any extent? I don't.
24 A complete absence of anyone from Santa Cruz or
25 SCO coming into this courtroom and suggesting what the
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1 intent or meaning was of amendment number two. Once, again,
2 we have a clear contrast. You heard the evidence from
3 Novell's representatives, and they testified without
4 equivocation that there was no intent to transfer the
5 copyrights, and then we have a complete absence by SCO.
6 Now, that then prompts this question. Were
7 copyrights required for SCO to exercise its rights with
8 respect to the acquisition of UNIX and UnixWare
9 technologies? Well, we need to get an answer to that
10 question, and so the first place we ought to look to is SCO
11 itself. We heard this testimony from Mr. McBride. He was
12 asked this very question. You may recall this. Question,
13 didn't you tell them that you could run that part of your
14 business without ownership of the UNIX copyrights? Answer,
15 we could run our business without the copyrights just like
16 H.P., I.B.M., and all of the other licensees of UNIX can run
17 their businesses as well.
18 Let me pause right there. I will come back and
19 finish this.
20 What is the significance of his open admission in
21 this courtroom on this point? First of all, you'll recall
22 that companies like Hewlett-Packard and I.B.M. and others,
23 Sun Micro Systems, a number of other companies, they have a
24 license to use the UNIX software. They then would take the
25 license that they had to UNIX and build on top of it their
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1 own flavor, their own amendments and derivatives and
2 additions. None of those companies owns the UNIX
3 copyrights, but are perfectly capable of running their
4 business by working on their derivatives and marketing and
5 selling and profiting in some respects handsomely. That was
6 the business that SCO said it was going to be in when this
7 asset purchase agreement was entered into.
8 The SCO business was to take the UNIX operating
9 system and then to build on to it, to amend it, to create
10 derivative works, their own flavor, and they were left free
11 to sell that and to derive royalties and payments for that
12 additional work. They did not need ownership of the UNIX
13 copyrights to do that. That is precisely what Mr. McBride
14 acknowledged was the case.
15 Here is part two. The business that was involved
16 in this sale of assets wasn't the business that Mr. McBride
17 wanted to get into in 2003. He wanted to start a new and
18 different business, a business that is not the subject of
19 this agreement. He wanted to turn on his customers, and
20 instead of helping them with UNIX or with Linux, he wanted
21 to claim on SCO's behalf that these many customers who have
22 been using this free open source software now were
23 infringing UNIX. That is a new and different business. It
24 is not the business that was the subject of the asset
25 purchase agreement.
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1 This is why Mr. McBride says the part that we
2 differ on here is we were unable to run our business for the
3 licensing side without the copyrights, and the licensing
4 side was really the future of the company. What he was
5 talking about was the litigation shop that he wanted to turn
6 SCO into.
7 So there will be no question, and you may recall
8 this, Mr. Acker asked so let me get it straight so the jury
9 understands. You could operate as a software company
10 without the UNIX copyrights? You couldn't run your
11 SCOsource campaign without the UNIX copyrights? Do I have
12 that correct? Mostly.
13 Now we need to understand precisely what it is
14 that SCO is doing. You'll recall that in May of 2003 it
15 sent out letters to some 1,000 or more companies claiming
16 that it owned the UNIX copyrights and licenses and it wanted
17 to extract payments out of these various companies. What
18 was it supposed to be doing? What was it prohibited from
19 doing? If we look at the asset purchase agreement, Section
20 4.16-B as amended, you'll see in the highlighted portion
21 that SCO shall not and shall have no right to enter into new
22 SVRX licenses except in the situation specified in small i
23 of the preceding sentence or as otherwise approved in
24 writing in advance by seller. What SCO was doing was
25 directly violating its contractual obligation by turning on
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1 people that it previously was designed to service and help.
2 Now, the suggestion has been, oh, it would be
3 ludicrous and impossible and how could a software company
4 possibly operate without holding the copyrights? And then
5 you heard in open court from the general counsel, Mr.
6 Tibbitts, and I asked him this question. You're aware of a
7 proposed transaction just in the last year whereby SCO would
8 have sold its business and retained solely the UNIX
9 copyrights, correct? Correct. So although you have been
10 told it would be ludicrous, that is precisely what SCO has
11 given contemplation to. I didn't want there to be any
12 confusion so I asked him to clear it up. What SCO has
13 proposed to do is sell the UNIX business, product business,
14 but retain the UNIX copyrights? Yes, and the rights to
15 enforce those copyrights. SCO is interested in being a
16 litigation shop.
17 Now, others were asked about whether or not
18 copyrights were required. Mr. Messman told you that in his
19 view as of 2003 that SCO didn't need the ownership of
20 copyrights to run its legitimate UNIX and UnixWare
21 technologies.
22 Let's make sure that we have a very clear
23 understand again of what is at issue. These are Legos.
24 Maybe some of you have seen these in your home and stepped
25 on them and tripped on them. A Lego represents a building
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1 block. What initially Novell had and owned, and that the
2 part it had acquired from AT&T, is represented by the small
3 block on the left, the UNIX and the UnixWare copyrights that
4 pertain to Versions 1.0 and 2.0. Under the asset purchase
5 agreement certainly SCO had the right to use that
6 intellectual property without ownership to develop its
7 building block on top, the UnixWare copyrights. Whatever
8 SCO has developed on its own, its derivative work, it owns
9 the copyrights to. There has never been a challenge to
10 that. Novell does not dispute that. SCO has every right
11 and has and did for eight years before this litigation was
12 commenced operate that business. It was not until Mr.
13 McBride and SCO came up with its new litigation strategy,
14 that the suggestion has been made that copyrights were
15 needed.
16 Again, you heard the suggestion that somehow Mr.
17 Braham or Mr. Bradford snuck the copyright exclusion into
18 the A.P.A., that it was done in a corner, no one saw it, and
19 no one had time to think about it. That is belied by the
20 actual evidence. Mr. Levine, he is the one who was an AT&T
21 lawyer who came over to Novell, and he is the one who
22 actually then moved on to SCO after the transaction. He is
23 the one who provided comments on Schedules 1.1-A and B. You
24 heard and saw what he said. This is his very draft that
25 supposedly was snuck by or snuck in. You will see that in
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1 his draft of Schedule 1.1-B, the excluded assets, very
2 clearly all copyrights and trademarks except for the
3 trademarks UNIX and UnixWare. That wasn't a last second
4 invention. Mr. Levine, who, again, SCO purports as its
5 witness, actually wrote that language.
6 Now, was Mr. Frankenberg duped? Here is the
7 question. Now, do you recall whether or not you ever
8 reviewed this excluded asset schedule in connection with the
9 transaction? I am sure that I did, yes.
10 Mr. Mattingly, he also came to court. Sir, to
11 your knowledge did the lawyers and business people at Santa
12 Cruz have the opportunity to read the included and excluded
13 asset schedule before they agreed to the A.P.A.? Yes. No
14 question that those people had a chance to do that.
15 Here is an interesting document. You may have
16 seen it from two sources. The first time you saw it was
17 when Mr. Mattingly came into court and had that folder that
18 none of us had seen before, said that he had it in his
19 garage, he had given the documents or showed them to SCO's
20 lawyers without ever notifying Novell, and I hadn't seem
21 them before and I asked him for them. This is one of them.
22 On it is a draft, a handwritten notation of September 16th,
23 1995, before the transaction closed, and it includes the
24 exclusion of all copyrights and trademarks. It was not a
25 secret. People knew about it.
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1 Now, the suggestion has been made that somehow if
2 we disregard the language of the agreement, if we forget
3 that it is there, or we want to act and believe contrary to
4 it, let's see how people behaved and that should inform us
5 as to whether or not Novell transferred the copyrights. You
6 were told about three individuals that SCO brought forth,
7 all SCO employees that suggested that somehow Novell acted
8 inconsistently with the retention of copyrights. The first
9 example was that somehow on the copyright notices, the marks
10 that are put on the physical, tangible medium, that there
11 was a copyright notice suggesting that SCO held the
12 copyrights.
13 In his testimony he indicated that we didn't go
14 back and change prior versions. We only put the SCO
15 copyright notice on current or go-forward versions. Of
16 course, that makes perfect sense. I showed you before that
17 if you in essence inherent or have rights to use a product
18 and you build your own on top of it, you can claim copyright
19 protection and rights for the new work that you have
20 performed. That doesn't mean the previous work you own
21 copyright protection to. Mr. Broderick acknowledged that.
22 Then you heard from Mr. Nagle. The suggestion was
23 that, well, maybe there is a copyright notice on the box in
24 which the SCO C.D. is sold. He acknowledged that what is
25 written on the box does not tell you what the ownership
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1 resolution is, you have to look to the legal agreements to
2 establish copyright ownership. Fortunately, we have the
3 legal agreements.
4 Then we had Mr. Maciaszek. The suggestion was
5 made that Novell sent these letters out to customers after
6 it entered into the asset purchase agreement, and somehow
7 there was some concession by Novell in those letters that it
8 had transferred ownership of the copyrights. You'll have a
9 chance to look at examples of those letters. You'll see
10 that they do not say that Novell transferred ownership of
11 the copyrights. Mr. Masiaszek was good enough to confirm is
12 that these letters were simplifications, and that what
13 customers actually were being told is after the transition
14 that if they had questions they should contact Santa Cruz.
15 Why? Because Santa Cruz was acting as the administrative
16 agent and was being paid five percent to administer the
17 collection of royalties, that they should do something for
18 the work they were asked to do and that is one of the items.
19 Now we get the important question. Did Novell
20 have a First Amendment right to state its position? This is
21 probably something you are familiar with. The First
22 Amendment is incorporated and is the very first and is the
23 most preeminent of the Bill of Rights. It protects a number
24 of things. I'll take you back to a civics class. Congress
25 shall make no law respecting an establishment of religion or
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1 prohibiting the free exercise thereof or abridging the
2 freedom of speech or of the press or the right of the people
3 peaceably to assemble and to petition the government for the
4 redress of grievances. This is the fundamental foundation
5 of our union and is the fundamental protection for our
6 individual liberties. Novell does have a constitutionally
7 protected right to comment on matters of public interest.
8 The Court has given you an instruction, and some
9 of this was covered in part, but not in its entirety with
10 you with Mr. Singer, and it bears some repetition. The
11 instruction that you received states the following: The
12 third element requires the party claiming slander of title
13 to prove by clear and convincing evidence, not a
14 preponderance, just a little bit more than a tip of the
15 scales, but clear and convincing evidence, that the
16 statement disparaging the ownership of the UNIX and UnixWare
17 copyrights existed as of the date of the asset purchase
18 agreement was made with constitutional malice.
19 Let's pause. Why is this very high and heavy
20 burden placed on SCO? To protect constitutional rights, to
21 avoid the chilling of speak, to avoid reprisal for those who
22 choose to speak out on a matter of controversy. Imagine the
23 difficulty that would occur to any one of us, to any
24 citizens, individual or corporate, if they could not speak
25 their mind because of a fear that they would be hailed into
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1 Court and held accountable for monumental damages. That is
2 why this heavy burden exists. It is a constitutional right.
3 The instruction continues. That is, the party
4 claiming slander of title must prove that the statement was
5 published with knowledge that it was false or reckless
6 disregard of whether it was true or false. What does that
7 mean? The instruction is clear. Which means that the party
8 making the statement acted with a high degree of awareness
9 of the probable falsity of the statement, or that at the
10 time the statement was transmitted, the party making the
11 statement had serious doubts that the statement was true.
12 So as we examine the statements that are at issue
13 in this case, that is the standard that has to apply. In
14 order to hold Novell liable for slander, you must be
15 convinced to the heightened degree of clear and convincing
16 evidence that at the time the statement was made it was
17 known to be false, or that it was made with reckless
18 disregard that all of these other factors are satisfied.
19 What is clear and convincing evidence? The Court
20 has instructed us. Clear and convincing evidence leaves no
21 substantial doubt in your mind that the constitutional
22 malice is highly probable. That is a very high standard.
23 It protects all of us. Spite, ill will, hatred, bad faith,
24 evil purpose or intent to harm does not alone support a
25 finding of constitutional malice.
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1 So with that in mind, let's make sure that we
2 understand what was going on in the marketplace and what
3 Novell was facing when it made its alleged and accused
4 statements. First of all, and you'll have a chance to look
5 at this, Exhibit I-11. Not long prior to the announcement
6 of the SCOsource licensing program SCO itself was in the
7 business of licensing Linux and selling Linux to users,
8 encouraging Linux users to use that open source product. It
9 reached out and developed a clientele of Linux users. Those
10 are among the very type of customers that SCO then turned on
11 when it figured it wanted to make a bit more money.
12 What was the motivation for that dramatic turn, a
13 new and different business? Well, Mr. McBride told us that
14 it was because of the financial condition of the company.
15 Things were not in good shape. Asked about this same
16 licensing extraction program, Mr. Thompson was asked about
17 whether it was a hail mary and he said, well, like every
18 other company there are good times and bad times and we were
19 looking for ways to improve our business.
20 What did Santa Cruz Operation think of what SCO was
21 doing? Keep in mind Santa Cruz Operation ran the UnixWare
22 business and sold it to SCO. When they themselves were
23 asked what they felt about SCO's license extraction and
24 litigation shop we got this answer. Guys who run protection
25 rackets occasionally make a short-term profit, but never
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2710
1 build a long-term business. That is what Santa Cruz
2 Operation itself thought SCO was doing. There was an uproar
3 in the market. There was tremendous publicity. There was a
4 backlash of significance among Linux users and those who
5 serviced Linux.
6 Well, what is it that SCO sought to do? You'll
7 recall this, that in February of 2003, recognizing
8 apparently that it did not own the copyrights, and that its
9 licensing program would be dependent on actually owning the
10 copyrights, SCO came to Novell through various means, one of
11 which was senior executives to in-house counsel. One of the
12 things that SCO sent over to Novell was a proposed agreement
13 to clarify that, in fact, SCO owned the copyrights. If,
14 indeed, SCO owned the copyrights as it claimed, so it could
15 carry out its licensing extraction program, why on earth in
16 2003 was SCO asking for written confirmation? It is a
17 little hard to see, but you'll have a chance to look at
18 Exhibit I-31, and there was even a signature block put on
19 that. What did Novell do in response? It rejected and did
20 not sign that agreement.
21 Well, there were threats that went out. This is
22 a threat that went everywhere. It even went to Novell. The
23 claim was made that Linux infringes our UNIX intellectual
24 property and other rights. That is the claim that was made.
25 It was not made in isolation. It was made broadly and
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1 throughout the marketplace. You have heard that this demand
2 was made to at least the Fortune 1000. Novell was faced not
3 only with a public uproar, but it itself was challenged, it
4 itself was the recipient of one of these letters.
5 This is only a small sample, and time does not
6 permit more, but what was in fact the response? Linux
7 advocates doubt the validity of the SCO licensing scheme.
8 Advocates claim scheme violates the general public license
9 or G.P.L. software license.
10 There are other examples. SCO irks about
11 everyone in tech except Microsoft. Time does not permit,
12 but if one were to think about the implications, Linux was a
13 challenge to Microsoft. The Linux market was growing and
14 developing, and it presented a market challenge to
15 Microsoft's operating system. Who would be a chief
16 beneficiary of the failure of Linux? Microsoft.
17 Well, ultimately Novell had to respond. In the
18 midst of this adverse publicity, these claims and threats to
19 Linux users, yes, on May 28, 2003 Novell did respond. And
20 Novell did at that time report to Mr. McBride that Novell
21 owned the UNIX copyrights.
22 Well, you heard this testimony. We need to put
23 ourselves in the time and place of May 28th. Where is
24 Novell? What is it thinking? What is available to it? It
25 has the asset purchase agreement. Mr. Messman, as you
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1 recall, testified that he was present at the board meeting
2 in which it was approved, and despite efforts to embarrass
3 him because at one point he said in the 1980s instead of the
4 1990s, but you saw the board meeting minutes and you saw
5 that he was present, and he recalled that the asset purchase
6 agreement did not convey copyrights.
7 Mr. McBride was asked whether he thought that it
8 would be reasonable for a person reading the asset purchase
9 agreement, without the benefit of amendment number two, to
10 conclude that there was no transfer of copyrights. Mr.
11 McBride acknowledged that that would be a reasonable reading
12 of this document. That is where Mr. Messman was in May of
13 2003.
14 Now, the suggestion has been made somehow that
15 Novell must have known about amendment number two or it was
16 creating or fabricating. Well, why did Novell respond as it
17 did on May 28th? We heard from Mr. LaSala, the then general
18 counsel of Novell, and he indicated that it was imperative
19 to Novell's business interest to respond formally and
20 publicly, although he did not know anything about SCO's
21 earnings announcement. Mr. Stone testified that the issue
22 was of wide interest. I don't think there is any dispute
23 about that. He had no idea of the earnings timing. Mr.
24 Messman told us that Novell had to put out its side of the
25 story, and he wanted the world to know what Novell's
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2713
1 position was.
2 Now, the suggestion has been made that there was
3 some sort of malice. I think the sole witness actually that
4 was presented to you was a journalist, this Maureen O'Gara.
5 You heard her testimony by videotape. It was skimmed by in
6 the argument by SCO's counsel. In fact, she confirmed to
7 the public relations director of SCO that she wanted war pay
8 for the articles and promotion that she was making for SCO.
9 Excuse me. She was asked by SCO to send a jab P.J.'s way.
10 You heard the testimony. P.J. is a woman who writes and
11 comments on interests of the open source community, and SCO
12 wanted Maureen O'Gara to write something negative about her.
13 That hardly is evidence of a detached, objective journalist.
14 The other thing if you listened carefully, and you
15 had a chance to see it again today, was the attempt by Ms.
16 O'Gara to create words of Mr. Stone that he never said. If
17 you listen carefully to the testimony, she was pressed
18 several times, tell me what were the words that Mr. Stone
19 used. She never answered that question squarely. Instead,
20 she talked about, well, maybe he was laughing. These are my
21 impressions. Pressed repeatedly, it is important to know
22 what he said, she could not do that.
23 I would like to take a pause right now and have
24 us focus on what was going on and why Novell responded the
25 way it did. There are a number of things that are
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2714
1 represented on this time line. I'm going to run across them
2 and I hope they will be of help to you in summarizing and
3 understanding.
4 The first event that we have here is the May
5 12th, 2003 threat letter sent by SCO to Fortune 1000
6 companies and others. SCO's gone public with its SCOsource
7 licensing program and has made demands on many companies
8 including Novell. Here is an interesting thing. Two days
9 later on May 14th, SCO pre-announces publicly its earnings
10 for that quarter. Now, you have heard a big deal made about
11 Novell must have conspired and planned to release its
12 response on the earnings date. Those earnings were
13 announced two weeks before. Anyone knew that the earnings
14 had been out there if they did careful research. What
15 Novell did do on May 28th is respond and you have seen that
16 response.
17 What happened a few days later on June 5th is Mr.
18 McBride, having discovered himself a signed copy of
19 amendment number two, sends if over to Mr. Messman. I will
20 pause just for a minute on this. You heard in Mr. Singer's
21 argument that what Novell should have done is reached out to
22 its law firm, Wilson Sonsini, to get a copy of amendment
23 number two. But you also know, if you had a chance to
24 carefully listen, Wilson Sonsini was not involved in
25 amendment number two. That was done by Ms. Amadia in-house.
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2715
1 Then the suggestion was made that, oh, Novell
2 should have reached out to its former chief executive
3 officer, Bob Frankenberg, and got a signed copy of amendment
4 number two. Well, that is an interesting proposition. Mr.
5 Frankenberg had left the company well before amendment
6 number two had been signed and had nothing to do with it.
7 Novell did not discover amendment number two, the signed
8 copy, until Mr. Messman received it, and then Novell, trying
9 to act responsibly, did release the statement that you have
10 seen suggesting that amendment number two appears to support
11 the position articulated by SCO.
12 However, Novell then with some time undertook to
13 review matters more carefully. Why did Novell respond the
14 way it did on June 6th? You heard that it was because SCO
15 was claiming that it was going to go public with an
16 announcement, it was going to call a press conference on
17 June 6th and go public, and Novell wanted to be responsible
18 in its response and thus gave the muted response that it did
19 on June 6th, because of the public pressure being exerted on
20 it by SCO.
21 On June 6th, 2003, Novell did send a private
22 letter to SCO indicating that now that it had a chance to
23 look more closely at amendment number two, that it did not
24 agree with the position that amendment number two effected a
25 transfer of ownership. So as of June 6th, 2003, in a
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2716
1 private non-published communication, Mr. McBride and SCO
2 knew that there was no claim or concession of ownership.
3 Let's take just a quick look at then what SCO does
4 on July 21st, if we could highlight that.
5 In the face of Novell's private letter that it did
6 not agree that ownership transferred, Mr. McBride in an
7 interview, a public interview said if you go talk to Novell
8 today I'll guarantee you what they will say, which is they
9 don't have a claim on those copyrights. That was a direct
10 contradiction of a private communication. In the face of
11 what Novell said privately, Mr. McBride and SCO went public
12 suggesting something directly to the contrary.
13 Let's go back to the time line, please.
14 The next development is Novell again on August
15 4th sent another letter and said we dispute SCO's claimed
16 ownership of these copyrights. So now here are two letters
17 by Novell, private ones, not published, disputing the claim.
18 What does SCO do in the face of those private
19 communications? Mr. McBride in a public address said this.
20 If we could look at the development on August 18th. In a
21 keynote address, a public address, Mr. McBride said in
22 regard to Novell's recent claim that it still owns the
23 copyright to UNIX, McBride said it took SCO just four days
24 to press the eject button on that claim. What Mr. McBride
25 is doing, having received private letters from Novell where
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1 Novell said we did not transfer ownership, Mr. McBride is
2 going public and claiming that Novell has conceded the
3 point.
4 Back to the time line, please.
5 On October 14th Novell registers the copyrights
6 and this happens on November 18th, if we could highlight the
7 development on November the 18th.
8 This was a transcript of an interview with SCO's
9 C.F.O., Mr. Bench. In that transcript, publicly made
10 available, SCO said once we have the copyright issue
11 resolved, where we fully had clarity around the copyright
12 ownership on UNIX.
13 So what is happening, one more time back to the
14 time line, is Novell is acting privately and Novell is not
15 going public, but is repeatedly telling SCO we retain
16 ownership of the copyrights, and what Mr. McBride and others
17 at SCO are doing publicly is saying, no, you don't, and
18 suggesting that Novell was conceded the point.
19 With all of that brewing Novell then on December
20 22nd, if we could highlight December 22nd, did make a public
21 release. What was the form of the public release? Copies
22 of our correspondence and SCO's reply are available here.
23 Contrary to SCO's public statements, as demonstrated by this
24 correspondence, SCO has been well aware that Novell
25 continues to assert ownership of the UNIX copyrights. So
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1 what it did was invite people, if you want to know what is
2 going on, if you want to see for yourself what the agreement
3 say, if you the consuming public want to know the answer, we
4 invite you to look at it. That is how Novell responded.
5 It is for that, making available to the public the
6 actual position by Novell, that there is a claim of slander
7 here. None of that comes close to any claim of
8 constitutional malice. First of all, because Novell has not
9 made a false statement. It did not transfer ownership of
10 the copyrights. Second of all, those who made the
11 statements did not believe at the time that they were false
12 statements. Third, they were not made with the requisite
13 level of malice.
14 Now, I would like to speak just for a minute or
15 two on the issue of damages. The suggestion has been made
16 somehow that Novell has done these atrocious acts and ought
17 to be held liable for damages, and one of the measures of
18 damages is what did the marketplace do in reaction to the
19 real world?
20 Well, if we could take a look at just a summary
21 then of what really happened in the real world. People
22 dispute to this day that Linux infringes UNIX. That has not
23 been proven, it has not been established, and the entire
24 damages analysis that you have heard in this court from Dr.
25 Botosan is premised on the notion that somehow there is
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2719
1 infringement. That hasn't been proven. It is hotly debated
2 and it is contested and users of Linux to this day reject
3 the notion that there is infringement.
4 There were indemnification programs offered, that
5 is software companies, Novell being one, Red Hat, another
6 large software company and others, told their users we do
7 not believe there is a problem here, but if you get into
8 trouble, we'll cover you.
9 There is the issue about the G.P.L. I don't have
10 time to explain that in-depth, but you heard that term, and
11 essentially what it means is that the general public license
12 under which Linux is used would provide protection for Linux
13 users.
14 You heard as well that Linux users could quickly
15 adapt and they could design around and that they would not
16 pay a licensing extraction fee to SCO. Instead, they would
17 just design around it. The suggestion of the price, and you
18 have heard about that, and people were not willing to pay
19 what SCO was charging and there was this tremendous public
20 anger.
21 That is not all. I will only make a brief
22 reference to this. The claim by the damages expert for SCO
23 has been that looking in a but-for abstract world what would
24 have happened? We have evidence from the real world, what
25 really happened, and we know that in 2004 in this litigation
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1 a judicial ruling was issued that at a minimum raised a
2 serious question as to whether amendment number two
3 transferred copyright ownership to SCO. That was available
4 to the public, and consumers were able to look themselves at
5 the details of the ruling, and to read the rationale of the
6 Court and make their own decision based on that ruling that
7 called into question SCO's claims.
8 That was not all. On August 10th, 2007 in this
9 courthouse, not Judge Stewart but another judge, issued
10 summary judgment in favor of Novell, holding as a matter of
11 law that Novell did not transfer ownership of the copyrights
12 under the asset purchase agreement, including amendment
13 number two. So consumers in 2007 looking at the rulings of
14 a Federal District Judge concluded or could conclude that
15 there was no reason to buy a SCOsource license.
16 Was that determination reversed? Yes. That is
17 why we are here today. But the important rationale is what
18 were consumer thinking at the time when they were able to
19 look at the rulings being issued by a Federal District Court
20 judge?
21 THE COURT: Mr. Brennan, you have four minutes
22 left.
23 MR. BRENNAN: Thank you, Your Honor.
24 Now, there were many who rejected the claim that
25 Novell had any influence on buying decisions. This is one
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1 of many. Let me use as an example H.P. It was put in front
2 of you the notion that somehow Hewlett-Packard did not take
3 a license and didn't enter into this agreement because of
4 Novell. I urge you to take a look at Exhibit D-20 when you
5 have a chance to retire to the jury room. You will see very
6 clearly why Hewlett-Packard for so many reasons, none of
7 which even reference Novell, decided not to enter into that
8 agreement that was suggested to you was a fait accompli. I
9 urge you to take a look at that.
10 Now, how do we conclude this? I would like to
11 show you another copy of the special verdict form in this
12 case. If we could take a quick look at it on the Elmo. The
13 first question asks did the amended asset purchase agreement
14 transfer the copyrights? No. How do you know that? You
15 can look at the agreements themselves. Look at the words.
16 Look at what they say. Look at the amendments. The
17 contract does not support the claim being made here.
18 If you answer that question no, as we suggest the
19 contract compels, then that really is the end of your
20 deliberation. The instruction suggests that you sign the
21 verdict form and turn it in. So my plea to you after
22 considering the evidence is mark it no.
23 Now, if it goes past there the question is whether
24 or not Novell slandered the title, and may I suggest this,
25 that if you get into the jury room and begin your
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 51 of 65
2722
1 deliberations and there is an initial conference about what
2 has happened here, and if there is a question in the mind of
3 any of you, if any of you has some doubt in your mind
4 whether there was a transfer of copyrights, I submit that
5 you're reasonable people and if a reasonable person can
6 differ on that question how on earth could Novell have
7 committed this atrocious act of slander if reasonable jurors
8 would have a question in their own minds about whether the
9 contracts permitted it?
10 This constitutional standard is high. When you
11 walked into this courthouse you saw a beautiful painting on
12 the wall. That painting is a representation of the signing
13 of the Constitution. That Constitution protects us. It
14 protects people from spurious claims. It protects them
15 against making outrageous demands for money. It protects
16 you and me so that we in a free market and in a free economy
17 and a free country can state our position without fear.
18 Ladies and gentlemen of the jury, there may be a
19 difference of opinion, there may be a question of the legal
20 merits, but this contract supports Novell's claim and it was
21 entitled to rely on it and it was entitled to protect its
22 position.
23 We're very, very grateful for your time and
24 attention to these matters. Novell is not liable. It did
25 not slander title. It owns those copyrights. If there is a
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 52 of 65
2723
1 reasonable difference of opinion, at the very least it did
2 not slander title. It and you and I are protected by this
3 beautiful Constitution.
4 Thank you, ladies and gentlemen.
5 THE COURT: Thank you, Mr. Brennan.
6 Ladies and gentlemen, why don't you stand up. You
7 have another 12 to 15 minutes here, and I want to make sure
8 that you have got some energy left for it.
9 (Standing recess.)
10 THE COURT: Go ahead, Mr. Singer.
11 MR. SINGER: Thank you, Your Honor.
12 Ladies and gentlemen, in 12 minutes I'm planning
13 to touch on only a few topics, but you will have the
14 opportunity back in deliberations to think about what you
15 heard, think about the credibility of the witnesses you
16 heard over three weeks, and think about the documents. I
17 would like to touch on a few points.
18 May I borrow that book that you had up here?
19 MR. BRENNAN: Certainly.
20 MR. SINGER: This repeatedly was told to you to be
21 the contract, the sanctity of the contract. The problem is
22 is that you won't find anywhere in this book amendment
23 number two, because that was entered into a year later.
24 That is what fixed the problem in this contract. It is part
25 of the account, and as you heard Judge Stewart instruct you,
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 53 of 65
2724
1 it prevails over any inconsistent terms. We are not here
2 saying, well, there is some unwritten language that we are
3 relying on. This is the written agreement that controls.
4 That won't be found in this book, but it is the most
5 important part of the case. It is the most important part
6 because that with a few other things, which really aren't
7 disputed, proves that the copyrights transferred.
8 The language, as we have seen repeatedly through
9 this trial, says that the copyrights are excluded except for
10 those required for the UNIX and UnixWare business. Now,
11 there has been no denial of the two points of evidence that
12 clearly indicate that those were required. One was their
13 own admission on June the 6th. You can determine whether
14 that is just a casual admission, but with their general
15 counsel involved they say that it supports SCO's position.
16 The second point, which was not addressed at all
17 by Mr. Brennan, was the testimony of Ms. Amadia who
18 supposedly did draft that agreement. She started out in her
19 direct examination supporting Novell's position. But, as I
20 explained to you and showed you during my closing, under
21 Mr. Normand's cross-examination she admitted that if the
22 copyrights were required for the business, they transferred.
23 That is just the plain language of the agreement.
24 Then the question you have to ask yourself is
25 simply are the copyrights for the software business, the
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 54 of 65
2725
1 prime intellectual property to UNIX and UnixWare operating
2 systems, required for that business? Virtually every
3 witness in here has said, yes, they are and that it is
4 obvious, that it would be absurd to have it without it.
5 Even if you could sell UnixWare products on a
6 license, and there is no express license in any of this,
7 there is only a license back to Novell, there is no license
8 to SCO, but even if you could do that, you could not protect
9 the intellectual property. That is a part of the business,
10 protecting the intellectual property.
11 That makes it clear and that is why Novell, when
12 confronted with this on June 6, 2003, admitted that we were
13 correct.
14 Now today in this court they say something
15 different. They tell you that we are trying to extract a
16 license fee, a term that you repeatedly heard from Mr.
17 Brennan. I suppose that when Novell licenses its
18 intellectual property it is not an extraction, and when
19 I.B.M. does that it is not an extraction. Well, it is not
20 an extraction for SCO either. It is a business. It is a
21 licensing business. You have a right to offer to consumers
22 the opportunity to purchase a SCOsource license. They can
23 make an intelligent decision, especially since we are
24 talking about sophisticated corporate consumers.
25 There is nothing wrong with that, except that as
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 55 of 65
2726
1 Mr. Pisano told you, that program is no gone. It can't be
2 resurrected. The market has moved on. That program is
3 dead. That is why you need to consider that in terms of a
4 damage award, rather than SCO now being able to go into the
5 market years later and try to start selling SCOsource
6 licenses.
7 Then they come to us and they say, well, there
8 will be other litigation. Litigation, of course, is nothing
9 more than another constitutional right, a right to go to the
10 courts, a right that they tried to block. If SCO has proper
11 rights, we trust the courts to vindicate. That is no
12 different than any other citizen, corporate or individual
13 should have. It is, of course, the right that I.B.M. and
14 Novell have availed themselves of throughout this.
15 Then Mr. Brennan talked about the First Amendment.
16 There was a very interesting phrase he used when about near
17 two-thirds of the way through his closing he approached the
18 First Amendment. He said now we get to the important
19 question. I submit to you the reason he phrased it that way
20 is he knows that this is a case where copyright ownership in
21 fact is with SCO, and he knows that these statement were
22 false, and that the difficult question, relatively speaking,
23 the one that he is counting on is that you will find that
24 these statements were in fact not slanderous under the First
25 Amendment.
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 56 of 65
2727
1 I would suggest to you to look at the jury
2 instruction that Judge Stewart provided on that subject of
3 constitutional malice, because it weighs the interests of
4 free speech against protecting people against slander. The
5 test is recklessness, and I went over what went on on May
6 28th that was reckless, not finding out whether that
7 amendment was signed, and then we have deliberate
8 publication and republication of the slanders, which is done
9 knowing that amendment number two has been signed, up to and
10 including March of 2004 when Chris Stone stands up and goes
11 so far as to say we still own UNIX. Those are slanders and
12 those are actionable and those are liable.
13 One more point before I turn to some of the
14 evidence. They also talk about these court decisions, and
15 those were reversed as Judge Stewart told you. Of course,
16 they have nothing to do with damages, because the damages
17 presume the slander never occurred and you would never have
18 any litigation and you would have these court decisions to
19 begin with. That is a little slight of hand I think from
20 Novell.
21 If we turn to what Novell has told you, they are
22 saying you only get an implied license. Mr. LaSala admitted
23 that. You will see under the instructions that an implied
24 license does not give you the rights of a copyright owner.
25 That does not give you what you need for this business. You
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 57 of 65
2728
1 also had some discussion about the empty table with the
2 Brobeck Phleger firm, which they know, of course, is a firm
3 that no longer exists. They also should know that Brobeck
4 indicated its position on January 31, 1997, in this exhibit,
5 which was submitted to the European union where they stated
6 that SCO acquired the copyrights for UNIX. Maybe they
7 didn't testify here because the firm isn't here, but you
8 know what their position is.
9 Now, they also have raised that, well, we didn't
10 get all the rights from Santa Cruz Operation when that was
11 sold to Caldera. But the stipulated facts, the very first
12 thing, ladies and gentlemen, that you heard at the beginning
13 of the trial said that we have acquired all of the assets
14 that Santa Cruz acquired from Novell. That is a non-issue.
15 In fact, if you look at the document, it specifically
16 assigns all of the copyrights and it says the assigner has
17 the full power and authority and all rights necessary to
18 transfer those rights. This is what we call a red herring
19 issue.
20 Now, the issue on amendment number two is whether
21 the copyrights are required for the UNIX and UnixWare
22 business to protect it. You see a number of statements here
23 which indicate how strongly those are required, that it
24 would be ludicrous to operate the business without it,
25 equating it to oxygen, that the copyrights have to go with
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 58 of 65
2729
1 it. We couldn't protect our software and we would be out of
2 business.
3 In response to that they point to Mr. McBride who
4 says, yes, we can try like these licensees to sell product,
5 but be can't protect the intellectual property without the
6 copyrights. Without the intellectual property being
7 protected the products soon become meaningless, because the
8 intellectual property in our products are out there, and if
9 they are in a free product, it is very hard to compete with
10 something that is being offered for free.
11 Now, they also suggested that what we could
12 protect was this box, the Lego on top of another Lego.
13 Except you'll recall Mr. Nagle saying that the UnixWare
14 system embraces almost entirely at the time of the sale,
15 UNIX. So it would be a very slivered, small sliver they
16 went to give us of intellectual property, and yet they want
17 to maintain all of the key intellectual property that gives
18 that strength, the intellectual property which if just
19 distributed widely would undermine the products that SCO was
20 seeking to sell.
21 That is why all of these people, including their
22 C.E.O. and other individuals agree, that you have to have
23 the copyrights, and that is why they transferred to us under
24 amendment number two.
25 Now, I would like to address a few other issues
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 59 of 65
2730
1 that came up in the course of the closing. One of those was
2 a statement that there was an alleged term sheet from
3 Mattingly's garage. Now, it has been testified to, and
4 Mattingly was a Novell executive, and to be the term sheet
5 actually used before the board meeting at Novell on the 15th
6 of September to tell the executives what the summary of the
7 deal was. It didn't mention anything about retaining
8 copyrights.
9 You'll note that it was not produced for the first
10 time by Mr. Mattingly. Those two documents were produced by
11 Novell. They are SCO Exhibit 570 and SCO Exhibit 83, which
12 are also in evidence, and there is no question about these
13 being the actual term sheets. You heard Mr. Frankenberg say
14 that this was presented, and you heard Mr. Bradford admit
15 that he was not aware of any other term sheet.
16 Now, let's talk a little bit, if we might, about
17 the witnesses who testified. I don't think that anything
18 that Mr. Brennan said takes away from what we said a few
19 minutes ago, that you have to disbelieve ten different
20 witnesses, half of them are from Novell, to belive their
21 position that the intent of this deal was not to transfer
22 the copyrights.
23 Now, they have taken a lot of shots at witnesses,
24 including their own executives, and I would like to go
25 through some of them, those individuals.
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 60 of 65
2731
1 THE COURT: You have two minutes.
2 MR. SINGER: Steve Sabbath, who testified that
3 this I.B.M. declaration was not his testimony. You heard
4 Kim Madsen, and she was not equivocal, and she told you what
5 was involved. Burt Levine, here is a gentlemen, it is true,
6 he reviewed the copyright exclusion language. What did he
7 say? It was intended to apply to NetWare. It would be
8 unethical to have excluded the UnixWare copyrights.
9 Michael DeFazio did talk about the need to
10 bulletproof a royalty stream. That was done by having
11 separate equitable interest in the royalties. You have the
12 draft language of amendment number two, but Ms. Amadia when
13 she testified on cross-examination admitted under the final
14 language, the approved language, that if the copyrights are
15 required, we get those.
16 Now, you also heard about Tor Braham and all these
17 handwritten notes which are true, and that is why something
18 like this done at the last minute didn't get corrected until
19 a year later. It got fixed. That is the agreement that you
20 have to interpret here.
21 The one person they really can't take shots at is
22 Bob Frankenberg. He has no interest in SCO. You know the
23 old saying, that is where the buck stops. He came in here,
24 and I don't have to look at slides, his testimony is recent
25 enough in your minds to know where he stands, that it was
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 61 of 65
2732
1 clearly the intent to transfer these copyrights. That while
2 Mr. Bradford and Mr. Tolonen had important roles in the
3 company, they were not the individuals that he charged with
4 selling this business. Those were Mr. Thompson and
5 Mr. Chatlos and others. The deal they negotiated called for
6 the transfer of those copyrights.
7 Now, with respect to damages you have heard, I
8 think, two very credible witnesses, witnesses who if you put
9 on the scales against a witness who has been paid to testify
10 in over 200 cases, and was not a professor at Harvard, has
11 not done any surveys, only comes up with a zero number, I
12 think you'll find both Professors Botosan and Pisano very
13 persuasive and that their views are reasonable. You will
14 ultimately need to determine that.
15 I ask that you keep in mind the importance of this
16 case to SCO, given what it has had to go through for these
17 years, and to have to not have clear title to the crown
18 jewels of the business, the UNIX and UnixWare copyrights
19 that were a part of this transaction and which belonged to
20 them.
21 Again, on behalf of SCO and on behalf of my
22 colleagues and myself, thank you so very much for your
23 careful consideration.
24 Thank you.
25 THE COURT: Thank you, Mr. Singer. You can
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 62 of 65
2733
1 breathe now.
2 MR. SINGER: I didn't want to go over your
3 deadline, Your Honor.
4 THE COURT: Ladies and gentlemen, as we began this
5 trial we selected 13 of you with one of you being an
6 alternate juror. Ms. Cooper, it will be you, which means
7 that you will be excused as soon as the jury is excused in
8 just a moment. You will not be allowed to deliberate with
9 the jury. That will perhaps be of some disappointment to
10 you. That means I don't have to give the rest of this
11 speech.
12 Upon reflection, if you think to yourself that
13 perhaps you are disappointed that you did not get to help
14 make the decision, I do want you to know that your being
15 involved the last three weeks was a very, very important
16 part of what we needed here. You will be excused with our
17 gratitude, as I said, as soon as the jury is excused as a
18 group in just a minute.
19 I do want to give an instruction to you, Ms.
20 Cooper, as well as all of the jurors, although I normally
21 would have given this at the end, as to whether or not you
22 discuss this with anyone, including the attorneys in this
23 case, or the media or anyone else, after the deliberations
24 are all completed and the verdict has been rendered, I will
25 leave up to you. You may or you may not. You are not
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 63 of 65
2734
1 prohibited from doing so and that will be entirely your
2 decision.
3 With that, Ms. Malley, we need Mr. Jensen, I
4 suppose.
5 This is Ben Jensen and he is from the marshal's
6 office. He will have the responsibility to take care of you
7 during the course of these deliberations. I want you to
8 listen to the oath that he is about to take, because
9 although it is addressed to him, it will indicate to you as
10 jurors somewhat your conduct as well.
11 Mr. Jensen, if you would please come forward.
12 (WHEREUPON, an oath was administered.)
13 THE COURT: Ladies and gentlemen, you have now
14 heard all of the evidence and you have been instructed on
15 the law and you have heard the closing arguments, and you
16 will now be allowed to go back to the jury room and to begin
17 your deliberations.
18 Ms. Malley will be in shortly with a copy of the
19 jury instructions that I read to you earlier this morning,
20 as well as all of the exhibits admitted in this case.
21 Mr. Jensen, if you would please now assist the
22 injure into the jury room.
23 (WHEREUPON, the jury leaves the proceedings.)
24 THE COURT: Counsel, if you would please make
25 certain that Ms. Malley has telephone numbers to get ahold
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 64 of 65
2735
1 of you. If a note comes from the jury that has any
2 substance to it, then I will ask you to come here and I will
3 have you approve my response to it.
4 If it is something very simple, for example, if
5 they should request a dictionary, the response to that will
6 be no, and instead of making everybody come over here, I
7 will simply say, yes, we agree it ought to be no, and we
8 will handle that by telephone. If there is anything more
9 than that, then I will ask one or more of you from each side
10 to be here to approve whatever response the Court may give.
11 I do want to say a couple of last things to you
12 all. I want to thank you on behalf of Mr. Copeland, because
13 you had not met your apparent quota of at least one motion
14 per day, he would have spent this last week as an aimless
15 wasteful soul wandering the streets of Salt Lake.
16 I also think that on behalf of the Court I have a
17 special expression of gratitude to Mr. Calvin and Mr. Lee,
18 because they have played an extraordinary role on behalf of
19 both sides as well as the Court's interest in this case, and
20 with the way they have applied the technology that federal
21 taxpayer dollars have recently paid to upgrade this
22 courtroom. They have really made this system almost seem
23 worthwhile.
24 I want to say one other thing, and that is that if
25 any of you have loud teenagers and you want to know where to
Case 2:04-cv-00139-TS Document 869-1 Filed 04/19/10 Page 65 of 65
2736
1 get this white noise, you can talk with Ms. Malley.
2 One last thing, counsel. I am very sincere when I
3 say this. In the ten years I have been a judge I have never
4 had a collection of such fine attorneys in this courtroom at
5 one time. I want to thank you not only for your competence
6 but in particular for your professionalism. The way that
7 you have treated one another and the way that you have dealt
8 with court personnel and the court has been genuinely
9 appreciated in a case that has been hotly contested and the
10 stakes are very high, and you have acquited yourselves
11 extraordinarily well and you do have the sincere gratitude
12 of this Court. I wanted to make sure that you heard that.
13 We'll be in recess until we receive either a
14 verdict or a note.
15 (Recess)
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