Week 3, Day 12 in SCO v. Novell

Week 3, Day 12 in SCO v. Novell - Tolonen, Amadia

Chris Brown
Groklaw

March 24 2010

3/23/10 Part 1 - Initial Matters and Testimony of James Tolonen

Novell's attorney Michael Jacobs tells Judge Ted Stewart that in the wake of the court's ruling on Troy Keller, the parties have taken his deposition. Subsequently, SCO stated they will not call him in their "case in chief" but reserve to do so for their rebuttal case.

SCO's attorney Stuart Singer asks about summation time. The sides asked for one and a half hours each. Judge Stewart recommends one and a quarter. He said jury instructions will take 45 minutes.

Novell's attorney Sterling Brennan indicated the two sides have worked out a mechanism for one and a half hours each. Judge Stewart asked what it was. I missed the response, but Judge Stewart laughed and asked, Your "mechanism" is to go until 12:30?

There was some discussion of time where Judge Stewart was indicating that the longer they go, they may lose the jury's attention and there will be diminishing returns. He said he'll leave it to the parties to decide but kept his hour and a quarter recommendation. The time includes each party's summation and rebuttal in the overall time.

He expects the sides to complete their examinations by 1:30pm on Thursday and to start summation Friday morning at 8:30am.

Judge Stewart then asked for the jury to be brought in. There was a delay, and his clerk returned to report that one of the jurors was not here yet. It was hypothesized that the juror may be on the other side of an accident on the southern I-15. (Salt Lake's commute is primarily North-South with I-15 being the main artery).

We all sat for a few minutes, and then Judge Stewart told the parties that he doesn't want to sit there and make them nervous, so he will retire until the juror arrives.

After perhaps 10 minutes total, we were told the jury was ready, and they were brought in.

Brennan calls Mr. James Tolonen to the stand and asks him if he worked for Novell.

Tolonen: Yes, 1989 to 1998 as CFO and served in the "Office of the President". He described it as a small senior executive team that met regularly to discuss strategy with Ray Noorda.

When asked, Mr. Tolonen described his history as having received an engineering degree, an MBA, and CPA. He listed (without naming names) other businesses where he'd worked and his position. He says he met Ray Noorda in a small company where Mr. Noorda was brought in as CEO.

Mr. Brennan asked, Who is Ray Noorda?

Mr. Tolonen reported he was the CEO of Novell who was brought in at the founding of Novell. Mr. Tolonen said he directly reported to Mr. Noorda and described him as his mentor.

Mr. Tolonen describing his work since 1998 said he's been the president of a small company, then CFO of Business Objects and that he retired about a year ago when Business Objects was bought by SAP.

Asked what the duties and responsibilities of a CFO are, he gave a long list.

When asked, he said he came to Novell via Excelan. He was asked about his duties as a CFO of Novell and he said he was responsible for, among other things, the accounting system, external SEC reporting, internal reporting, etc. He said he also worked on acquisitions, of which there have been 15 or more while he was at Novell.

He's asked if he's familiar with Unix?

Tolonen: Yes, that though he's not a programmer, he's familiar with it. He describes Unix, including that it is a broad stable operating system developed by AT&T's Bell Labs, later Unix System Laboratories.

Mr. Brennan asks if it's true that Novell acquired USL?

Tolonen: Yes, around 1992-93.

When asked, he describes NetWare. He's then asked about UnixWare. Was it developed by Novell? Yes.

Were you involved in the USL acquisition? Yes. He described the merger and acquisition process as being like a marriage (dating, wedding, ...)

He is asked to describe the state of the industry (around the time of the USL acquisition). He does so.

Mr. Brennan asks, Did Novell acquire all or part of USL?

Tolonen: All.

Q: How much did Novell pay?

Tolonen: $300 million. It included copyrights, all assets, liabilities, etc.

Q: Were you involved in the sale to Santa Cruz?

Tolonen: Yes.

Q: What was the difference?

Mr. Tolonen said that in an acquisition, you acquire the entire operation, people, property, etc. as opposed to sale of only specific parts.

Mr. Brennan asks, Was there a point where Novell contemplated selling all?

Tolonen: Yes.

Brennan: Ultimately, did Novell sell all to Santa Cruz?

Tolonen: No, a subset.

Q: Why?

Mr. Tolonen replies that there were two or three reasons. Santa Cruz had a product in the Unix PC marketplace, Xenix; it was a good company to take a product into the small computer space, but they had other customers, larger, HP, IBM, etc. Also, they had Tuxedo, and they were selling the rights to continue developing into the microcomputer PC market space. He said Novell would also be receiving royalties on the UnixWare business (based on targets).

He reports he is one of about three people who worked on the sale. He names Michael DeFasio, David Bradford, and Tor Braham, with the law firm Wilson Sonsini. When asked, he reports that Larry Sonsini was on Novell's board of directors. Relation to Wilson Sonsini? Yes. He was identified as being one of the founders and a name partner in Wilson Sonsini. He said that Tor Braham is a lawyer with Sonsini. He identified Wilson Sonsini as being Novell's primary outside counsel.

Mr. Brennan asks, What were your impressions of Tor Braham?

Tolonen: He liked him a lot. He's a really smart guy.

Q: Have you reviewed drafts of the agreements?

Tolonen: Yes. He was the business executive reviewer of virtually every draft. Mr. Bradford was lead in developing drafts with Mr. Braham.

Q: What did Novell get for its sale of specific assets? Mr. Tolonen says they received mostly stock, about a seventeen percent ownership, worth approximately $50 million.

Tolonen testified it was Novell's intent to retain the copyrights and that it is his understanding that the Board of Directors passed a resolution to do so. He testified that the draft Amendment 2 language from SCO's Steve Sabath was unacceptable, since Santa Cruz did not obtain the copyrights. He said Amendment 2 was a "cleanup" amendment not changing the APA but instead to provide clarification especially regarding third parties. He testified he had no financial interest in the outcome of the litigation.

Cross Examination:

On cross examination SCO's Mr. Hatch attempted to show that Mr. Tolonen wasn't as involved in the APA and Amendment 2 as he indicated. He did so by using a couple of emails regarding the APA where Mr. Tolonen was not copied or mentioned. He also pointed out that Mr. Tolonen was not at the one meeting daily with Santa Cruz for the three months of APA negotiations, but instead Mr. Chatlos went for face-to-face meetings. Mr. Tolonen said that he was at the more executive level.

Mr. Hatch also said that Mr. Frankenberg and Ed Chatlos both said he was not involved in the negotiations. Mr. Tolonen opined that it might be a matter of definition, that there's the negotiation team which he was not on, but he was rather the executive signature authority overseeing the transaction.

Mr. Hatch also pulled out various phrases from the APA "all of seller's right, title, and interest", "all rights and ownership", & etc.

Redirect:

On redirect Mr. Brennan confirmed that the Board of Directors minutes show they approved a resolution retaining copyrights. Mr. Brennan also showed documents showing Mr. Tolonen was involved in discussion of APA, including with the Board of Directors.

In regard to the letter from Mr. Bradford (which did not have Tolonen mentioned), it was pointed out this was in regard to Mr. Bradford's legal review of the document stating it was an accurate reflection of the business' intent and approved it for signature.

ReCross:

Mr. Hatch on re-cross pointed to a Novell 10Q Mr. Tolonen signed that said Novell had sold its Unix and Unixware line to Santa Cruz.

In my opinion Mr. Tolonen sounded confident, knowledgeable, and credible.

Allison Amadia:

Novell's Mr. Brennan then called Allison Amadia (nee Lisbon). She has a law degree and is currently an independent legal consultant specializing in technology licensing and lectures [ http://www.scu.edu/bulletin/law/lawlect.cfm ] at the University of Santa Clara.

She worked for Novell from 1995 to 1997 as in-house counsel in San Jose. She said she became familiar with the APA through working on the agreement regarding IBM, Novell, and Santa Cruz known as Amendment X. She said this disagreement is what led to Amendment 2.

She testified that she was the lead negotiator and drafts-person for Amendment 2 and that it would be fair to say she wrote it.

She described how Steve Sabbath had sent his draft version of Amendment 2 and that Novell had rejected its language since Santa Cruz had not obtained the copyrights. She recounted that she'd contacted Tor Braham who told her the copyright exclusion was intentional and to not change it.

Ms. Amadia also testified she has no financial intrest in the outcome of the trial.

She was exceptionally credible. If parol evidence is what counts, her testimony was perfect for Novell with regard to Amendment 2.

SCO's Mr. Hatch cross-examined and tried to undermine her expertise in licensing through the wording of the Amendment 2 and also attempted to elicit that the APA, if it conveyed a license, would have been an implied license (she averred it was an explicit grant of rights, just not using the word "license"). Mr. Hatch was trying to show that had it been an implied license, Santa Cruz would have been unable to protect itself by making infringement claims against others.

There were lots of questioning on meanings of various language and phrases used in both the APA and Amendment 2. Mr. Hatch referred to the language of Amendment 2 where it might be read that should Santa Cruz "require" a copyright, that a process would be triggered to obtain it. Ms. Amadia testified that was never her intent in drafting that language. On examination about why Amendment 2 can be read as ambiguous, she said that in a perfect world she would have drafted it from "whole cloth," but that in negotiations some ambiguity must be accepted to "get the deal done." She said that knowing Steve Sabbath (whom she'd described earlier as a bit of a "screamer"), he wouldn't have accepted a complete change of his language (from his draft).

Mr. Brennan, on redirect, asked why the word "license" was not used in Amendment 2. She'd replied that it was based on the framing of the APA. She'd reported that Tor Braham had explained to her that the original deal started as an APA and morphed a bit since Santa Cruz didn't have enough money. That it started as a full asset purchase and was then modified since it didn't work out that way.

Mr. Brennan says he has no further questions. Judge Stewart recesses for the day. The jury departs.

Judge Stewart reminds counsel that objections to jury instructions are due by 8:30am, then asked about the time. Novell's Mr. Brennan says that both parties need to sit down and do some calculations.

Mr. Brennen asks Judge Stewart, If it looks like SCO has more time, uh, hypothetically, if SCO has more time, on the last day, they'd be out of time? Judge Stewart smiles and responds, I think they've been warned.

Court was recessed.

12:27 PM EDT