No Verdict Today, the Final Day, in SCO v. Novell - Deliberations Begin Again Tuesday - Updated

MSS2
Groklaw

March 26 2010

Sorry this took me so long. Rather than come straight home, I hung around the courthouse until after 4:00, chatting and hoping that there would be a verdict. When we got the word that there wouldn't be, I headed home and started typing.

The morning started with a conference. They agreed on how to handle presentation of materials in the closing arguments. (I believe that the issue here was that SCO wanted to show videos, and Novell argued against. They agreed not to.)

SCO filed a motion on three issues (see two articles ago). Stewart said he was going to agree with SCO on all three points. First, the demonstratives. Second, Novell can't argue that the APA only meant Unix, not UnixWare. Novell said that they would argue that they owned the pre-APA code and SCO owned everything SCO had written post-APA. Stewart said that would be all right. Third, the motion said that Novell couldn't argue anything contrary to the law (perhaps this meant contrary to the law of the case). Novell could not argue that the copyrights did not transfer based on the lack of a 204A writing. Novell said that they would argue based on the contract.

There was some discussion about a footnote in the 10th Circuit ruling. After looking at the wording, Stewart said that Novell could argue based on intent. Judge Stewart said that Novell's slander claim against SCO had been dismissed. Both sides' proposals for findings of fact and conclusions of law are due on April 16th.

Then the jury came in. The jury will get a copy of the jury instructions in the jury room. Judge Stewart read them to the jury.

The first few points were about following the law. If the jury doesn't follow the law, they will be violating their oath as jurors.

Statements by counsel, he told them, are not evidence.

Novell's slander of title claim is gone. The jurors should not worry any further about it.

SCO has the burden of proof, he explained. They need to show that the preponderance of evidence is in their favor. This is not the same as showing that they have the higher number of witnesses. This is based on probabilities, not certainty.

For constitutional malice, SCO has a higher burden of proof. The standard is clear and convincing evidence, meaning that there is no substantial doubt.

The jurors are allowed to use notes, but should not use them as anything but a personal memory aid.

Evidence can be either direct (testimony or exhibit) or indirect (chain of reasoning). Both are acceptable.

The charts and illustrations presented to the jury are illustrations, not evidence.

The prior rulings in the case that the jurors heard about were without benefit of the evidence presented to the jury and were overturned unanimously. They are relevant only to the determination of special damages.

It was mentioned that SCO was bankrupt. That's not relevant to the case. They heard about the 2008 trial. That was about other matters than what is before the jury.

Finding that Novell committed slander of title requires four elements. First, it requires that Novell made statements disparaging SCO's title. They must have been made to someone other than SCO. They must convey the idea of a statement of fact. Don't consider words or even sentences in isolation. Second, slander requires falsity, either a statement that is directly untrue or which conveys a false impression. This means that the jury must determine who owns the copyrights.

The APA and the amendments must be taken together to make this determination. The amendments supercede parts of the APA. The jury must determine what the intent was at the time of the contract. They may consider extrinsic evidence such as testimony of intent and the course of conduct of the parties. (I think this means that SCO lost a small battle here; if I recall correctly, they wanted Stewart to say "should" instead of "may".)

To be valid, the transfer of copyrights must be in writing.

Third, slander requires constitutional malice. This means either knowledge that the statement was false, or reckless disregard of the truth. This means a high degree of awareness that it was probably false. It takes more than recklessness or spite.

Finally, slander requires that the statements caused special damages such as lost sales. The slander has to be a substantial factor in loss of specific purchases, or else it has to be widely disseminated. A decline in stock price is not special damages.

If ill will was involved, punitive damages may be awarded.

Regular damages must be real damage, not speculation.

The issues related to 4.16 are for the court, not for the jury, but may be used to help the jury interpret the APA.

And then came an instruction that I thought was rather odd: The jury is not to write on the copy of the instructions in the jury room.

Finally, Stewart said that the jury needed to reach a unanimous verdict. They need to come to conclusions together without doing violence to each other's opinions.

SCO's closing argument, by Stuart Singer:

This is an important case. It's important to SCO. It's important to individuals who work at SCO.

There are two questions for the jury. Did the copyrights go to SCO? And was there slander? And if so, what are the damages?

He talked about consistency. I think his point was that you had to build a consistent picture out of all the evidence presented, but he used it to point out a couple of inconsistencies, as he saw it, in Novell's testimony. Some said that the waiver in the IBM case was without input from IBM, but LaSala said Marriott asked for it. Also, Stone said that he was asked to leave Novell, but Messman said that he was not.

Did the amended APA transfer the copyrights? The amendment replaced language that was inconsistent with the intent. The plain language of the APA with Amendment 2 says that the copyrights transferred.

Novell admits that Amendment 2 transfers the copyrights. In the June 6 press release, they said that it "appears to". And Amadia's testimony said that whatever SCO needed to exercise their rights transferred.

And the copyrights were needed. He quoted from Frankenberg, Jim Wilk, Sabbath, and Broderick. It all makes sense with Amendment 2.

There was too much money for it not to be a sale of the whole business (he included the royalties here).

The license back makes no sense without the purchase of the copyrights.

This all makes sense in light of the witness testimony. He cited Michaels, Sabbath, Madsen, Mohan.. (He specifically noted that Madsen has no interest in the outcome of the case.) And Novell's people agreed, too: Frankenberg, Duff Thompson, Ed Chatlos, and Ty Mattingly. He noted that Frankenberg had no interest in the outcome. You have to believe that all ten of their witnesses are mistaken or lying in order to believe Novell.

Tor Braham was only involved in the last two weeks of the negotiation. He ignored the intent of the negotiators in a "forced march" to get the deal done.

No pushback from SCO at the time of the sale means that the copyright transfer was missed, not that it was accepted.

At the Novell board meeting, the copyrights were not mentioned in the overview, but only in the resolution. Messman says he remembers, but then he's the one who approved the slander.

This was done by mistake, or by overzealous lawyers. It was fixed by Amendment 2.

That this was the intent is supported by the press release. It's supported by the summary reported to the federal government. IBM recognized that SCO had the copyrights.

What was the course of performance of the parties? Broderick had letters sent to the customers. Nagle had the code changed to reflect the copyright change.

So, yes, the copyrights transferred.

Did Novell slander SCO? If SCO owns the copyrights, there's not much question. After June 6, Novell's statements were made with actual knowledge that they were false.

Novell's May 28 statement was reckless - Novell already had found Amendment 2, though unsigned. On June 5, they got a signed copy. On June 6, they made a clear statement of SCO's ownership. But on March 14 (next year), Stone said "we still own Unix".

Chatlos and Levine said that it would have been unethical to do the deal without transferring the copyrights. So Novell's allegations must have been knowingly false.

Special damages are the damages to SCOsource. They have claims that their source code was found in Linux, but that's not an issue before the jury.

The companies getting SCOsource licenses were sophisticated companies. He quotes Laura Didio and two others. (I'm a bit unclear on what point he was trying to make here.)

Punitive damages are based on malice, on intent to injure. Two slanders on the same day as SCO's earning announcements. That's intent to injure. (There was lots of anger and outrage in his voice here.)

O'Gara's testimony about Stone shows intent to injure. Messman said that Novell's intent was to publicise their statement as widely as possible.

Novell waived SCO's rights against IBM at the same time as IBM's investment in Novell.

(Reporter's note: My overall impression of Singer's statement is that he had lots of logical gaps where his facts didn't add up to his conclusions, papered over with rhetoric.)

Then Brent Hatch took over. He was wearing a maroon (or burgundy?) bow tie.

SCOsource had real sales, in the tens of millions of dollars. HP was looking at a contract worth $30 million. Then Novell inserted themselves and said that they would re-assert copyright ownership. The deal went away. Google has over 500,000 servers. That would have been a large deal. Novell was a substantial factor in why the deal fell apart. A deal with Dell died after Novell's December 22nd announcement.

He quoted testimony from SCO's salespeople. Gasparro had $50-60 million of opportunities, but they dried up after Novell's claims. Novell was a major factor why. Langer had more than $3 million worth of deals in the pipeline, but they dried up after Novell made their claims. There was a third salesman, named Peck or Pettit, that he talked about.

He talked about the standard specified in the jury instructions to show that it lined up with the evidence he was reviewing.

Musika said that people disliked SCO. It's just a small Utah company standing up for its rights. But it's hated.

Botosan and Pisano took all this into account. They came up with 19 to 45%. Pisano's hard, scientific data took into account all the factors that Musika used to say that the figure was zero.

The special damages are the vendor licenses that SCO didn't sell. The damage figures are conservative.

Musika didn't do any calculations; he just highlighted the risks. He didn't use a "but for" analysis, even though he admitted that it was the correct method.

Punitive damages are at the discretion of the jury. Hatch points out that Novell is worth about $1 billion. The jury is allowed to consider that in determining the amount of punitive damages.

Hatch closes by saying that Novell knew with certainty that it didn't own the copyrights by the time of their second anouncement (December 22).

There was a break after SCO's closing argument. After that, there was a sidebar discussion. That white noise really is pretty annoying, at least at the volume that they had it at.

Judge Stewart cautioned the spectators that audible response to closing arguments is inappropriate, and that he would have spectators removed if necessary.

Then Brennan gave Novell's closing argument:

The SCOsource license was to extract payment from Linux users. This case is of great significance to people beyond Novell. It's a gateway to other litigation. It's a threat hanging over all Linux users.

A big issue here is the reliability of contracts. Changes based on what people hoped or wished threatens the reliability of contracts. Can you really rely on a written contract?

It's also about the free speech right to speak freely on issues of public interest without fear of reprisal or monumental damage claims.

The first question before the jury is, did the copyrights transfer? No, they didn't. How do we know?

We know by intent. It's in the board minutes. They match the contract. Sections 1.1a and 1.1b are clear.

There was three months of review to the APA - it wasn't a case of the wool being pulled over anyone's eyes. Amendment 1 fixed the issues that were found in those three months. It made no changes to sections 1.1a or 1.1b.

The APA does not transfer anything, the bill of sale does. What does it say? It says see the APA.

Novell bought the whole business from AT&T, in a merger. It sold some of it to Santa Cruz in an APA. They sold what they got to Caldera, which became SCO. Santa Cruz said that they could not establish chain of title to the IP. This was not unknown to SCO.

McBride came in to SCO in 2002. In January 2003, he decided that maybe they could turn on their own customers. Mike Anderer told him that far less transferred than McBride thought.

SCO relies on the wrong documents. The term sheet is not the final agreement, just a summary of the current idea of the deal. The press release was not a joint statement - it did not have the Novell logo or something else (maybe contact information).

The technology license agreement licensed back the assets that transferred. What were they? Not the copyrights - see section 1.1b.

SCO's witnesses were not involved in the APA. They were uninformed. But Tolonen said that the copyrights were purposely excluded. And note that Frankenberg said that he relied on Tolonen. Bradford gave instructions to keep the copyrights. Braham crafted the document to protect Novell's interest. His client was the Novell board of directors. Amadia drafted Amendment 2 and knew what the intent was. Brennan emphasised that none of these witnesses had a financial interest in the outcome of the case.

Compare that with SCO's witnesses. Thompson had "checked out" and had an interest in the outcome. Michaels was entertaining, but what did he say? He didn't remember what happened, and he never read the APA. Mattingly admitted that he was not involved in the details, and he has no memory of the board of directors meeting. What did Sabbath actually say? That under the APA, Novell retained the IP, that under Amendment 2 Novell retained the SysV IP (he prepared Amendment 2 from the Santa Cruz side). Frankenberg admitted that the APA was consistent with the board of director minutes. Chatlos' wife works for SCO, and he wasn't at the board of directors meeting. Madsen has no specific memory of Amendment 2. McBride has lots of money on the line. He also had no involvment in the APA or Amendment 2. Tibbitts has an interest in the case, and was not involved with the APA or Amendment 2.

In summary, SCO's witnesses weren't there, don't remember, weren't involved, and have a lot of money on the line in the case.

Why didn't copyrights transfer?

DeFazio was the general manager of Unix at Novell. He said that no copyrights transferred, and that was deliberate. It was bullet-proofing their asset stream against a SCO bankruptcy, and also against Microsoft.

Was the whole business sold? Novell bought it for $300 million. They sold what they sold to SCO for $50 million. SCO bought the right to develop UnixWare.

Frankenberg said that it was possible that the exclusion was deliberate, and that it was what the board approved.

In the case, we never heard from the SCO lawyers. SCO wasn't willing to call the people who negotiated the APA from the Santa Cruz side. And SCO has the burden of proof.

Turning to Amendment 2, Sabbath asked Amadia for language that said that the copyrights transferred. She replaced his proposed language with "copyrights required for".

Tolonen did not intend for Amendment 2 to transfer the copyrights. It was suggested by SCO and rejected by Novell. He didn't go back to the board of directors, and he would have if Amendment 2 transferred copyrights, because that would have significantly altered the deal.

Amadia negotiated Amendment 2. She didn't have the authority to transfer the copyrights.

Sabbath was asked who negotiated Amendment 2 from the SCO side. He said he didn't know.

Were copyrights required? McBride said that he could run the Unix business without the copyrights, like HP, IBM, and all the others did. All those guys built flavors of Unix without the copyrights. That business was to create derivatives; they didn't need the copyrights for that.

But that business wasn't the business that McBride tried to get into in 2003. That was a new and different business. McBride said SCO couldn't run the licensing (SCOsource) part without the copyrights.

When SCO sent the SCOsource "threat" letters, that was a violation of section 4.16b of the APA.

How could a software company operate without the copyrights? Within the last year, SCO tried to do so. They tried to sell the business but keep the Unix copyrights.

Messman said that SCO didn't need the copyrights in 2003.

Novell does not dispute that SCO has rights to the code that it wrote after the APA.

People had time to look at the APA. It did not sneak in at the last minute. Levine (a Santa Cruz guy) wrote the 1.1b exclusion language. Mattingly's draft had the exclusion language.

How did people behave? Copyright changes to source code were consistent with owning the copyright to newly-written code. Nagle admitted that the copyright on the box means nothing. The letters sent don't say that the copyrights transferred, and the letters were simplifications of the transaction.

(I note that Brennan spent most of his time on copyright transfer. It seemed to me that he spent a larger fraction of his time there than SCO did.)

Then he turned to slander. He read the First Amendment. It's a fundamental protection for all of us. The heavier burden of proof for constitutional malice is to protect our constitutional rights.

What was going on in the marketplace at this time? SCO was in the business of licensing Linux. This was the type of customer that SCO turned on.

Santa Cruz - the ones Novell originally sold to - called SCOsource a protection racket.

SCO came to Novell looking to "clarify" that SCO owned the copyrights. Novell rejected the paper that SCO wanted them to sign.

SCO made very public claims, including to Novell (Novell received the "threat" letter). The public response was very hostile.

Novell had to respond. What was Novell thinking at this time? They had the APA. McBride admitted that the APA could be read to conclude that no copyrights transferred.

O'Gara is the only witness as to malice. And she wanted "war pay". SCO wanted her to "send a jab PJ's way". She's not objective. She also doesn't know what Stone said specifically.

Brennan lays out the timeline:

- May 12: The "threat" letter.
- May 14: SCO preannounces earnings.
- May 28: Novell's public response to SCO. At this point, SCO's earnings have been known for two weeks.
- June 5: SCO sends the signed copy of Amendment 2 to Novell. (During Singer's closing argument, he asked, Why Novell didn't ask Wilson Sonsini if they had a copy? Why didn't they ask Frankenberg? Brennan responds now: Wilson Sonsini didn't negotiate Amendment 2. And Frankenberg was gone before it happened.)
- June 6: Novell says Amendment 2 "appears to" give copyrights to SCO. They had to respond to public pressure from SCO. They sent a private letter to SCO saying they still didn't agree that copyrights transferred.
- June 23: McBride publicly claims that Novell doesn't claim copyright ownership.
- August 4: Novell sends another private letter disputing that copyrights transferred.
- August 18: McBride publicly says that it took SCO four days to "press the eject button" on Novell's claim to own the copyrights.
- October 14: Novell registers the copyrights.
- November 14: SCO CFO Bench says publicly "once we had the copyright issue resolved" (not meaning that once it was settled and now it's not, but that it has been settled since some point in the past).
- December 22: Novell publicly claims copyright ownership, and releases the correspondence between Novell and SCO.

In terms of damages, what did the market do in reaction to all this in the real world? Infringement wasn't proven. There were indemnification programs from Novell and RedHat. The GPL gave protection. Linux would design around the issue. And people were unwilling to pay $699.

As evidence from the real world, at a minimum, the 2004 judicial ruling cast doubt on SCO's claims. The 2007 summary judgment said that no copyrights transferred. It was reversed. But at the time, consumers had reason not to buy.

Exhibit D-20 says that HP didn't buy for many reasons, none of which are Novell.

The copyrights didn't transfer. Look at the contract. Look at the agreements.

But if you have to talk over the first question, whether copyrights transferred, if it takes some work to reach that decision, then slander fails. The jury is composed of reasonable people. If you have questions about whether the copyrights transferred, then it's not clear enough for slander of title.

That was the end of Brennan's closing argument. There was a pause to stretch, then SCO got the last word.

SCO got the final word. It was given by Singer, who had 12 minutes to work with:

Amendment 2 is part of the contract. It fixed the agreement.

"Except for required". Novell admitted they transferred on June 6. And Amadia admitted that if they were required, they transferred.

Were they required? Yes. SCO couldn't protect their IP without them.

SCOsource is gone. It can't be resurrected.

Slander is reckless, deliberate, knowing.

The court decisions were reversed.

It was only an implied license.

The law firm that negotiated SCO's end of the APA no longer exists, and that's why SCO can't call them as witnesses.

Santa Cruz transferred to Caldera everything they got from Novell.

The term sheet that Mattingly found was the real, final term sheet.

You'd have to disbelieve ten witnesses to buy Novell's position.

Amadia said that if the copyrights were required, they transferred.

Frankenberg is the one witness that Novell can't impeach.

SCO presented two credible witnesses as to damages.

Consider what SCO has had to go through for seven years, not having clear title to their crown jewels.

Yes, he really hit all of that in 12 minutes (he went half a minute over by my watch). When he finished, Stewart told him, "You can breathe now."

One juror was dismissed as the alternate. Stewart asked her if she was disappointed. She shook her head, and many laughed.

A marshall was sworn in to protect the jury (specifically to protect their sequestering). Then the jury was dismissed.

Judge Stewart thanked the attorneys for supplying him with at least one motion a day. Without them, Copeland (his assistant?) would have been "an aimless wastrel somewhere" for the last three weeks.

Then he really thanked the attorneys. He said that they were the finest attorneys that he's seen in ten years on the bench. He specifically mentioned that the opposing sides had worked well with each other.

Final thoughts, comments, and handicapping:

I thought Singer's tapdancing was more obvious in his reply close. For many of his points, I thought that the rebuttal was obvious. I hope it is to the jury.

Singer is incredibly effective at tapdancing, though. I'd hate to see him when he had a case to work with.

I met several other Groklaw folks there. I met cpeterson. I sat next to Losat. Met another guy who was in town on vacation and, finding himself in Salt Lake on the day of the closing arguments, talked his wife into letting him attend.

And I finally met Chris, the man, the myth, the legend, the reporter with the iron bottom and the lightening-fast pen. Chris, thanks immensely for all the reports on this trial.

Handicapping: I don't think there's any way that a twelve-person jury is going to unanimously agree to slander of title. I think that's dead. The copyright transfer is harder. I could see the jury hanging on that one. If they don't hang, then I think the odds favor Novell. But I won't give any odds on whether they'll hang.

06:47 PM EDT

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