Week 2, Day 7 of SCO v. Novell Trial - More McBride and Botosan Opens a Door
- Updated
Chris Brown
Groklaw
March 16 2010
Part 1 - The "Botosan" Issues
The entire day was used to (nearly) finish the testimony of Darl McBride on direct by Mr. Singer and cross-examination by Novell's Mr. Eric Acker. SCO expects perhaps a "few more minutes" to complete redirect then perhaps a half hour for Novell's "re-cross." This will occur tomorrow morning.
As yesterday, Mr. McBride looked well-prepared and directed many of his answers to Mr. Singer's questions directly to the jury. Answers to Mr. Acker's questions were directed to Mr. Acker.
Before court began, it was heard that Novell had some issues regarding SCO's witness, Christine Botosan, they wished to discuss with the judge. The court clerk asked if they wished the judge to be alerted and start early to hear it. Novell indicated they did and Judge Stewart opened court at 08:25.
Novell's Sterling Brennan told Judge Stewart that an issue has come up and Novell, not wanting there to be any evidentiary surprises, wanted to tell the judge about it. He said SCO will be calling Dr. Botosan to testify. Her analysis runs through 2007. He discusses various events in the case and SCO's history that had an impact on SCO's stock history. He specifically mentions various individual rulings by Judge Kimball and the market reaction to them. Mr. Brennan opined that if SCO presents her testimony, SCO will be opening the door to be cross-examined on these events.
SCO's Mr. Hatch said that this is the first time they've heard this. He said the only period that Ms. Botosan will be testifying about is 2003.
Mr. Brennan asked, Why cut off her causation analysis at the end of 2003? There were significant events on January 20, 2004 when this suit was filed. Judge Kimball's 2004 ruling had a significant effect on the market.
Judge Stewart said he believes that it is within the realm of Novell's cross-examination and will allow it. If this leads to mention of Judge Kimball's ruling he will be required to indicate to the jury that the ruling was overturned.
Pretty short "Part 1". Part 2 will cover the remainder of Darl's direct examination by Mr. Singer.
Part 2 - Direct Examination of Darl McBride by Stuart Singer, cont'd
In a number of cases on exhibits Mr. McBride is asked to read sections of exhibits aloud. Generally I only wrote down enough information sufficient that we might be able to identify the document later rather than trying to transcribe his reading of the passages. I apologize for any inconvenience.
Darl McBride took the stand and then the jury was brought back in.
SCO's Stuart Singer showed SCO exhibit 1, Amendment 2 to the APA, and asked: Yesterday you stated you found some comfort in reading Amendment 2?
McBride: Yes, this effectively replaced the language in the APA saying we had received the copyrights to Unix and Unixware.
Q: Are you still CEO?
McBride: No.
Q: When did you lose your job?
McBride: Last year.
Q: Do you own any shares?
McBride: Yes, 26,000 shares and significant options.
Q: When you were brought on board what products did SCO have?
McBride: They were Unix and OpenServer. They were also trying to dabble in selling Linux.
(In several points later, I believe Darl uses the phrase 'SCO Unix' in situations where both SCO OpenServer and Unixware are being referred to.)
How were SCO's Unix products used? Darl describes various customer usages such as how when people place their orders at about 10,000 McDonald's stores it goes through a SCO server, that the green screen you can see behind the counter with the orders on it is SCO's; that an F-16 aircraft cannot launch without getting a key from a SCO Unix server, etc.
Mr. Singer asks, What was SCO's financial shape in 2002?
McBride: Bad shape. I was brought in to turn it around. Revenue had dropped significantly.
Q: Was money spent on research and development?
McBride: Yes, tens of millions of dollars spent on R&D.
Mr. Singer introduces exhibit Y10, a letter from Darl to Caldera shareholders in August 2002. He described it as an optimistic letter describing what he's found in his two months there and provides a roadmap for SCO.
Mr. Singer highlighted the bullet points and Darl explained them. Bullet 1) Ownership of Unix rights. Mr. Singer asked, Was ownership of Unix copyrights important to SCO's business? Yes, they are required to enforce or protect their rights. It's like the Beatles trying to protect their music. They can't do it without the copyrights.
Bullet 3) is the resellers. He mentions an example of a local Utah small business, Wasatch Marine, who developed their business system running on SCO Unix. He said SCO's 300 people cannot focus on supporting every little small business with their needs, that this is where a local vendor comes in. He said that SCO has value in their extensive reseller channels.
Bullet 4) The company has a market capitalization of $10 million where their competitors, like Red Hat and others, have market caps of $100 million or more. He said that the company has no debt, and has loss quarter by quarter, though no debt, that it's an opportunity for investors.
Mr. Singer asks what percent market share did SCO have? About 43% of the market uses Unix from us (he also mentioned an 85% market share, but I missed the definition what what that market was). And sales was dropping? Yes, sales was dropping precipitously. Why? Primarily due to competition from Linux. Before this Linux was a hobbyist, garage band, operating system. Then there was a transition where Linux was being adopted by big business. Later we found that IBM had taken large amounts of our code and placed it in Linux.
How did you learn this? In 2002 when I took over, I talked to a lot of people in the company. Among those I spoke to was John Terpstra, the Linux evangelist for the company. He told me in his one-on-one interview that there was code in Linux that was being misused, but that it's an opportunity. He identified specifically the dynamic linker code. So we created a program where we could provide companies a license to use these libraries in Linux.
Mr. Singer shows exhibit Y11, a press release where this program was going to be announced. Mr. Singer asks, But this press release was never sent out? We didn't because two days before, IBM came to us and asked us not to release it and to discuss it. Why?
Novell's Eric Acker objects, hearsay. Sustained.
Mr. Singer presents another press release (missed date) where SCO is announcing the SCOsource division. Mr. McBride states that SCO formed a new group with a charter to license the Unix intellectual property. Mr. McBride reads the first paragraph, "SCO is the owner of Unix intellectual property..." Mr. Singer directs him to the third paragraph and asks who Chris Sontag was. He's [was] the VP over SCOsource division. SCO is making the SCO API binaries available to new customers. Mr. Singer asked something. Mr. McBride, In December 2002 IBM is concerned about the SCOsource division and is in disagreement with the licensing. We decided we were going to go ahead anyway.
Mr. Singer asked further about his conversation with IBM. Mr. McBride says that while he was in New York, IBM's Karen Smith called regarding our press release that had gone out, and I had a breakfast meeting with her. What did she tell you? She told me they're not worried about SCO suing them because SCO never received the copyrights from Novell in 1995. She implied she was in discussions with Novell. When I first put together the plans on this in 2002, I called in my brother Kevin McBride, one of the smartest people I know. He's not an IP lawyer, but he put me in touch with one.
Mr. Acker asks for a sidebar. More noise and discussions. I notice the jury mostly all smiling and chatting amongst each other. During the trial they seem to be paying close attention and no indication that I saw of being bored or inattentive.
Mr. Singer returns from sidebar and asks Mr. McBride, In the fall of 2002 did you look at the APA? Yes. Were you aware at this time of the Amendment 2?
McBride: No.
Q:Did you contact Novell?
McBride: Yes, Greg Jones. I was aware that the APA had a copyright exclusion clause. Greg said their Unix files were in an off-site storage office. (I believe he reported that Mr. Jones was not inclined/too lazy to go look at the files.) Mr. Jones asked that I put together a proposed letter (providing clarification on what copyrights passed to SCO).
Mr. Singer, Did Greg ever say SCO did not own copyrights?
McBride: No.
Q: Did Greg ever say Novell owned copyrights?
McBride: No.
Mr. McBride described how SCO put together a team to examine and found Linux contained material amounts of technology IBM had donated to Linux against the contract rights. SCO put IBM on notice of contract violation. SCO expanded the SCOsource licenses.
Q: Were there two types of SCOsource licenses?
McBride: Yes, the vendor license for selling large companies source code licenses to develop Unix like we had. And there was the Right to Use license for end users of Linux to run Linux to their heart's content.
Mr. Singer shows SCO exhibit 241, May 12, 2003 letter sent by Darl. This was sent to a "lot of different companies?"
McBride: Yes.
Q: Why tell companies about your rights?
McBride: To establish foundation of our rights and put these companies on notice.
Q: Was this important?
McBride: Yes.
Q: Could you tell me about the Linux development process?
McBride: Anyone around the world can contribute code to a pool of code. There is no process to tell if contributed code was free of restrictions. Linux was trying to replicate what SCO did. Many of these contributors worked for companies with access to Unix.
Q: How does this compare?
McBride: Most proprietary software is developed within a company then they go to market with it and stand behind it. And Linux? It's exactly the opposite. The end user gets a license that basically says if you have an issue, it's your problem.
Q: What was the reaction to your letter?
McBride: Some asked why? Some asked how they can become compliant.
Q: And others?
McBride: Hard-core Linux loyalists had a severely negative reaction to this.
Mr. Singer presents SCO exhibit 254, a press release dated May 28, 2003 which describes performance for the quarter ending April 30, 2003. Then exhibit 229 SCO performance end of June 2003, a financial presentation to the SCO Board of Directors on June 26, 2003. Novell's Mr. Acker objects on basis it's hearsay and also that it appears to be two documents, the second document appears to be a draft of something else. But first that it's not an official company document.
Mr. Singer counters that it was created in the normal course of business. After the back part was separated, it was admitted. The bar chart represents both past performance and projected future performance. Mr. McBride confirms that the future performance bars are noted with an F.
(From my vantage it seemed that the past performance bars declined steadily, but the future bars were higher and improved. But remember, exhibits are not "displayed" to those behind the bar, but my view was of the small monitor at the podium. The nearer monitor before Mr. Singer appears to have been adjusted in such a fashion that makes it harder to discern content.)
Mr. McBride reports it as first quarter with SCOsource revenue and forecast for the year. $27.25 million projected for 2003 and $40 million projected for 2004.
Mr. Singer presents SCO exhibit 748. It's a PowerPoint presentation overview of the company that was used by SCO with companies interested in SCOsource. Mr. Acker objects to document as hearsay. Sustained.
Mr. Singer then asks Mr. McBride, Did you create a "code room?"
McBride: Yes.
Q: Could you describe it?
McBride: It had binders containing all our license agreements. It had examples of infringing code. Companies could come in and see example infringing code.
Q: Did you register copyrights?
McBride: Yes.
Mr. Singer introduces exhibit 533. A press release announcing that SCO had registered the copyrights. Mr. Singer asks Mr. McBride to read the first paragraph aloud, he does. He describes the registration as a "jurisdictional prerequisite." He states that SCO will hold harmless companies that take a license. Paragraph 4) Hundreds of ... infringing. Kernel 2.4.x... He reports that Linux now scales to 16 and 32 processors using SMP taken from Unix.
Mr. Singer introduces exhibit 533, a SCO press release dated August 5, 2003 regarding the SCOsource license. First paragraph referenced. Mr. Singer asks, SCO had a right to use license and also had vendor licenses going on at this time?
McBride: Yes.
Q: Did you have discussions with Hewlett Packard?
McBride: Yes.
Mr. Singer shows "Carly Fiorina letter." Mr. McBride says that HP had asked for a letter from SCO, a "comfort" letter, since they had a Unix license, to reassure the market. Letter states that HP has made an admirable effort to comply. Did HP also enter into a release agreement? Yes, a separate discussion of a vendor license for Linux with vice president Joe Beyers. The discussion went very deep, near to conclusion.
Mr. Singer shows exhibit T19. Mr. McBride describes it as a draft agreement put together by HP as a result of the discussions. It includes a covenant not to sue.
Mr. Singer: And HP to make payments to SCO for this agreement?
McBride: Yes, $5 million, plus $5 million every three months for 15 months, totalling $30 million.
Q: And this was proposed by HP?
McBride: Yes, this was proposed by HP.
Q: What happened?
McBride: HP ultimately said they could not complete the transaction as long as Novell was still saying they hold the copyrights.
Mr. Singer presents exhibit T42, described by Mr. McBride as a PowerPoint used to discuss SCOsource with customers. That it was used by salesmen. Mr. Acker objects, asying this is a classic hearsay document. Mr. Singer, This is what was said to customers. Judge Stewart asks if this is part of business record? Yes. Novell asserts hearsay. Judge Stewart states that out of an abundance of caution he's not going to admit it.
Mr. Singer presents exhibit 517, a press release by Novell dated December 22, 2003. It's identified as being on the same day of SCO's earnings announcement, where Novell asserts ownership of Unix.
Mr. Singer presents exhibit 824, SCO's earnings press release also dated December 22, 2003. He asks Mr. McBride to read the first paragraph out loud. "SCO, owner of Unix... announce earnings of..." He asks him to read the 2nd paragraph aloud, SCOsource license revenue. He asks, Were there business opportunities you pursued after this?
McBride: Yes.
Q: Was Google one of these?
McBride: Yes.
Q: Was Google attractive as a licensee?
McBride: Yes, Very.
Q: Did you have a phone conversation with Google where Google expressed interest?
McBride: Yes.
Objection by Mr. Acker. Objection to line of questioning eliciting responses of people who are not here to testify. Mr. Singer requests to approach with cases to support his ability to question. Judge Stewart discusses the prospect briefly then calls a 10-minute break to allow Mr. Singer to put them together. The jury departs.
After the break, but before the jury returns, Novell's Mr. Acker announces that he's learned something. That SCO can use hearsay of customers, and if we don't object we can too. Mr. Singer states that he's found some 3rd and 4th circuit cases to the effect but not 10th circuit. Judge Stewart says they are both wrong and that in his research he found a 10th circuit case to say the witness may say they were going to take a license, and then that they chose not to, but cannot say why. The case is a criminal one, but he believes it applies. There is some brief discussion of citations and decide to go with the 10th circuit case. Mr. Acker then motions to strike Darl's testimony regarding same but Judge Stewart says it's too late. That Mr. Acker didn't object at the time and that it would be hard for the jury to remember what's being stricken (struck?). But to go from this point forward. The jury is brought back in.
Mr. Singer continues questioning, and Darl McBride says that Google was given a discounted price, but Google did not take a license. Mr. Singer asks, Dell? Yes. Satisfactory conclusion? No.
Exhibit 394, an announcement made by Novell of a Linux indemnification program. Mr. McBride says that it competes with SCO's program. What about Novell's terms and conditions? It's available to all Novell customers with a minimum of $50,000 in sales in the year preceeding claim.
McBride: Into 2004, after a very successful year, and 4 to 5 people in the SCOsource sales force, but with Novell's second claim to own Unix it put a severe damper on the program. SCO had to shutter it and lay off the 4 to 5 sales people.
Thus ended Mr. Singer's direct examination.
Part 3 - Cross examination of Darl McBride by Mr. Acker.
Part 3 - Cross-examination of Darl McBride by Novell's Mr. Acker
Mr. Acker had a lot of energy and established a number of facts for Novell quickly at the very beginning. I suspect this was pretty effective with the jury as it was a fresh start following the long morning of Mr. Singer's direct.
Mr. Acker asks Darl McBride, Do you recall your time working at Novell?
McBride: Yes.
Acker: Is it true you were not involved in the APA while at Novell?
McBride: That's true.
Acker: Is it true you were not present at Novell Board of Directors meetings? McBride: True.
Acker: Have you read the Novell Board of Director's meeting minutes?
McBride: Yes.
Acker: And do those Board of Director's meeting minutes say Novell approved a deal where the Unix copyrights were excluded? (question rephrased and re-asked a couple times, then answered reluctantly)
McBride: Yes, based on the minutes.
Acker: Was the first time you read that seven years later?
McBride: Yes.
Acker: Santa Cruz was selling Unix in the market without copyrights?
McBride: Yes, they had their own copyrights.
Mr. Acker asked, You put out a press release saying you owned the patents? Mr. McBride answered, there was a press release that mentioned patents.
Acker: The APA and Amendment 2 do not mention obtaining patents?
McBride: True.
Acker: But you put out a press release claiming ownership of patents?
McBride: I wouldn't put it that way.
Acker: When you took over SCO it was not doing well?
McBride: Yes.
Acker: This is your first time as a CEO of a publicly traded company?
McBride: Yes.
Acker: SCOsource was to save the company?
McBride: I wouldn't say that.
Acker: You were to turn around the company?
McBride: Yes.
Acker: So you changed the business from a software company to a litigation company?
McBride: No, that's not true.
Acker: But you needed a law firm to pursue litigation?
McBride: We had to be willing to sue to protect rights.
Acker: At LinuxWorld 2002, you told the Linux community that you own copyrights?
McBride: Yes.
Acker: You told them you own patents when you didn't?
McBride: We came to that conclusion over time.
Acker: Did it cause a stir?
McBride: Yes.
Acker: A lot of press coverage?
McBride: It was covered widely. Judge Stewart then asks if Novell will be admitting exhibit I12 and P12? Mr. Acker replies, Yes, we will, and does so. Both are copies of press coverage and are handed to Darl to read. Mr. Singer objects, allowing them if not "used for the truth of the matter." I'm sure Mr. McBride has been directed by counsel to read everything he's handed on cross slowly, carefully, and completely before proceeding. He does so. Quite carefully indeed. Eventually Mr. Acker asks if he's completed reading I12 written by Maureen O'Gara?
McBride: Yes.
Acker: It's someone you know?
McBride: Yes.
Mr. Acker says there was a leak of SCOsource before it was announced wasn't there?
McBride: I'm not aware of that.
Mr. Acker reads first paragraph from her January 2002 article.... "sources say it sounds like a protection racket..." then asks Mr. McBride, Isn't it true that many in the Linux community viewed the SCOsource program as a protection racket?
McBride: I'm not aware of that.
Acker then asks, Isn't it true that many believed this was a protection racket and that SCO would never be able to prove Unix is in Linux?
Eventually Mr. McBride got to "No" but admitted that there are some who hold that opinion.
Mr. Acker asked if Mr. McBride's reputation is on the line?
McBride: Yes.
Acker: Once you went down that path you were committed to it?
McBride: Yes.
Acker: You were selling Linux, in the business, up to May 2003?
McBride: Yes.
Acker: Then you flip flopped?
McBride: I wouldn't say that.
Acker: You stopped selling Linux?
McBride: Yes, we believed it would be disingenuous to keep selling Linux while making statements and selling our SCOsource product.
Acker: SCOsource wasn't a real product was it? It was a license wasn't it?
McBride: Yes.
Acker: You had been reading the APA for months by January 2003?
McBride: Yes.
Acker: Reading the 1.1B exclusion of copyrights?
McBride: Yes.
Acker: And when you read this, it was a problem?
McBride: Yes, it was a head scratcher.
Darl McBride then started to go on about how he read the rest of the APA... Judge Stewart interrupted him and directed him to only answer the questions. That Mr. Singer can bring out more if he wishes.
Acker continues, A reasonable person reading the APA could come to a conclusion... see the exclusion, and conclude copyrights were excluded?
McBride: Yes, you could do that.
Mr. Acker refers to section 4.16A of the APA and asks, this section created an agency relationship for SCO to collect customer royalties?
McBride: Yes, that's true.
Acker: Collect revenues where 95% flows back to Novell?
McBride: Yes.
Acker introduces exhibit D11, Caldera's 10K for the end of 2002. Directs Mr. McBride to 415 near the end of the document. Judge Stewart interjects to request Mr. Acker explain Bates. He states 415 is the last digits of the Bates number at bottom of pages and used for tracking exhibits.
Mr. Acker asks, Is that your electronic signature?
McBride: Yes.
Mr. Acker, while looking toward the jury, asks Mr. McBride, And you are aware that the SEC requires CEO's to affirm under penalty of perjury the truthfulness of the filings? Long delay...
Mr. McBride: Oh, I'm sorry, I thought you were asking the jury.
Mr. Acker: No, they won't let me do that. Mr. McBride affirms he knows the SEC requirement.
Mr. Acker reads from the 10K where Caldera reports they have an agency relationship to collect royalties for Novell. Asks, Is that correct?
McBride: True.
Acker: 95% to Novell and 5% retained by SCO?
McBride: Yes, that's true.
Mr. Acker asks, After discovering this "problem" with the APA, you called an old colleague at Novell? Greg Jones who had no involvement with the APA?
McBride: Yes, I called other people too, lawyers there first.
Mr. Acker asks, Did you take notes of these conversations?
McBride: No.
Acker: Did you keep records of these conversations?
McBride: No.
Acker: But Mr. Jones did?
McBride: I don't know.
Mr. Acker produces an email from Mr. Greg Jones to someone internal at Novell to be introduced. Some back and forth about whether it can be admitted and Judge Stewart directs Mr. Acker to try to lay some foundation. Mr. Acker asks Darl if the contents are an accurate account of the conversation, and if it's the same email Darl also read during his March 27th, 2007 deposition? Darl reads the email. Very carefully. Then answers, No.
Mr. Acker then pulls up Darl McBride's deposition testimony and calls attention to page 64, lines 4-9. Mr. Singer stands while searching through paper copy of the deposition and and indicates he's having problems locating the reference. Mr. Acker repeats the reference. Mr. Singer says he's still having problems finding it and asks for assistance. Mr. Acker makes no move to assist. Each is a bit testy in their remarks. Judge Stewart calls a sidebar, and Mr. Singer brings the document with him. White noise. During the sidebar discussion I saw no efforts being made to refer to any documents, just a discussion.
Mr. Acker returns to the podium and continues with, You asked Mr. Jones to find the document?
Mr. McBride answers, Yes.
Acker, He couldn't find it?
McBride: Correct.
Mr. Acker continues, You had the APA with section 1.1B which you believed was a problem?
McBride: Correct.
Acker: You wanted a clarification letter to be executed clarifying what copyrights had been transferred and Novell would not execute it?
McBride: Correct.
Acker: And you have no documents to support that?
McBride: Correct.
Mr. Acker asks, And so the jury can only rely on your testimony and Mr. Jones' testimony?
McBride: Yes, and I wish they could hear him testify.
Acker: And they will.
Eric Acker then produces an email from Mike Anderer to SCO in the fall of 2002 and admits it as C12. He asks Darl to confirm who Mike Anderer is and that he hired him; that he was principally the go-between with Microsoft. He reads where Mr. Anderer opines that Novell transferred to SCO substantially less than what was transferred to Novell and asks Mr. McBride if that is correct?
McBride: Yes.
Mr. Acker continues reading, It excludes copyrights, patents, trademarks, & just about everything else. Asks Mr. McBride, Isn't this what your paid consultant told you?
McBride: Yes.
Mr. Acker refers to exhibit H12 and H14 and asks Darl to confirm this is his letter to Novell's Mr. Messman in 2003 and to over a thousand other companies?
Darl reviews the exhibits carefully and hesitantly answers, Yes.
Mr. Acker responds saying, Like Mr. Jacobs, I'll raise my hand if this is a trick question.
Darl responds incredulously, You mean these haven't been the best questions yet?
Acker: Nope, arm not raised. He continues, In this letter you put these companies on notice?
McBride: Yes.
Acker: There was a firestorm of reaction to the letter?
McBride: Yes.
Acker: Lots of press?
McBride: Yes.
Acker: There were many people who didn't like the letter?
Darl answers, There were those who didn't like it.
Mr. Acker then brings up a portion of exhibit O-14, an eWeek article dated May 24, 2003.
Discussions earlier in the day on usage of this exhibit required it to be redacted to remove references to other cases.
Mr. Acker reads the 1st paragraph starting with "SCO group on Wednesday raised the stakes..." and asks, You were hearing comments like this following the letter?
McBride: Yes.
Mr. Acker quotes a woman further down the exhibit where a she says their company takes intellectual property seriously, but she's not (doing something).
Mr. Acker asks, You heard comments like that, didn't you? Yes. Erick Acker then produces exhibit A16, a CNet article. Mr. Singer objects on relevance and also discussed mention of other lawsuits. Overruled. Regarding the report, Mr. Acker asks Darl if a Linux group in Germany obtained an injunction to shut down SCO's German website? Yes.
Mr. Acker reads from exhibit P17 where Bruce Perens states that SCOsource appears to violate the GPL and opens SCO to suits by every programmer with code in the (Linux) kernel. Asks Darl, You were hearing comments like that?
McBride: Correct.
Referring to exhibit X17, a USAToday article from July 30, 2003, Mr. Acker reads, The whole thing is like finding your grandmother's recipe for Bundt Cake... and asks, You heard comments like this?
McBride: Yes, it's the first time I heard of bundt cakes.
Mr. Acker asks further, You heard comments like this from your own people?
McBride: No, not about bundt cake.
Mr. Acker then turns to exhibit A15, a letter from Larry Gasparro dated May 21, 2003. Mr. Acker confirms that Mr. Gasparro works in the SCOsource program?
Darl replies, SCOtech, no, the Libraries program.
Mr. Acker reads, "... until CFOs and CIOs are convinced, they are 'wait and see' until it's proved in court."
Darl confirms it says that.
Mr. Acker asks, And this is a week before Novell says anything regarding Unix ownership?
Darl answers, Correct.
Mr. Acker follows up, Mr. Gasparro is saying the corporate stance is wait and see until it's proven in court... a week before Novell's announcement?
McBride: Yes.
Mr. Acker reads SCO's reported SCOsource earnings from SCO's earnings report of December 22, 2003, then asks, This isn't the first time you told people these numbers? Darl doesn't seem to understand. Mr. Acker then turns to exhibit M14, a May 14, 2003 SCO press release which Mr. Acker states is announcing to the investing public the same numbers of $4 million and estimated revenue of $21 million.
Mr. McBride confirms that.
Mr. Acker then asks, Didn't SCO's stock go up?
Darl says he doesn't know.
Mr. Acker replies that it went up 39 cents. He produces exhibit Q33, a chart of stock prices. Mr. Singer objects and Judge Stewart tells Mr. Acker to lay more foundation before usage. Mr. Acker replies that he'll ask further question on it to lay foundation. He then, referring to the chart, asks Darl if he has any reason to doubt the closing price of (states price, I didn't record it. But I noted that exhibit had not been admitted yet).
Darl replies that he doesn't know.
Mr. Acker then went on to produce the slide of the December 22nd stock values SCO used in its opening, and asks Darl what price it opens at?
McBride: $10.
Acker: The conference call is at 9:00 Central Mountain Time (sic)?
McBride: Yes. Stock drops past $9, just over $8.
Acker: This is before Novell's comment, the stock has already dropped, even after having SCO having made its second announcement of revenue for the 2nd quarter?
McBride: Yes.
Acker then asks, And the stock closed at the end of the day, even after Novell's announcement, higher than it closed after you announced the quarter's earnings the first time?
McBride: Yes. Judge Stewart then asks Mr. Acker how much longer? He replies, A little bit. Judge Stewart asks would this be an appropriate point to take a break? Mr. Acker, Yes.
After the jury leaves, Judge Stewart states that the Court is not pleased with the way Mr. Acker asked a question on the (Q33) exhibit, got what he needed, then moved on. The court asks in the future he (Mr. Acker) have more respect for the court's rulings. Mr. Acker apologized.
Mr. Singer asked the court how much longer Mr. Acker would be, so they can plan witnesses? Mr. Acker responds to the court, about one hour. The court then took a break.
On return, before the jury was called back in, Mr. Singer refers to exhibit I748 saying SCO wishes to bring it in to counter Mr. Acker's news articles. Judge Stewart allows I748 to consist of articles, but not SCO's Powerpoint. Mr. Acker briefly reviews articles and agrees to their use.
The jury is called back in. While they are on their way, a brief discussion was started between Judge Stewart and Mr. Singer relating to timing of witnesses, but it was cut off prematurely by the entrance of the jury.
Mr. Acker then produces exhibits N13 and T13, the Microsoft and Sun agreements. Asks Mr. McBride, Are these the agreements SCO was referring to?
McBride: Yes.
Mr. Acker asks, These are UnixWare licenses?
Darl responds that they are UnixWare in the SCOsource division.
Mr. Acker repeats, UnixWare?
Darl replies, based on Unixware.
Mr. Acker then refers to Darl's phone call with Novell's Jack Messman. Asks confirming timing of call...
McBride: He was flying back from New York, and when he lands he finds he has a voicemail on his cell phone from his secretary. He drives back to his office. No, he doesn't call Messman right away; he talks with people to decide what to do first.
Acker then asks, So, late in the afternoon you call him. You fax him the amendment?
McBride: Yes.
Mr. Acker continues, He says on the phone, "OK, Darl, You have the coyprights?"
Darl answers, Yes.
Mr. Acker asks, This was a big deal?
McBride: Yes.
Acker: Did you take notes?
McBride: No.
Acker: Did you document it?
McBride: No, there were others in the room, didn't think he needed to.
Acker: Did Chris Sontag document it?
McBride: No.
Mr. Acker continues, So within 12 hours of the phone call, you wrote a letter to Mr. Messman, where you reference this phone call? And you don't mention this alleged confession?
Darl pauses to read the letter. Carefully. Eventually Mr. McBride responds that he stated that he was referring to the phone call.
Mr. Acker asks, Did you mention the admission? Mr. Acker had to ask the question several times, each with dissembling responses, but eventually Darl confirms that he hadn't.
Mr. Acker hands him another exhibit, J16, a June 11, 2005 letter from Darl to Jack Messman. He reads paragraph 4 and asks, You referenced the June 5th call?
McBride: Yes.
Mr. Acker asks, Nowhere in this letter do you mention the alleged admission?
McBride: No (additional verbiage in answer)
Mr. Acker highlights where IBM's license is being referred to as an SVRx license and asks, Was IBM's license an SVRx license?
Mr. McBride reads the statement, carefully, then answers Yes.
Mr. Acker then asks, During the period from June 6th to June 11th (?) you were telling the investing public that SCO owned the copyrights?
McBride: Yes.
Mr. Acker then produces exhibit L17, a July 21, 2003 interview with Darl. He refers Darl to the 3rd page and reads where questioner asks "Well Novell would say you don't actually own these copyrights..." Mr. Acker repeats, "Novell will say they don't own those coyprights," Is that correct?
McBride: Yes.
Mr. Acker produces exhibit J19, an email dated August 18th, 2003 containing 18 pages of articles. Refers specifically to page 6, an article dated August 6th, 2003 and page 16, an article dated August 18th, 2003. Mr. Singer objects to introducing entire exhibit. Mr. Acker ordered to redact unnecessary content before it's published to jury. Mr. Acker then quotes Darl (as of August 18th, 2003) saying, "in regard to Novell's recent claim that Novell still owns copyright... It only took four days to hit the eject button on that claim." Mr. Acker asks if that is correct?
McBride: Yes. Mr. Acker refers to exhibit P45, a transcript of SCO's conference call of November 2003.
Mr. Singer objects, admitted just a portion of transcript.
Darl confirms that SCO executives are on the call including Robert Bench. Acker: That the call was to the investing public?
McBride: Yes.
Mr. Acker reads where it's stated that "the copyright issue is resolved, we did a deep dive..." Mr. Acker asks, While these statements were made, you had received a private letter from Mr. LaSala (Novell) indicating copyrights had not been resolved?
Mr. McBride responds, That's not right.
Mr. Acker produces exhibit of letter from Mr. LaSala dated August 4th, 2003. Reads and asks to be confirmed, Copyrights not transferred to Santa Cruz.
McBride: True.
Mr. Acker shows exhibits where Novell was stating no transfer of copyrights. Asks, But in public you were saying the issue was resolved?
McBride: Yes, he was relying on statement by Jack Messman.
Mr. Acker then asks, Then Novell placed all the correspondence, the APA, amendment 1, and amendment 2 on their website?
McBride: Yes.
Mr. Acker asks, And left the question of copyright ownership to the investing public?
McBride: I don't know who they left it to.
Mr. Acker then asked about Mr. McBride calling Chris Stone, an investor, for investment money in a cell phone protector. I didn't get the details of this interchange.
Mr. Acker produces exhibit Q22, SCO's SEC 10K report dated January, 2004. He reads "We initiated the SCOsource agreements... resulted in $28 million in revenue". He asks, Is this correct?
Darl, Yes.
Mr. Acker then reads the future performance disclaimers in the report. After each statement he asks Darl, Is this accurate? Darl responds, Yes. "...including strength of our claims to Unix...?" Correct?
McBride: True.
Mr. Acker then asks a bunch of quick questions of Darl regarding his financial interest in this case. I may not have the details accurately. Darl confirmed each statement. On becoming CEO Darl was granted 1,000,000 shares of stock options in June 2002 with a strike price of 22 cents. True, True, True. 600,000 shares have vested? Darl doesn't know. Mr. Acker asks, These shares are not counting your additional shares you hold? Correct. That with a strike price of 22 cents, if you were to exercise your options at a stock price of $1.22 you would make $600,000? Correct. At stock price of $2.22 you would make $1.2 million? Correct. If the price were $5.22, you would make millions? Correct. Mr. Acker asks, You have substantial financial interest? Darl replies that he has a significant material interest in the company. Mr. Acker asks if he has a reputational stake? Correct. Asks if he believes Novell has harmed his reputation? Yes. Mr. Acker asks if Darl stands to gain a lot of money? Correct.
That ends Mr. Acker's cross-examination.
Unfortunately with work today, I got a very late start on this report and will be unable to finish my last four pages consisting of Mr. Singer's redirect. I know, it's disappointing, but I've got to get to bed so I can get to the court bright and early tomorrow. It's 11:30pm now (MDT for those who know the correct time zone here, not CMT). I will complete Mr. Singer's redirect report tomorrow along with his completion of redirect. And I should be able to get an earlier start on the report (finger's crossed).
Part 4 - SCO's Mr. Singer's redirect of Darl McBride
SCO's Mr. Singer, on redirect, asked Mr. McBride if he was laid off during a series of cost-cutting moves?
McBride: Yes.
Singer: Did you learn patents were not included?
McBride: Yes.
Q: Did you file claims based on patents?
McBride: No.
Q: Did you attempt to sell a license which included patents?
McBride: No.
Q: Is there APA language that copyrights are excluded?
McBride: Yes.
Q: Regarding Amendment 2, did it amend this language?
McBride: Yes.
Q: Could a reasonable person reading Amendment 2 believe that Novell had not retained copyrights?
McBride: Yes.
Q: Do you recall exhibit C12, the Mike Anderer letter of Jan 4, 2003?
McBride: Yes.
Q: At this time was SCO aware of Amendment 2?
McBride: No.
Q: Was Mr. Anderer provided a copy of Amendment 2?
McBride: No, not at this time. Later.
Q: When he was sent a copy, what was his response?
McBride: "This is fantastic news!"
Q: You were shown a series of articles of the public's response?
McBride: Yes.
Q: Subsequently, you set up a code room where you presented a response to customers?
McBride: Yes.
Q: And there were articles supportive of your claims after that?
McBride: Yes.
Mr. Singer enters exhibit 748. Quotes Laura DiDio. Quotes Bill Claybrook ("If true, Linux community should be concerned.")
Q: Were there various opinions in the public about your claims?
McBride: Yes.
Mr. Singer refers to the Gasparro email and confirms with Mr. McBride that Gasparro worked at SCO. Brings his attention to the 2nd and 3rd paragraphs where he reports that members of the Linux community had belief there were issues with Intellectual Property for quite some time. Asks, Was this consistent with some of the press articles?
McBride: It was consistent.
Q: SCO chose not to contest claims in Germany. Why?
Darl answers, Because it (SCO) wanted to contest its claims in the US.
Mr. Singer states, You were facing two main types of opposition, copyright ownership and Linux infringing Unix. Which was the most significant to overcome?
McBride: Copyright infringement.
Q: On May 14th, 2003 SCO's stock price closed at $3.55?
McBride: Yes.
Q: And then it went up?
McBride: The price trended up to $9 or $10 mark.
Singer: Is there a difference between projected earnings and actual earnings?
McBride: Yes.
On this next point there were quite a few objections by Novell to Mr. Singer's questioning including no independent recollection and (attempted) parroting of Maureen O'Gara (from an article of hers). Judge Stewart admonished Mr. Singer to not lead the witness. The questioning was intended to elicit testimony that the market already knew early in the day of May 28th that Novell would be making a press release later in the day. The best result that was obtained was that there was "buzz" in the market.
Mr. Singer referred to SCO exhibit 95, Darl McBride's letter to Novell's Jack Messman on June 6, 2003. Asks, You wanted Novell to affirm publicly that Novell does not claim the copyrights (has he had affirmed privately)?
McBride: Yes.
Mr. Singer refers to a the letter of the following day from Novell's Mr. LaSala and asks, After reading the letter did you feel a need to restate in your letter?
McBride: No.
He refers next to the first paragraph of the June 11th Jack Messman letter and notes it reads SVRx. Asks Mr. McBride to turn to the APA section 4.16a and asks if SVRx licensing has a defined meaning?
McBride: Yes.
Q: Does it require you to look to schedule (?) to determine its meaning?
McBride: Yes.
Mr. Singer directs him there to item 6 and asks, Do you see IBM's software development license?
McBride: No.
He then turns to page 3, item 3 of the schedule. Reads the header of item 3 then turns to the next page for item "L". He asks Mr. McBride to read 3L aloud. He does so.
Mr. Singer asks Mr. McBride if the Microsoft and Sun agreements were Vendor or RTU agreements? Vender agreements.
Referencing the series of articles in the summer of 2003, Mr. Singer asks, You thought the copyright ownership issue was resolved?
McBride: Yes.
Q: Did you think Novell was going to make an about-face?
McBride: No.
Mr. Singer also references an exhibit (from the articles) page 16 out of 19, and reads the quote "In regard to Novell's recent claim... press the eject button" and asks, What were you referring to? Mr. McBride answers that it's the finding of Amendment 2, talking to Jack Messman, and Jack saying "You have the copyrights."
Judge Stewart asks Mr. Singer how much more he has, and Mr. Singer responds 2-3 minutes to finish redirect. When asked, Mr. Acker estimates 10 minutes for re-cross. Judge Stewart then calls a recess and the jury is released for the day.
Judge Stewart then addresses Mr. Singer and asks if we are behind schedule. Mr. Singer reports that yes, we are and that he is not in control of duration of cross-examination. They then discussed remaining witnesses and Mr. Singer estimates SCO will be finished with their case by noon on Thursday. Judge Stewart asks, How does that comport with a three-week trial? Novell (Mr. Jacobs?) replies that he thinks it will work just fine. He reports that both sides have been exchanging information on time and believe they are doing OK.
That was the end of Tuesday, March 16th session.
08:20 PM EDT
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