Week 3, Day 13 in SCO v. Novell - Jones, Messman, DeFazio, Braham - Updated
March 25 2010
Part 1 - Initial Matters, Testimony of Greg Jones
Before the jury was brought in, Judge Stewart heard initial matters starting with the dispute over Tor Braham's testimony. He will testify today or in the morning. Judge Stewart said he is mindful of SCO's decision not to depose him before, but he will allow him to testify and that he be deposed. Novell said they will be able to do so this afternoon. The deposition shall be limited in scope and to one hour.
Mr. Singer said that overnight Novell produced 30 documents they had withheld, SCO believes, unfairly and that producing them this late is prejudicial. Judge Stewart seemed annoyed, but will allow the documents. I'm not sure I heard correctly, as I believe SCO has been in possession of the documents but that, Novell did not list them as trial exhibits as they considered them irrelevant. They may relate to the Tor Braham testimony.
Judge Stewart said he was almost disappointed that the jury instruction objections were timely filed... by 30 seconds. He joked he was starting to look forward to being able to ignore them. He scheduled a Jury Instruction Conference for tomorrow, March 25th, at 3pm.
There was discussion of the time again today. Previous time discussions used amounts of time used, but today it was time left. Novell has about 4 hours and some, and SCO 3 hours 15 minutes. The two sides' time count was different due to differences in how to time some things, such as sidebars. However, the two sides chose to split the difference to come to the time they have.
In light of the short amount of time left, Novell asks that regarding Mr. Messman's live testimony, he not cover questions already asked in his deposition, but that the pertinent items from his deposition be given to the jury as is. Judge Stewart conditionally allowed this. He stated that Mr. Messman may be questioned on the general areas discussed in the deposition, but he doesn't want SCO to ask the same questions over again. The deposition is to be redacted before it goes to jury.
Judge Stewart says that one juror (who's name and number I will omit) has a vacation planned for this weekend to Las Vegas. He said that yesterday she was quite distraught and crying because she thought deliberation would go so long that she would not be able to make it. The other jurors suggested they not deliberate over the weekend, but return on Tuesday in order for her to take her vacation and not have to rush back. Judge Stewart asked counsel if this would be acceptable or if they would prefer to name her the alternate juror and release her. After some short discussions by each side amongst themselves, it was generally stated that "a happy juror is a good juror" and asked that she be told words to the effect that "it will be taken care of" and that she may take her vacation. The parties did not want to commit necessarily to either course, but that since both would likely work for her she should be told right away to alleviate her concern. Both sides said that the jury continuing deliberations on Tuesday would be OK.
The jury was brought back in, and Judge Stewart addressed the specific juror and told her that they may continue deliberations on Tuesday and asked if that would resolve her concerns. She said it did. He asked the jury as a whole if their would be any hardship in doing so. They all said they could. They all seemed happy and the juror was quite relieved. Had they not been in the courtroom, I got the feeling there might have been a group hug.
Novell's Mr. Erik Acker calls Greg Jones to the stand. He states he's been in-house counsel for Novell since 1992.
He first met Darl McBride in 1995 at Novell while both worked with Novell's business in Japan, until Mr. McBride left. He next heard from him on October 10th, 2002 when Darl called him. He told Greg about what he'd been doing since leaving Novell and said that he'd become CEO of Caldera about three months previously. Mr. McBride told him about the expense of the SVRx royalty collection business and said it's not cost-effective, that it costs more to collect the royalties than the five percent they're paid. He talked about how Caldera believes Linux is infringing Unix. Mr. McBride pointed out that copyrights were excluded in the APA and that he thought it was a clerical error.
There were subsequent calls. The next one was from Joanie Bingham, assistant to Mr. McBride. She'd left a message for him so he called her back. Mr. Jones sent an email to recounting the substance of the call. It was entered as Novell exhibit G11. Ms. Bingham had an assignment from Mr. McBride to research the transfer and requested access to Novell files. Mr. Jones told her he'd have to call Mr. McBride.
Mr. Jones did so and the substance of the call was put in an email from Mr. Jones dated November 20th, 2002 and entered as exhibit K11. Mr. Jones reported that Mr. McBride wanted to research the agreement. He repeated that Linux users were infringing SVRx and said something to the effect that he wished to use the agreement information to bring claims against them. He wished to enlist Novell to assist him in this. Mr. Jones said that it's a sensitive issue as it would involve possibly confidential information and 3rd party litigation. Mr. Jones said he'd get back to him. Mr. Jones then brought it to the attention of Carl Ledbetter and Chris Stone. Both told him they were not interested in getting involved.
Mr. Jones subsequently talked to Mr. McBride and contemporaneously documented it in another email dated December 4th, 2002. He told Mr. McBride that Novell was not interested. He testified that Mr. McBride was persistent and tried to convince Mr. Jones that it was in Novell's interest in order to protect the SVRx royalty stream. Mr. Jones reported he'd told Mr. McBride no because it takes manpower to research, sensitive third-party litigation, and that Novell had customers using Linux they didn't want to alienate. Mr. McBride though was persistent and asked him, Who's making these decisions? Since Mr. Ledbetter and Mr. Stone were both in executive management, he told him the decision was made at the highest executive level.
Mr. Jones said SCO's Chris Sontag contacted him some time in February and subsequently received email from Sontag. The email sent from Chris Sontag to him is dated February 20th, 2003. Mr. Jones' response, with Chris Sontag's original email, were entered as exhibit V12. The side letter attached to the email, also dated February 20th, 2003, was sent as a result of the February 19th phone call. Mr. Jones said Novell had previously rejected the request for documents and research, and that Chris Stone had said they were wanting to change the copyright. Mr. Jones had said on the 19th call that if Mr. Stone wants to send something for Novell to evaluate to go ahead. The side letter is what Mr. Stone sent in response to that. Mr. Jones replied by email that he'd have to have a business person examine (Mr. Jones inside counsel to Novell). Mr. Jones said they'd take a look at it and get back to him.
The side letter, dated February 20th, 2003 was admitted as Novell exhibit I31. Mr. Jones repeated it is the proposal SCO is making to Novell. Mr. Sontag was proposing to clarify the intent of the parties that, all rights, title, interests, and copyrights were intended to be part of APA 1.1a "Included Assets."
Mr. Jones had understood from the APA that copyrights were excluded assets. Reading further in the side letter, it asks that they be removed from the Excluded Assets. When asked if Chris Stone had said no to the letter, SCO's Ted Normand objected (privilege?) and sustained. On Mr. Acker's subsequent question, Mr. Jones said he'd told Mr. Sontag that the proposal had been rejected.
Mr. Jones confirmed he'd later seen an unsigned copy of Amendment 2 and that he participated in assigning to someone else the task of looking for an executed version, but he didn't find it. Mr. Jones said he first saw a signed copy on June 6th, 2003 after SCO found and faxed a copy to Novell and that Novell subsequently found a signed copy in Novell's tax department's files. Asked questions about filing practices, Mr. Jones said that such documents normally would be in their own files, not in the tax department. He said the tax department might review such documents, but normally it's not the place to file it.
Mr. Acker asks if Novell had registered the copyrights to Unix, and Mr. Jones said they had, and they paid $9,540 to do so. Exhibit U45, the copyright registrations, were produced. Mr. Jones said the latest version of Unix that Novell filed copyright registration for is Unix System V release 4.2MP. He indicated this was the most recent version existent before the APA was executed.
Novell's exhibit X23 and SCO's exhibit 756 were referred to, and Mr. Jones said in relation to them that after Novell got the registrations they subsequently, on December 22nd, 2003, posted on their website that they'd obtained these registrations along with correspondence Novell had had with SCO.
Mr. Acker referred to SCO exhibit 756, a press release from Novell dated January(?) 2004 announcing indemnification for their own Linux users. By this time Novell had acquired SuSe and reiterated in the announcement that Novell believed they still owned the copyrights. Mr. Jones said they'd put the documents on their website due to public concern and to put people on notice of Novell's position.
Mr. Acker asked if Mr. Jones had reviewed the June 9th, 2004 ruling. Mr. Normand objected to the reference, and Judge Stewart expressed his concern. Mr. Acker asked Judge Stewart to let him lead, and he was allowed to proceed. He asked if Mr. Jones had reviewed the rulings from August 10th, 2007 and the one from 2009. He said he'd reviewed all of them. Mr. Acker asked if there was anything in these rulings that were inconsistent with Novell's assertion that it still held the copyrights. Mr. Jones said they do not.
Mr. Normand cross examined Mr. Jones. On being asked, Mr. Jones said he is familiar with the 10th circuit ruling. Mr. Normand asked if he understands that a ruling in this case could determine that Novell does not own the copyrights, to which he replied he does.
Mr. Normand asks if Novell has a joint defense agreement with IBM, and Mr. Jones said they do. Do they have a commonality of interest? Yes. Did it start prior to 2004? Mr. Jones says he doesn't know for the agreement. Mr. Normand asks if IBM contacted Novell in May 2003? Yes.
Mr. Normand asked if Mr. McBride believed (the placement of copyrights on the excluded list) was a clerical error? Yes. He believed the intent was that copyrights were included? Yes. Did you tell Darl that Novell owned the copyrights? In effect I did, he told me they were excluded and I agreed.
On an internal email of December 4th, 2002, you reported that you did not tell Mr. McBride about Novell's Linux plans? Answer: That's correct. I'm a lawyer for Novell and am appraised of confidential business plans and withheld the information appropriately.
Mr. Normand referred to the last page of Novell exhibit I21 and asked if Mr. Jones saw the unsigned copy of Amendment 2 in 2003? Yes. Mr. Normand asks, It was an important letter? Answer: It was relevant. Q: And you looked for it? A:I was involved in assigning someone to do so.
Q: Novell's copyright registrations were filed after SCO filed for them?
Mr. Normand shows SCO exhibit, SCO's copyright registration and asks, Are you aware that filing a registration does not indicate ownership?
Mr. Jones answers (facing the jury), Yes, the fact that SCO filed a copyright registration does not indicate ownership. (Reporter's comment: This is probably the closest I've come to laughing out loud during testimony.)
Mr. Normand shows an exhibit and refers to line 16 and 20 (2008 trial) and asks, Was your testimony at trial that Novell claimed ownership of UnixWare?
Mr. Normand reads from trial that Novell has not claimed ownership of Unix and UnixWare.
Mr. Jones states that all Novell intended to claim ownership to were Unix at the time of the APA.
Mr. Acker on redirect asks Mr. Jones, Did Mr. McBride convey to you that if Novell assisted SCO, then SCRx revenues would go up?
Acker asks further, He conveyed that it would slow migration from Unix to Linux?
Jones: Essentially, yes.
Mr. Acker, And Mr. McBride said the APA excluded copyrights?
Mr. Normand on re-cross asks, You found an unexecuted Amendment 2?
Q: And you did not tell SCO?
Mr. Normand has no further questions, but Mr. Acker stands and asks Mr. Jones, You're not in the habit of sending copies of unexecuted documents to heads of other companies? Mr. Jones answers, definitely not.
Judge Stewart asks, You're aware you just used your third? Mr. Acker replies, Yes, I just used my third. (Judge Stewart had, on a previous day, told counsel they only get the opportunity for one "third serving" in the trial.)
Mr. Jones was released. End of Part 1. Part 2 is SCO calling Mr. Jack L. Messman as an adverse witness (which, all things considered, was probably a poor decision)
Part 2 - Testimony of Jack L. Messman
SCO's Mr. Stuart Singer called Jack L. Messman as an adverse witness as the final witness for SCO's case in chief.
Mr. Messman took the witness stand, and Mr. Singer referred to SCO exhibit 525, a Novell press release dated May 28th, 2003, and asked, You approved this for release?
Mr. Singer continues, Does it state Novell, and not SCO, owned the copyrights?
Q: Why this day?
Messman: It's when it was ready to be released.
Mr. Singer asks, Had you been told by Mr. LaSala that he was looking for a signed copy?
Q: Did you ask Wilson Sonsini for a signed copy?
Messman: No, he said he has people under him that do that sort of thing.
Mr. Singer asks, Did you direct them to?
Q: Did you believe it would hurt SCO to release?
Mr. Messman says he didn't know.
Mr. Singers asks, You didn't believe it would hurt SCOsource?
Messman: No, we believed there was no Unix in Linux.
Q: You believed that a statement coming from the seller of the copyright would have special force and effect?
Messman: I don't know. We owned the copyrights, we were the only ones who could have made the statement.
Q: What would you have done if AT&T stated they still owned Unix? (The subsequent questions didn't get far, as Mr. Messman stated that since AT&T had sold everything, it was a hypothetical and he therefore didn't know.)
Mr. Singer refers to Mr. LaSala's press release that indicates that Amendment 2 appears to transfer copyrights and, when questioned, Mr. Messman said he supported it. Mr. Singer asked if he had known of an unsigned copy of Amendment 2 for several weeks? Yes, but it does not have effect until signed.
Mr. Singer asks if Mr. Messman recalls "anything happening" between June 6th and August 4th?
A break was called. After the Jury departed, Judge Stewart asked if counsel has anything for him.
Novell will be filing a Rule 50 motion for directed verdict tonight. Both SCO and Judge Stewart opined that it will be interesting and Novell agreed.
Mr. Singer asked to introduce two figures from Novell's 10K that they failed to introduce during the testimony of Mr. Jones due to misunderstanding what was meant by Judge Stewart when he said, regarding the 10Ks, to see how it "plays out." Mr. Brennan said Novell will stipulate to the admission of SCO exhibit 552, the 10K, if redacted, but SCO will only be able to make use of them during their closing statements.
Mr. Brennan brought up the testimony by Mr. Jones where he believed that SCO had, again, "opened the door" by asking about a prior trial. Judge Stewart did not believe that it was SCO who first mentioned it, but Novell's witness. Judge Stewart said he would make a statement to the jury that there was a trial in this case earlier, but on different issues. (Reporter's comment: The trial did not cover copyright ownership or slander of title, those had already been ruled on by summary judgment).
The jury returned, and Judge Stewart made a statement to the jury that, during examination of Mr. Jones, reference was made to a prior trial in this case. That trial was on different issues. Do not draw any conclusions...
Mr. Singer then asked Mr. Messman again if he recalled anything happening between June 6th and August 4th?
Mr. Messman answered saying he doesn't recall anything happening between those dates.
Q: Did you authorize Novell to file (copyright registrations?) after August 4th registration?
Messman: Yes. On Mr. Singer's question if he was aware SCO had registered, Mr. Messman said he was aware SCO had registered their copyrights on top of AT&T's registrations.
Mr. Singer asked Mr. Messman why (Mr. LaSala's made the announcement) on Decmeber 22nd?
Messman said he doesn't know.
Mr. Singer puts up a large poster board facing the jury containing a calendar of 2003. It had at least two dates circled, but possibly 4. It was otherwise blank. Mr. Singer indicates the dates of SCO's earnings announcements are circled. He recites the dates, including May 28th and December 22nd. Mr. Singer asks if Mr. Messman is aware of how important earnings announcements are to a publicly traded company? Yes, Messman answers. Mr. Singer asks if it was only coincidence that the two announcements by Novell just happened to fall on SCO's earnings dates. Mr. Messman said, Yes.
Mr. Singer asks if Mr. Messman was following SCO stock prices?
Mr. Singer then plays their clip 8 from his video deposition testimony page 56 line 20 to page 57 line 3:
Q: Were you subsequently aware that SCO's stock price declined 30 percent after that?Mr. Singer asks, Were you aware the stock price was going up and down?
A: SCO's stock price was going up and down.
Messman: I was aware, but I wasn't following it.
Mr. Singer refers to SCO exhibit 756 and "Novell's unique rights," he reads "... as previously confirmed by Novell..." and asks Mr. Messman if he approved it?
Mr. Singer asks if Mr. Messman is aware that Chris Stone made a statement in March 2004 at an open source conference where he said, "We still own Unix?"
Messman: Yes, I was aware that he addressed trade groups, and we still owned Unix.
Q: How long was this before you sent Mr. Stone away from Novell?
Messman: We sent him to Harvard for a few weeks. I don't recall the dates.
When asked, Mr. Messman gives his history starting with obtaining a degree in chemical engineering from the University of Delaware in 1962 through working for SafeGuard (Scientific, Inc). He said while at Safeguard he was sent to "Novell Data Systems" to shut it down, but that while there and talking to some people, he came to believe that instead the company should be re-capitalized and Mr. Messman came onboard to run the company and to hire his replacement, Ray Noorda.
Asked, Were you on board in 1995, he answers that he was.
Mr. Singer referred to Novell's exhibit Z3, minutes of a board of directors meeting on Monday, September 18th, 1995 and asked Mr. Messman if there was discussion of the APA?
Q: Was it approved?
Q: Is there a discussion of copyrights?
Messman: It was important that copyrights were not included... I insisted that copyrights be excluded. It was a key part of the deal that they be excluded.
Q: In the May 28th press release it states that Novell owns the Unix copyrights. Why did you do that?
Messman: Mr. McBride was making claims that Linux infringing Unix, that end users, not just companies must pay. People were calling Novell, the press was calling.
Mr. Singer asks, Do you recall your telephone conversation with Mr. McBride in June?
Messman: Yes, it was in the evening. I don't normally answer the phone, but no one else was there, so I answered. It was Mr. McBride asking, "Do you have it?" I asked, "What?" He says, "Amendment 2" He was quite animated. So he faxes it over. He then called back and asked if he has it yet? Yes. During the call Mr. McBride also asked if he's talking with IBM. Mr. Messman answered to the effect that they're often talking to IBM; they're a big technology company.
Q: At any point during the conversation did you make any statement that you believed SCO owns the copyrights?
Mr. Messman answers adamantly, "None, whatsoever!"
Q: Are you positive?
Q: Did you work with SuSe Linux?
Messman: I worked mostly with the investors.
Q: Did IBM invest?
Messman: Yes, at my recommendation. He reports he'd just purchased SuSe for $110 million and was seeking affirmation from the market for his stock holders. He called IBM and asked if he would give comfort to them. The person at IBM asked in what form? Mr. Messman told him $50 million. Mr. Messman said he didn't want Novell investing in SuSe because he wanted Novell to keep its 100% ownership, so the investment was in Novell. Mr. Messman said the SuSe deal closed a couple months before the IBM investment.
Q: Did IBM's investment have anything to do with SCO?
Mr. Singer refers to SCO exhibit 754, and asked, Mr. Bradford sent this to you three days before the board of directors meeting?
Messman: Yes. It's described as a term sheet and reference is made to the first two items listed. It says, Novell transfers to Santa Cruz Unix and UnixWare... and have a license back... Mr. Messman is asked if there is anything on this about copyrights?
Mr. Singer then refers to Novell exhibit Z3, (the minutes of the September 18th, 1995 board meeting) "Proposed sale..." It's a summary of discussion, asked to read 3rd paragraph and continue to the next page. He reads it and is asked, Is there any reference to copyrights? No reference, the only reference is in the resolution, Novell retains all patents, trademarks, and copyrights.
Q: Is there a license back to Novell?
Messman: Yes, of all being sold.
Mr. Singer continues, The copyrights not retained in the term sheet only three days before, they're not in the discussions summary of the board meeting, but they're retained?
Messman: Yes, correct. Copyrights were the most important thing discussed.
Mr. Singer refers to a press release from 1995, the "Joint press release," and reads, Novell buy... stock... When asked to confirm, Mr. Messman said something to the effect that that isn't what it is. Mr. Singer asks, Any reason to believe it's not a joint press release? Mr. Messman answers, I don't believe this is a joint press release.
Mr. Singer continues, Would Mr. Frankenberg be in a position to know if this is a joint press release?
Messman: He was in a position to know what the deal was.
Mr. Singer asks, On June 12, October, and February, you are aware Novell directed waiver?
Mr. Messman was then released (there was no examination by Novell.)
End of Part 2. Part 3 will be the deposition testimony of Mr.Michael DeFazio
Part 3 - The deposition testimony of Michael DeFazio
Novell's Mr. Michael Jacobs called Michael DeFazio by deposition. The excerpts of his video deposition are played. Not being certain of the questioner I will use "Novell."
Novell asks, Were you the head of the (missed)?
Q: Did you remain with Novell, continuing to work with Unix?
DeFazio: Yes, to oversee Novell's responsibilities with regard to Unix. He then describes some of his responsibilities and other positions.
Q: Did you meet with Mr. Frankenberg and Doug Michaels to discuss the sale to Santa Cruz?
Q: Is it fair to say you were the executive within Novell most knowledgeable on Unix? Yes.
(There's a set of questions regarding his becoming aware of intent to sell Unix and formation of a team to negotiate.)
Mr. DeFazio indicates that the team head was Mr. Ed Chatlos. All Mr. DeFazio's subsequent time was spent working on aspects of the deal, but mostly he was working with Novell architecting the details. He says he cannot say how many hours, but it was his prime job during this period.
Novell asks, On September 19th, 1995 Novell entered into APA with Santa Cruz?
Q: Did Novell retain anything, had Novell retained substantive rights?
DeFazio: Yes, we had two Unix businesses, and we sold one.
Q: Two businesses?
DeFazio: A UnixWare business and a Unix SysV source licensing business. The source code was the first business; we sold source code rights. The UnixWare business was Novell's own Unix distributed in binary form. Originally we planned to sell both businesses.
Q: Is that what happened?
DeFazio: No, the total business was valued too high for Santa Cruz. There was an idea by Doug Michaels to only sell the "going forward" UnixWare business.
Q: What value combined?
DeFazio: About $800 million.
Q: What was the value to the source code business?
DeFazio: The majority of that was, but I don't recall the exact fraction.
Most of the UnixWare value was "future projected" business. He describes how, in effect, this worked well for both parties. It reduced the price for Santa Cruz, making it affordable, and for Novell it shed 90 percent of the cost of the business but retained significant value in the SVRx royalties in that 95 percent of the royalties would flow to Novell and 5 percent to Santa Cruz.
Novell asks, Do you recall the 4.16B provision?
DeFazio: Yes. The examiner refers to page 24 of the APA and a section is displayed alongside the video. The examiner reads section 4.16B aloud, then asks what the intent was?
Mr. DeFazio responds, When we decided to sell one business and retain the other... I provided guidance that for the future revenue stream we would have to bulletproof the deal. He said something to the effect that this language was crafted by the negotiators to protect it in response to his request to bulletproof it.
DeFazio: No, it was written to retain rights, to bulletproof the revenue stream. He said he didn't discuss the copyrights transferring. He says something to the effect that the copyright issue was in the details. He said he was at a high level, that he was not aware of a lot of the details.
Novell asks, Are you aware IBM bought a fully paid up, irrevocable license?
Q: Is it your understanding that Novell had rights to waive without anything being protected?
DeFazio: He answers to the effect, Yes, the right to take action to protect the revenue stream.
On cross examination, I believe the voice was that of SCO's Mr. Normand.
Mr. Normand asks, Are you familiar with Amendment 2 to the APA?
Q: Aware, but not involved in Amendment 2?
Q: Are you familiar with the 1996 amendment?
Q: The document in front of you, that you have been reading from during this deposition, is that your declaration?
Q: Someone else did the initial drafting?
Q: Was it IBM?
Q: Would Mr. Chatlos have an understanding of the intent?
Q: Who else?
He lists several people including Ty Mattingly.
Q: Mr. Chatlos had prime day to day?
DeFazio: Yes, principal.
Mr. Normand asks about the two Unix business being bifurcated before sale. He asks something about Unix in UnixWare. Mr. DeFazio replies that UnixWare was the latest and greatest version of Unix.
That's the end of Mr. DeFazio's testimony. Judge Stewart calls a break.
End of part 3. In Part 4 Mr. Jacobs calls Tor Braham.
Part 4 - Testimony of Tor Braham
Following the break, Novell's Michael Jacobs calls Tor Braham to the stand.
Mr. Braham indicates that he was the lead negotiator for Novell on the APA and is with the outside legal group.
When asked, he stated that he's been a partner with Wilson Sonsini and has been primarily doing mergers and acquisitions since the mid 90's. He said that Novell was one of his biggest clients and one of his firm's biggest clients. He said that the name partner Mr. Sonsini was on the board of directors of Novell. He reports that by the 90's he had worked on eight or nine mergers and acquisitions with Novell.
Mr. Jacobs asks, Who were you working with at Novell?
Braham: Primarily David Bradford, Novell's General Counsel and lead voice representing Novell. He reports he did work with others though, including Jim Tolonen. He says that Mr. Tolonen resided out on the west coast, so he was meeting with him a bit more. He also worked with Mary Burnside(?) and extensively with Mr. Bradford and Larry Sonsini. He says Mr. Bradford is who he would get the best, ultimate, direction from.
Mr. Jacobs refers to exhibit H2 and Mr. Braham identifies it as the "Agreement and Plan of Reorganization and Merger" of USL from AT&T. He says it was structured as a "reverse triangular merger" for tax purposes and that he worked on it.
Mr. Jacobs asked how it was different from the asset purchase with Santa Cruz. Mr. Braham says that in the Novell-ATT transaction, Novell acquired USL the corporation. It's simpler to buy an entire business compared to an asset deal where you have to go asset by asset. The Novell-ATT deal wasn't simple, but it was simpler. He said the Novell-ATT deal closed on April 12, 1993 for $300 million.
Mr. Jacobs says that two and a half years later Novell is selling it. What changed that led to the sale?
Mr. Braham replies that it was in Novell's interest to prevent Microsoft from having too much dominance in the market. He said the purchase was part financial but also to be a good shepherd of the Unix business. Once Novell bought it they found they couldn't invest enough resources to make it successful, to develop it, or to market it.
He was asked something about who his team consisted of when negotiating the APA. His answers included Aaron Alter, Shannon Wisenet, and for resources he used Don Bradley and Larry Sonsini. Q: Who were your Santa Cruz counterparts?
(Reporter: I missed the main name, but he mentioned also Scott Lester, Jeff Higgins.)
Q: And on Novell side?
Braham: Bradford, very credible and dispassionate voice on what Novell's (business direction is). Sometimes in acquisitions you have people who are working for the seller but who will be acquired. Have to be careful with those because their interest may not be aligned with the seller.
He testifies further, Along the course of the transaction it was determined Santa Cruz did not have the resources to buy the entire business. They had limited cash, limited market capitalization.
Q: So how was the deal structured to deal with this?
Braham: Novell got just over 16 percent stock of Santa Cruz. The amount is limited by SEC requirement that above a certain amount it requires stockholder approval. For that there must be a proxy and audited financials. Novell did not have audited financials for just the Unix business. To do so would require perhaps a year for audit, proxy, shareholder approval. So it was limited to about $50 million of stock. There were certain provisions for future royalty on the UnixWare. Novell retained the Unix business, or the economics of the business.
Q: SCO would have some role?
Braham: Yes, an agent to collect royalties from these older businesses. We were transferring the physical manifestation of the Unix business, and it seemed appropriate to have Santa Cruz be the agent.
Mr. Jacobs refers to a September 16th, 1995 draft of the APA with handwritten notes. Mr. Braham says the handwritten notes on the draft are his. Mr. Jacobs draws attention to section 4.1.6 and asks, What's going on?
Mr. Braham replies, Regarding the core Unix business, it would stay with Novell. He says he's making clear they would only act as Novell's agent, that they needed Novell's agreement for new SVRx licenses, that SCO is only an agent and if they don't perform, Novell could step in.
Mr. Jacobs: Define 'agent'. Mr. Braham does so. He says this section was Novell's attempt to protect itself.
Q: Did Novell restrict itself in any way? (Mr. Braham interprets the question substituting SCO) Yes, SCO was constrained by ... Mr. Jacobs asks, Was Novell limited? No.
Mr. Jacobs produces Novell exhibit V3, another draft of the APA (unknown date). Again he draws attention to section 4.1.6 and asks Mr. Braham to read aloud the box at bottom. He does so, "In the event that buyer shall fail to... seller has right to take action on its behalf." Braham said it was intended to be crystal clear that Novell retained the Unix business and Novell can take control.
Mr. Jacobs asks about other buyouts. Mr. Braham said HP was on the agenda. Novell believed them to be the best party to develop 64-bit architecture of Unix. It was very important to Novell that they be able to retain rights to allow HP to develop (64-bit Unix) for the betterment of Unix in the marketplace.
Mr. Jacobs asked how the Santa Cruz negotiation worked sitting around the conference room. Would the company executives be sitting there?
Braham: No, the executives wouldn't be there all the time. They would tell the negotiators their position, but the negotiators would do the negotiations with one being the sole, lead, voice of the company.
Mr. Jacobs refers to Novell exhibit D4, a September 18th, fax from Aaron Alter to Brobeck. He refers to the 3rd page, a "rider" about bankruptcy. He asks, What drove inclusion of that language? Mr. Braham answers that there was a concern that SCO might not remain solvent. Their was desire that the intellectual property remain away from bankruptcy and stay with Novell. It was believed that this would protect it from the bankruptcy court. Mr. Jacobs points out that the date is September 18th, a day before the 19th, and asks, So there was back and forth right up until the deal?
Mr. Jacobs shows Novell exhibit Y3, a fax from Shannon Wisnend to Burt Levine at Novell. It is a draft dated September 19th, 1995. Mr. Jacobs refers to schedule 1.1(a) intellectual property section, included assets, and 1.1(b) intellectual property section, excluded assets. He asks Mr. Braham, the copyright is an excluded asset?
Q: How did it get excluded?
Braham: We negotiated for it.
Mr. Jacobs asks, At the direction of?
Braham: Novell, David Bradford. We were unwilling to transfer copyrights, and they were willing to buy the business without copyrights.
Q: How would it work?
Mr. Braham answers, they have the physical ownership, the people, disks, computers with software. They, in essence, had a license to it and they have copyright to what they develop.
Mr. Jacobs asks, How does that compare to other businesses that develop Unix?
Braham: They all get the same foundation, and they build their own Unix on top of it. (I believe he also said that UnixWare was their version).
Mr. Jacobs asks, in relation to 1.1(a), included, and 1.1(b), excluded, about the phrase "notwithstanding the foregoing." Mr. Braham replied, Sometimes you have two lists that might be ambiguous or overlap. So you have "magic language" that tells that one trumps the other. He says that the excluded list trumps the included list.
And the phrase in 1.1(b), "All copyrights and trademarks..." Mr. Jacobs asks, Did Santa Cruz have opportunity to review beforehand?
Q: Santa Cruz had competent counsel?
Q: Any doubt they understood your intent?
SCO's Mr. Singer cross-examines Mr. Braham asking if he's heard of Amendment 2?
I think the next question was, Did you work on it? and answer, No. Then I think Mr. Singer started to ask something about it and Novell's Mr. Jacobs objected. He asked the court that there be no lawyer to lawyer debate of the language. Judge Stewart agrees, but said he will see how it plays out.
Mr. Singer shows the exhibit, Amendment 2, and points out the included and excluded assets language from the amendment. He asks Mr. Braham if the amendment language replaces language in original with language in Amendment 2, and if it is as if the original language does not exist anymore?
Mr. Braham answers, Correct.
Q: Is copyright a way of showing ownership?
Braham: It's one way of showing ownership.
Singer asks, The original APA included "All rights and ownership" and "All Unix and UnixWare?"
Mr. Braham says he sees it but answers about needing to read in entirety.
Mr. Singer asks if "...without limitation" is a term of art?
Braham: Yes, it enables the ability to give a list that may be, but not necessarily is, complete.
Mr. Singer indicates he's done for the day. Judge Stewart recesses court.
After the jury leaves, he asks about the schedule for tomorrow. Mr. Brennan points out that when Novell asked SCO for who they have on their witness list for tomorrow, they provided a list of 7 witnesses. He says Novell still has witnesses too and given the time left Novell believes SCO's answer is a bit unfair. Mr. Singer then tells the judge that a couple of them are unlikely to be called (Sontag and Tibbitts) and the others are conditional on who Novell calls. He says he's still not sure, based on Novell's representations, who they will call tomorrow. He says they'll call Botosan if Novell calls Musika, etc.
Judge Stewart says it will all work out with the time (limit). The parties agreed.
Court was recessed until 8:30 Thursday.
End of report for the day.
01:17 AM EDT
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