Report from the Courtroom: Oral Argument at 10th Circuit Court of Appeals - SCO v. Novell


January 20 2011

Disclaimer: Please understand that I *do not* represent that this is a transcript by any means, let alone one which would be full and complete. This is my desperate attempt to take good notes on the content of what was said as the flow in these proceedings is way too fast to get every word. I had to sacrifice detail to stay as close to real time as I could and thus attempt to not miss anything important. My apologies in advance should we later discover that I have missed something that we are interested in. I did my best.

As a reminder, the judges on the panel were Sr. Judge Stephanie Seymour, Judge Terrence O'Brien, and Judge Jerome Holmes.

SCO was represented by Stuart Singer (the speaker) and a burly gentleman I am still working to identify who helped with prep but did not speak. I intend to address this in a follow-up email if I can figure out who he is.

Novell was represented by Michael Jacobs but I believe that Sterling Brennan was also present, however he did not speak. Jacobs also had a very young person with him (either a new associate or a paralegal I would guess) who helped him with organization and prep but did not speak. I did not see McBride or Cahn. There was an older gentleman who appeared shortly before the case was called but he doesn't match my picture of Cahn and he greeted and then sat with Novell before saying good morning to Singer. If I can identify him, I will add that to my other parts to come later.

Another reminder for our audience, the closest geek analog I can come up with to the appeals hearing is like the IASA CITA-P or Microsoft MCA review board for a senior architect. You come having presented your information according to the prompts and studied as many different ways and arguments as you can think of related to what you want to present and to what your opponent is likely to present. Despite your best efforts, you have VERY limited time and the judges are looking to use that time to clarify positions they have already read from the briefs and get attorney responses to some of the core legal questions that will help better stake out the parties' positions. The judges are as much in control of how much time who spends where through their questioning as are the attorneys who are presenting. Rather than having a formal present-response-redirect format, redirect ONLY happens to the extent that the presentation reserves time to respond.

SCO's Arguments:

SINGER: The court erred as a matter of law in not granting the 50(b) motion and should be reversed, because without copyrights, the SCO group cannot enforce the rights acquired in the APA.

JUDGE SEYMOUR: Isn't that an issue of fact?

SINGER: The trial was remanded by this court to determine *which* (emphasis Singer's) copyrights had transferred to SCO, not whether they had transferred.

JUDGE O'BRIEN: We have your brief. We are here to see if there is an issue of law in the ruling of the district court.

[I couldn't scribble down singer's response in time]

JUDGE SEYMOUR: [Raises the issue of what SCO got out of the original APA.]

SINGER: All rights, claims, code, etc. of the SVRX products.

JUDGE SEYMOUR: Except the copyrights. [Some context here. It was a prompt, not really a question, was put out there as something of a statement.]

SINGER: Correct, before Amendment 2.

JUDGE O'BRIEN: But your rights can be enforced on the content that you own and on what was transferred for the product independent of what didn't transfer.

SINGER: Yes, and the agreement was clear that all rights and interest in the SVRX business, including claims related to the business were to have transferred.

JUDGE O'BRIEN: But it's not clear at all, because it was reversed by this court and remanded as ambiguous.

SINGER: It is clear because we can't enforce rights on the core technology of our product without these rights.

JUDGE O'BRIEN: But how is it different from what IBM or any other UNIX licensee can do to protect their product? They do not own the copyrights yet presumably are able to conduct and protect their business.

SINGER: But those are different. Those are licensing agreements rather than ownership of the technology itself.

JUDGE SEYMOUR: Amendment two says specifically the copyrights which are required. We don't know what's required for the business.

SINGER: We can't bring actions to protect the core property in our product without the copyrights.

JUDGE SEYMOUR: You can bring actions based on the added value whereas the other content could be simply licensed.

SINGER: There is nothing in Amendment 2 that confirms that it is a license rather than a transfer of intellectual property. There are clauses and legal language that would be added to the amendment were it intended to merely provide a license to the intellectual property.

JUDGE SEYMOUR: Pre-amendment 2, the APA says that none of the copyrights transfer.

SINGER: That's true.

JUDGE SEYMOUR: Amendment 2 makes a vague statement about transfer which we then found vague in the previous remand, but that's a fact issue as to what may have be transferred, not a law issue.

SINGER: [Couldn't capture his response fast enough]

JUDGE HOLMES: [Clarified what was remanded for trial, reading bits of the ruling]

SINGER: Yes, the copyrights should have transferred based on the remand from the 10th.

JUDGE SEYMOUR: Isn't that a fact question?

SINGER: The district judge should have granted a new trial to address these issues from the remand.

JUDGE SEYMOUR: Where do we see *as a matter of law* (emphasis Seymour's) that the copyrights transfer?

SINGER: [Referring to the record] We would present 578 and 1260 [Reads some of Judge McConnell's statement about the requirement for transfer and whether the APA combined with Amendment 2 satisfies those requirements.]

JUDGE SEYMOUR: Isn't McConnell simply framing your argument in his discussion to address it? The fact finder on remand could either agree or disagree about transfer and specifically what was to transfer. He simply says that he finds that there is a genuine issue of fact to be resolved.

SINGER: McConnell goes beyond a statement that this is arguable to a statement that something was actually transferred. On the witness stand, Allison Amadia, the author of amendment 2 admits on cross-examination that .. [interrupted by Seymour]

JUDGE SEYMOUR: McConnell says that it could be read that way but immediately goes on to say that it could also not have transferred anything and that's for the fact finder to determine.

SINGER: If that were so, there would be no change. Why would amendment 2 do nothing?

JUDGE HOLMES: In order to license your flavor [of UNIX] does SCO have to have the copyrights?

SINGER: Yes, the underlying copyrights are needed to grant a source code license. We cant act to protect the underlying software of our product without the copyrights.

JUDGE HOLMES: Isn't that a separate issue from using your flavor?

SINGER: Our product is built on top of this other IP.

JUDGE HOLMES: But you could engage in business solely with your flavor [of Unix]?

SINGER: But we couldn't protect our rights in the product or the use of the source code that makes up certain components of the core property.

JUDGE HOLMES: You couldn't but someone could.

SINGER: Novell is not motivated to do so; it is the buyer. The buyer needs those rights to protect that property.

JUDGE O'BRIEN: I have a question about 4.16 and the royalties. Are those rights perpetual or are they time limited?

[Pause of a few seconds before Singer responds.]

SINGER: Yes, they are perpetual. And with little time yet, I would like to bring up one other issue for the court. The district court erred as a matter of law in allowing content that was *very* [emphasis Singer's] prejudicial to SCO by allowing Novell to read the prior decision to the jury.

JUDGE HOLMES: But the judge immediately indicated it was reversed and no longer correct.

SINGER: You cant un-ring that bell. Even if you say it's not the governing statement any more, it's there, the finding of a judge, on some of the issues they are to decide.

JUDGE O'BRIEN: What was the grounds on which the prior decision was admitted?

SINGER: Novell purported that it was related to our expert testimony on damages, but it was not related at all. Our damages expert was presenting on a but-for world which did not address specifically the actions of Novell or the ruling. It is our position that Novell introduced the issue with the intent of finding a way to disclose this decision to the jury.

JUDGE SEYMOUR: If the amendment were to be construed in the way that SCO presents, how many copyrights would transfer? Do you know what they are? Are they listed somewhere?

SINGER: About 20 copyrights your honor.

JUDGE SEYMOUR: And you claim that all of them would transfer.

SINGER: Yes, there is no distinction in the language of the APA or elsewhere as to just part of the copyrights transferring. It is our position that they would all transfer together.

JUDGE SEYMOUR: And we [in the context, it was clear she was referring to the previous decision of the 10th circuit] took no position on the transfer.

SINGER: We said the ones that are required.

JUDGE SEYMOUR: Which is a fact question.

SINGER: Which is a fact question [repeated Seymour's prompt word for word as a statement.] I would like to reserve my remaining moment for redirect.

Novell's Arguments:

[During the intervening seconds it took to shuffle attorneys from and to the podium, I couldn't help but feel that the last interplay between Seymour and Singer kind of reverberated around the court room, that it was a bad admission to end on and did not particularly help SCO.]

JACOBS: These are all fact questions where SCO is vastly over-reaching on the prior decision which reads [quoting from page 35 in the prior decision from the 10th] "we take no position on which party ultimately owns the UNIX copyrights or which copyrights were 'required' for Santa Cruz to exercise its rights under the agreement. Such matters are for the finder of fact on remand."

JACOBS: The meaning of the contract and APA as amended is a question of fact. Denying the Rule 50 motion was appropriate as the whole issue was served to the jury as a fact issue.

JUDGE HOLMES: So your position is "what copyrights are required if any" versus the view that has been presented of some copyrights are being transferred? And the fact issue being which ones?

JACOBS: SCO has never interpreted the ruling or the record that way previously. We need the context of the agreement and the judgment. McConnell says that the APA as amendment has some vague relationship to copyrights. In the prior appeal we were arguing that a 204(a) writing requires something of a higher standard of specificity of transfer but the ruling was that the agreement related somehow to copyrights which COULD have transferred something based on the language and we needed to revisit the facts to find out what that might have been, if anything. The jury heard testimony from a number of witnesses including the writers of these agreements which showed painstaking detail and business processes that did not transfer the copyrights.

JUDGE HOLMES: You don't understand the ruling to be saying that the only question is what's required?

JACOBS: That's right. We presented witnesses. When they heard Amadia, who is the writer of Amendment Two say, if I had intended to transfer the copyrights I would have modified the included assets rather than simply changing language in the excluded assets. I would have had to go to the business and make a record of the change in the business intent of the agreement. Tolonen and the General Counsel of Novell testified that we would have probably had to go back to the board because our last instruction from them as shown in the minutes was that they didn't intend to transfer the copyrights and specifically wanted them excluded.

JUDGE HOLMES: So your position is that the APA Amendment 2 provides a license to those copyrights and that they are not required to operate the business?


JUDGE HOLMES: And SCO could license to customers like any other vendor who uses UNIX?

JACOBS: Yes, like the hundreds of other vendors who sell their products.

JUDGE HOLMES: Their added value.

JACOBS: Correct. And all of this was explained to the jury.

JUDGE O'BRIEN: How would you respond to the proposition that without the copyrights they couldn't enforce their source rights.

JACOBS: SCO could enforce their rights on the added value. The prior decision by Judge Kimble was exactly that, that they could license UnixWare as their substantial product and incidentally these small bits of source code left over from the base that they built on top of. He found that SCO was seeking to enforce these rights on the added value parts in addition to SVRX separately.

JUDGE O'BRIEN: What would be Novell's right to continue collecting the royalties under the APA if SCO were to own the copyrights?

JACOBS: That's exactly the point. Under the APA, Novell gets 95% of the royalties. SCO? 5%. If Novell wants to continue to benefit from the relationship and the technology, Novell needs those IP rights to be able to sue. Novell wanted to retain that revenue stream which was substantial at the time and thus Novell wanted to retain the copyrights to protect it.

JUDGE HOLMES: Does 4.16 allow Novell rights of waiver on claims or actions related to the UnixWare product?

JACOBS: No. There's never been any challenge from Novell about SCO's ability to enforce UnixWare. [Pauses and kind of transitions.]

JACOBS: Under California's parole evidence rule, the contract says what it says and all of these other bits of context have to be disregarded. SCO never said this is inconsistent with the prior decision during the trial. SCO didn't argue this at all in this appeal.

JUDGE HOLMES: What about the language in the APA that grants the rights to pursue legal claims? Why does that agreement not stop them from having rights to protect their product?

JACOBS: SCO asserted that they have to have these rights to protect a vague phrase of "their technology" which they include SVRX. But the APA dissects that to two separate entities, Unixware and SVRX. Novell had no claims against other parties at the time of the contract to transfer to SCO related to SVRX. Our view of the record is that SCO brought new claims against other companies based on a theory of "we acquired the business" and these are not inherited claims that were transferred by the APA. This further has to be read in the context of not being given the right to enter into new SVRX relationships without Novell's approval and involvement. If they owned the IP, one of the rights to ownership is the right to license, which SCO did not have.

JUDGE HOLMES: [Can't read my notes for this response.]

JACOBS: And when SCO originally sued Novell, they included claims of breach of copyrights. If the agreement were to automatically transfer those claims perpetually to SCO, that would mean that by transitive property that SCO sued itself. And that can't be right. The law says that if it's a 50-50 split and the finder of fact can't figure out if something transferred, then the tie goes to Novell.

JACOBS: If I could I would like to take a minute to address...

JUDGE O'BRIEN: You are out of time.

[Light chuckle throughout the court room.]

[Transition between attorneys.]

SINGER: I think I have a minute or so left.

JUDGE O'BRIEN: You have 19 seconds.

SINGER: The clear issue here is which copyrights were transferred not whether there was a transfer but which ones transferred. Further, the APA included claims related to the business and SCO was involved in actions against Microsoft and Linux which is why the copyrights are required to be able to continue those actions which were transferred as related to the business.

[Judges thanked attorneys, all rise, recess.]

[Handshake between Singer and Jacobs.]

The Stuff that Bears Repeating

If you will recall from my writing last time, I really came away thinking the oral argument was a mixed bag and the judges were asking questions that seemed to take some of SCO’s position as a basis to reach the points being argued. In this context I really was not surprised when the order to remand came back.

This time was a completely different feel. As you can see in my notes, Singer hardly got a full sentence out of his mouth when he was being asked about presentation of the facts versus a clear error in the law as the basis for appeal. I really got the feeling that Seymour in particular was skeptical of the basis for the appeal as it came back over and over and over again to issues of fact versus issues of law and I really don’t think Singer ever truly connected in a satisfactory manner with this request.

It also bears repeating that it really did feel like something of a heavy silence in the transition between Singer and Jacobs after Singer parroted Seymour’s assertion/prompt that what's required to transfer is an issue of fact. Given the context that appeals courts do not deal with facts and they are primarily the province of courts of first instance, it seemed like a bad final statement and a nice juicy subject for Jacobs to step into – which he did with the first words out of his mouth asserting exactly that view.

I thought Jacobs’ later transition into the land of the parole evidence rule was odd and hard to follow. I can’t help looking back wondering if I missed something there because it didn’t really flow there and it seemed to me to be arguing something that really didn’t help his case – e.g. still arguing the 204(a) issue of the past and whether outside views had a bearing on the interpretation of the APA with Amendments.

Jacobs again ran out of time and lost the ability to make one of his arguments thereby, however the questioning of Singer was so intense that despite his express intent to reserve time for redirect to the panel, he had mere seconds to go when he stepped back up to the podium.

I came away thinking that Singer really didn’t solidly connect with any of his points and I also noticed that he was far more intensely questioned than was Jacobs, with Jacobs being given long uninterrupted segments of time to present his position by comparison. The questions that were asked of him also didn’t seem to question his argument but rather prompted his position on other aspects of opposing counsel’s presentation.

Singer did well but did not really have much of anything on his side. The panel clearly had trouble getting to the merits of his arguments over the lack of issues of law versus the presented arguments on fact.

The Players

Judge Terrence O'Brien [ ] was a past president of Visionary Communications [ ], from 2000 to 2001. Before that, he was a district judge in the Sixth Judicial District Court of Wyoming for twenty years, from 1980 to 2000. He was in private practice from 1974 to 1980, and before that served in the US Justice Department for two years.

Senior Judge Stephanie K. Seymour [ ] has been with the Tenth Circuit since 1979, and she served as Chief Judge. Prior to her appointment, she was in private practice. She has a good reputation in Denver legal circles according to a colleague of mine locally, an employment attorney who has been before the 10th Circuit Court of Appeals several times.

Judge Jerome A. Holmes [ ] is a relative newcomer, appointed to the court in 2006. He was commissioned to replace the seat vacated by Judge Seymour when she was moved to a Senior Judgeship on the circuit. Interestingly, he clerked for another of the 10th Circuit judges, Judge William Holloway from 1990-1991.

I had an opportunity to observe the judges for a bit as they heard oral argument in the cases that were heard today prior to SCO v. Novell. Judge O’Brien was fairly quiet most of the time and relaxed.

Interestingly enough Judge O'Brien led most of the administrative progression including opening, closing, timekeeping, and the like.

Seymour was reasonably active and to me seemed to come into each case with just a few bullets she wanted to understand and she was very focused in re-introducing her topics in the context of the present argument. You actually see this illustrated in the SCO argument as the issues-of-fact vs issues-of-law discussion comes up again and again from her. Holmes was by far the most active in the earlier cases. As a relatively young judge, he seemed to me very sharp and interested. His questions always had a demonstrable intent. He was very good at eliciting argument on the subjects that he was looking for. He came across to me as the kind of guy I would love to sit down with and break bread and get to know a little bit more. Intelligent, well-mannered, yet sharp and direct when he wanted to be, able to ask the *same* question to each side yet in the way that challenged the position of that attorney, and he was clearly educated on the subjects before the court, often referencing without looking at a page or bit of testimony from a brief. All in all, it was Judge Holmes who impressed me most, exactly what I would want a judge to be.

Setting the Stage

The 10th Circuit Court of Appeals [ ] building.

Partial view of the Courtroom [ ].

Another view [ ] that you would see if you were sitting where Judge Holmes was today.

The elegant courthouse that provides residence for the 10th circuit always reminds me of Monticello.

The courtroom for this oral argument is Courtroom IV which is, I hear, actually fairly infrequently used as it is very small and somewhat inconvenient to access. Due to its original planned use as a shared library, Courtroom IV is actually a converted room on the second floor, accessed by either the retrofit federal issue bland elevators or a beautiful wrought iron and marble circular staircase located in an alcove recessed into the external wall at each end of the main entry hall.

This stair brings you out on a full-building-length hall which compared to the one below rivaling many cathedral naves, asserts a muted presence with a plantation-type design lined with oil painting portraits of judges from the circuit past and present. At almost exactly half way down on the inside wall is a small double doorway into a one-time law library that resides just above the clerk’s desk below.

Despite its two-story height, the room is the smallest of the primary 4 courtrooms with just 2 full-length pews on each side and 2 partials behind them before the Bar and the area beyond. The front and rear walls are curved, and each of the vertical surfaces in the first floor remains festooned with shelves of the Federal Register, a functional – if not elegant – décor which complements the surrounding rich dark paneling.

A railing lines the wall just above the height of the first story of the room with ornate supports and railing bars in the front and back of the room, with very simple railings to either side that allow in the natural light from the three evenly spaced windows on the second story of each side wall. The railing itself easily recalls to mind a vision of the rolling ladder that was probably once nearly permanently propped against its surface to reach the taller shelves.

Copyright 2011