SCO Files Its Response to Novell's Petition for Rehearing En Banc(Groklaw)

The pleading now filed by SCO (through the trustee) has a few problems with it.

However, before looking at its problems you have first realize the issue before the court. At this point in time the only real issue is whether the full panel should hear the case. The substance of the legal issues raised is not really important. The question is whether the full panel of judges should hear those issues.

I do believe that the decision as it stands now encourages a much greater degree of litigation of issues than would be the case given the requirement that any transfer agreement clearly state what is being transferred. SCO likes to make a big point about the fact that a writing exists rather than focus on what the agreement actually says.

And, this pleading by SCO fails to acknowledge that the law regarding the use of extrinsic evidence is California State law not copyright law. Section 204(a) of the Copyright Act is not the relevant law that is excluding extrinsic evidence. The parole evidence rule is. The APA is being litigated according to California law which excludes extrinsic evidence. SCO likes to think that if the copyright law does not exclude extrinsic evidence then it should be allowed. Unfortunately the California Parole evidence rule applies not the copyright laws. Section 204(a) of the Copyright Act only requires that the agreement be in writing and that the copyrights be properly identified.

The truth is that SCO has no relevant extrinsic evidence anyway. And that is true even if the parole evidence were permitted to be put before the jury. No one has submitted any declaration to the effect that the APA was intended to transfer copyrights. All of the evidence that SCO has proposed only suggests that parties not directly involved in the negotiations “thought” they might have been transferred. But, those opinions or conclusions by non-parties do not count.

But, what is the real problem with the SCO pleading here?

The petition from SCO states:

While the original APA excluded "all copyrights" from transfer, Amendment No. 2 expressly clarified the parties' intent by narrowing the exclusion only to those copyrights not required for SCO to
6
exercise its rights with respect to the acquisition of UNIX and
UnixWare? technologies.
It is true that the original APA did exclude all copyrights. That is undisputed.

But, here SCO argues that the amendment transferred all copyrights except those not required for SCO to exercise its rights with respect to the acquisition. And that is incorrect. The amendment repeats the exclusion of all copyrights permitting some copyrights to be transferred if required by SCO to exercise its rights.

SCO has tried to shift the burden to Novell to prove that some copyrights were not required by SCO rather than imposing upon SCO to prove that some copyrights were required by SCO. SCO has added a new argument here that all copyrights were in fact transferred except those that Novell can prove were not necessary. As opposed to imposing a burden on SCO to prove which copyrights are required.

As badly as the amendment is written, the burden is upon SCO to prove which copyrights are required not that they are all transferred unless Novell can prove otherwise.

Even the limited evidence regarding the negotiation process disproves the SCO interpretation here. But, SCO lawyers have realized that they are going to lose the issue of whether copyrights transferred at all and therefore they have to hope that Novell can be forced to prove which copyrights SCO would not need rather than being required themselves to prove which ones they do need.

It may be very important that SCO has made no allegation at all regarding the need for any copyrights. Of course they did that because of their “Plan A” extortion effort which was based upon the premise that they clearly already had all of the copyrights transferred. That may be a big mistake.

But, in the end, SCO has no evidence to support any decision that the APA or even the amendment was intended to transfer the copyrights. The opinion of those not involved in the negotiation of the agreement or even the amendments notwithstanding. Those opinions might be extrinsic all right but they are not relevant to the issue of what the agreements were intended to do.

The testimony from lawyers for Novell is important. The testimony from lawyers for the original Santa Cruz Operation is important. And testimony from anyone directly involved in the negotiation process is important. But, as Judge Kimball already noted in his decisions, testimony from the original Santa Cruz lawyers was never even proffered by SCO. Rather its absence was noted by Judge Kimball. And you can bet that if SCO never once proffered such evidence, the reason they never did so was because it did not favor the current SCO position. On the contrary, the only evidence regarding the actual negotiation process favors the Novell position.

The result is that unless SCO can scrape up new evidence not previously proffered by SCO in declarations, etc., SCO has no meaningful “extrinsic” evidence to put forward even if they hold a trial before a jury.

But, as explained above the immediate decision to hear this appeal before the entire panel of judges is unrelated to the details of the case itself. Rather it is based upon whether the decision as it stands properly reflects the intent of Congress in making sure that agreements that deal with copyrights are sufficiently reduced to a clear writing.

As it stands the decision only encourages a greater degree of litigation when copyrights are involved in an agreement. And unfortunately the wording of the APA and amendment actually encourages litigation as well by stating rather unclear terms that may or may not determine not only which cases might be litigated before a jury but also the burden of proof that the various parties may have to meet. Note as explained above that SCO is trying to shift the burden of proof to Novell requiring them to prove SCO does not need a given copyright or it is transferred. Of course that puts Novell in a position of having to prove a negative as opposed to SCO having to prove the positive. (Nice job when you can get it.)

The truth is that the decision as it stands now is a bad decision. And not just because it disfavors Novell. Novell will do just fine at trial. Rather it is a bad decision because it greatly encourages litigation in any case where there is some misunderstanding as to the copyrights transferred or even if any copyrights are transferred. It is much better law to have agreements not transfer copyrights unless they are clearly specified. Specifying them by reference to vague legal issues or proof of need only encourages expensive litigation.

The point is that the Novell lawyers would never have used the language now found in the amendment if they could foresee the arguments being presented here. Lawyers do try to be precise in their use of the language. But, you can also see that “other” lawyers will try to twist the language to mean everything is included unless one party can prove it is excluded when it actually says all is excluded unless the other party can prove it must be included.

The amendment as it is written clearly excludes all copyrights unless SCO can prove they are needed. And noting all of the evidence regarding the negotiation process, that interpretation is appropriate. In other words, no one in the negation process has proffered any testimony that any copyrights were to be transferred by the APA or amendment. None. No one has identified any copyrights. And no one has come forward to claim that the APA or amendment was “intended” to transfer any copyrights. Again, it is important to point out that the only extrinsic evidence claimed by SCO is from people not involved in the negotiations and is based upon their misunderstanding of what the APA and amendment actually says or did. And that kind of evidence is never relevant to deciding what the APA or amendments actually did. Rather it should be excluded on the basis of not being relevant even without any reference to the parole evidence rule.

It is also important to mention here that even if the case gets before a jury, the judge (not Judge Kimball anymore) will decide on the basis of the parole evidence rule and relevancy whether or not the jury even hears the opinions of non-participants.

It is important for the full panel to hear this case.

SCO here makes a point that the decision of the initial panel is not contradicted by existing decisions. And that may be true. Many many legal issues are not fully laid out in actual judicial decisions. Maybe they should be. But, many are not. Just think about all of the legal issues surrounding the GPL which do not have clear appellate decisions laying out the law. Trial court decisions do not count. And settlements do not count. Only appellate decisions count. And that is why it is so important that the full panel hear this appeal and clear up any uncertainty. It other words, it is important to know that any agreement dealing with copyrights clearly spell out with certainty any copyrights that transfer. It is also important for attorneys who draft such agreements to know the affect of what they draft.

I do think the full panel will hear this appeal. It is important for these legal issues to be decided at this level. It is important to make it clear that if an agreement is vague on which copyrights are transferred, that the law says that none are transferred. And that is particularly so when the agreement first states that none are transferred or all are excepted.

To be honest, badly written agreements do end up in litigation. And those lawyers who practice the drafting of legal agreement do try very hard to avoid that possibility. But, as you can see, it is very easy for language that may have been agreed to by two parties can itself be the instigation for litigation. Interestingly enough the vague wording of the APA and amendment has not been the cause of this litigation simply because SCO needed “Extortion Plan A” to work. If SCO had taken a position that the APA and amendments were unclear, the effort to simply extort money from Linux customers would have failed in the beginning. That is why SCO took the position that they clearly got everything “lock, stock and barrel” as they like to claim while the agreements say otherwise. And, most interestingly, that is why SCO has not even attempted to prove that it needed those copyrights in order to sue IBM (for example). Of course, that is a boot strap argument anyway but if a trial does go forward you may see an effort to make that argument. Clearly, SCO would like to shift that burden of proof onto Novell as explained above, but the agreement does not do that. At best, SCO would have to prove which copyrights it needs to run their business. And to date, SCO has not even tried to do that. And, maybe if they think they can force Novell to prove the excluded list rather than be required to prove an included list, SCO may not even try to prove they need any of them.

So this pleading is interesting from a number of perspectives. Only one of which is the mention of the trustee. And, by the way, the fact that the trustee has approved this pleading does not really mean anything other than the old SCO lawyers were already paid to do the legal work on appeal and the court did request that SCO submit a response to the Novell petition to hear the case en banc.

Wow, is that a mouth full.

In summary it is very important for a hearing on this case by the full panel. It is important to clarify copyright law and to make certain that the decision properly reflect the intend of Congress is requiring that agreements transferring copyrights be not only in writing but clearly spelling out precisely which copyrights are transferred under which circumstances.

It is also important to note that extrinsic evidence of any kind is the worse evidence to determine the affect of an agreement. That is the reason why the parole evidence rule exists. And, interestingly, it is also part of the reason why Section 204(a) of the Copyright Act exists. And, Section 204(a) is not a rule of evidence admissibility. Use of extrinsic evidence is determined by the California law of admissible evidence not the Copyright act. SCO in their pleading would like to claim that if the copyright act does not exclude extrinsic evidence, it should be included. But, that not the law. That is a rule of evidence and rules of evidence are determined by the appropriate jurisdiction.