Pursuant to this Court's Orders of June 12, 2015, and July 14, 2015, Plaintiff/Counterclaim Defendant The SCO Group, Inc. ("SCO") respectfully submits the following Statement concerning "IBM's Statement of Undisputed Facts" and "SCO's Statement of Additional Material Facts" in connection with IBM's Motion for Summary Judgment on SCO's Unfair Competition Claim (SCO's Sixth Cause of Action) [Docket No. 782].
Section 1 contains a set of numbered, undisputed facts, with citations to evidence.
Section 2 contains disputed facts from IBM's motion.
Section 3 contains disputed additional facts from SCO's opposition brief.
As to each fact in dispute, SCO has included the opponent's response and the proponent's reply.
SCO recognizes that this Court's Orders of June 12, 2015, and July 14, 2015, directed the parties to furnish the Court with a single, joint submission. However, despite SCO's persistent, good-faith effort to reach agreement with IBM as to the form of a joint submission, IBM informed SCO today that IBM was unwilling to proceed with filing a Joint Statement that included the three sections set forth in the Court's July 14, 2015, Order for the reasons set forth in the accompanying letter of Jason Cyrulnik.
Dated: July 20, 2015
HATCH, JAMES & DODGE, P.C.
/s/ Brent O. Hatch
Brent O. Hatch
Mark F. James
BOIES, SCHILLER & FLEXNER LLP
David Boies
Stuart H. Singer
Edward Normand
Jason Cyrulnik
Counsel for Plaintiff, The SCO Group, Inc.
Section 1*
UNDISPUTED FACTS
Originating from IBM's 56.1 Statement1. [I.1] SCO filed its original Complaint, which included claimsfor unfair competition and misappropriation of trade secrets, on March 6, 2003. (Ex. 1.)
2. [I.2] On July 22, 2003, SCO filed an Amended Complaint. (Ex. 2.) In the Amended Complaint, SCO again asserted claims for unfair competition and misappropriation of trade secrets. (Ex. 2 ¶¶ 147-53.)
3. [I.3] SCO thereafter sought, and was granted, permission to file a Second Amended Complaint. (Ex. 3.)
4. [I.4] SCO's Second Amended Complaint, filed on February 27, 2004, again included an unfair competition claim (the sixth cause of action). (Ex. 3 ¶¶ 181-188.) In its Second Amended Complaint, SCO did not assert a claim for misappropriation of trade secrets. (Ex. 3.) In fact, at a hearing on December 5, 2003, SCO acknowledged that there are no trade secrets in UNIX System V. Counsel for SCO stated: "There is no trade secret in UNIX system [V]. That is on the record. No problem with that." (Ex. 414 at 46:2-3.)
5. [I.5] SCO then sought leave to file a Third Amended Complaint to add a tenth cause of action. (Ex. 10 ¶¶ 217-41.) SCO's proposed tenth cause of action asserted that "IBM misappropriated, and used in its own 'AIX for Power' operating system, substantial copyrighted source code relating to UnixWare System V Release 4 ['SVr4']." (Ex. 10 ¶ 217.) SCO further alleged that "IBM obtained access to the copyrighted UnixWare SVr4 code through 'Project Monterey'". (Ex. 10 ¶ 217.)
6. [I.6] In a decision dated July 1, 2005, this Court denied SCO's motion to add a cause of action based upon IBM's alleged copying of code obtained through Project Monterey into AIX. The Court stated that "SCO has unduly delayed seeking leave to add the proposed cause of action. It appears that SCO - or its predecessor - either knew or should have known about the conduct at issue before it filed its original Complaint" in March 2003. (Ex. 58 at 4.)
7. [I.7] IBM served interrogatories asking SCO to describe in detail its allegations and alleged evidence of misconduct by IBM. (Ex. 11.)
8. [I.8] With respect to SCO's unfair competition claim, IBM asked SCO to "describe, in detail, each instance in which plaintiff alleges that IBM engaged in unfair competition, including but not limited to: (a) the dates on which IBM allegedly engaged in unfair competition; (b) all persons involved in the alleged unfair competition; and (c) the specific manner in which IBM is alleged to have engaged in unfair competition." (Ex. 11 at Interrogatory No. 7.)
9. [I.9] The Court entered three different orders requiring SCO to provide detailed responses to IBM's Interrogatories. (See Ex. 55; Ex. 56; Ex. 58.) In the final of those three orders, the Court set December 22, 2005, as the "final deadline for [SCO] to identify with specificity all allegedly misused material" and update its interrogatory responses accordingly.
(Ex. 58 at 4.)
10. [I.10] SCO filed discovery responses, including Exhibits 31, 32, 33, and 46.
11. [I.11] SCO alleges that:
a. IBM made and continued to make investments in the development of Linux, and secretly advanced and promoted development of Linux without disclosing such activities to SCO, during and at a time when IBM was under a duty to deal
fairly with and disclose such competing activities to SCO pursuant to its contractual obligations to SCO under Project Monterey and otherwise. (Ex. 32 at Interrogatory Response No. 7.)
b. IBM's unfair competition arose from the relationship it established with SCO as a result of the joint effort between SCO and IBM known as "Project Monterey". (Ex. 33 at Interrogatory Response No. 7.)
c. As a result of the formal agreement between SCO and IBM and the numerous representations made by IBM that were calculated to be relied upon by SCO, IBM had a fiduciary obligation to SCO that required IBM to be forthright and truthful in all affairs related to the partnership agreement. (Ex. 33 at Interrogatory Response No. 7.)
d. IBM . . . unfairly took advantage of its partnership relations with SCO, unfairly gained access to SCO's business relationships, and unfairly and knowingly diverted SCO's resources away from competition with IBM and toward the purposes of the relationship. (Ex. 33 at Interrogatory Response No. 7.)
e. During a substantial part of 1999 IBM was secretly developing plans to cease its planned strategic relationship with SCO . . . and to begin supporting Linux. (Ex. 33 at Interrogatory Response No. 7.)
12. [I.16] In 1994, Intel and Hewlett-Packard (HP) announced their collaboration to create a new 64-bit processor architecture design. (Ex. 27.)
13. [I.17] In or around 1998, IBM began negotiating with Santa Cruz to undertake a joint development project for, among other things, a UNIX-like operating system that would run on the IA-64 platform. This project subsequently came to be known as "Project Monterey". (Ex. 24; Ex. 25; Ex. 123; Ex. 86 ¶ 54; Ex. 259 at 30-31.) At that time, Santa Cruz sold two
UNIX products that ran exclusively on Intel's existing 32-bit hardware platform: UnixWare and OpenServer. (Ex. 1 ¶¶ 26, 47; Ex. 115 at 5-8.)
14. [I.19] On October 26, 1998, IBM and Santa Cruz entered into the JDA, whereby Santa Cruz and IBM agreed among other things to provide resources and technology to pursue these goals. (Ex. 245.)
15. [I.21] In the JDA, IBM also stated its intention to engage in certain marketing activities: "IBM intends to engage in at least the following marketing activities to market, promote and sell the UnixWare and IA-32 Product on IBM systems in 1999 with a minimum cumulative funding of Five Million Dollars in the first year," followed by a list of ten specific activities. (Ex. 245 Attachment A, § I.)
16. [I.22] IBM also agreed to "make certain IBM middleware available for the UnixWare 7 and IA-32 Product platform based on IBM's own determination of commercial considerations. At a minimum, however, IBM plans to make the following middleware available for the IA-32 or UnixWare 7 Product:
- MQ-series
- DB2
- eNetwork Directory
- Net.Data
- IBM Websphere
-Commserver
- Tivoli Management Software
- Network Station Manager."
(Ex. 245 Attachment A, § II.)
17. [I.30] In May 2001, Santa Cruz finalized the sale of its Server Software and Professional Services divisions and its UNIX-related assets to Caldera International ("Caldera"), ending its investment in and support of the Monterey development effort. (Ex. 111 at 52; Ex. 244.)
18. [I.34] After the start of this litigation, Caldera changed its name to "The SCO Group, Inc." (Ex. 113 at 4.)
Originating from SCO's Statement of Additional Material Facts┼19. [S.1] The Santa Cruz Operation ("Santa Cruz")
1 was founded in 1979, and in 1983 it delivered the first packaged UNIX System for Intel processor-based PCs. (Ex. 250 at 1.) Santa Cruz's UNIX operating systems ran on the 32-bit Intel IA-32 microprocessor or "chip." (Ex. 214 at 181047252, ("SCO is the clear leaderin providing UNIX operating systems on the
IA-32 architecture.").)
20. [S.2] As one industry analyst stated, "SCO established the market for advanced operating systems on industry-standard Intel platforms in the 1980s, pioneering such features as a full 32-bit implementation, security, and multiprocessing." (Ex. 244 at 6.) At least as far back as 1989, Santa Cruz was described as "the largest vendor of Unix-like operating systems on Intel-based computers." (Ex. 246 at 1.)
21. [S.3] Santa Cruz sold its UNIX-on-Intel operating systems to major corporate customers located throughout the world including NASDAQ, McDonalds, Sherwin Williams, Papa Johns, Daimler Chrysler, BMW and Lucent Technologies. Santa Cruz's UnixWare product was certified for and sold on a wide variety of OEM IA-32 systems including those from Compaq, HP, Unisys, NCR, Data General, Siemens Nixdorf, FujitsuICL, Olivetti and IBM. (Ex.
354, ¶ 7; Ex. 362, ¶ 7.)
22. [S.4] According to July 1999 IBM document discussing project Monterey:
"Research by International Data Corporation (IDC) shows SCO as the leading provider in 1998 of UNIX operating systems with 40.6% of all shipments, regardless of hardware platform. SCO's UnixWare operating system was the fastest-growing UNIX server operating system in 1998, with 58.5% growth over 1997. (Ex. 214 at 181047252 n. 2.) In terms of revenue, Santa Cruz was the leader in what is referred to as the "UNIX-on-Intel market" to an even greater extent, with an 80% market share. (Ex. 204 at 1710117641.)
23. [S.5] One of SCO's experts discusses (with citations to documentary support) that through the 1990s, the processing capacity of the Intel processor chip was increasing rapidly: by 1995, Intel began to target its chips to be used in high-performance desktops and servers, and new UNIX servers based on 32-bit Intel chips began to compete against UNIX
systems based on the far more expensive RISC chip, which until then had been the preferred chip for enterprise-critical systems; and from 1995 to 1999, shipments of servers based on Intel architecture approximately tripled and, by 2000, servers based on Intel architecture began to dominate the UNIX market. (Ex. 284 at 18-20.)
24. [S.6] By 1998, Intel was developing the first commercial 64-bit chip, called Itanium, with the code name Merced. (Ex. 214 at 181047251-52; Ex. 249 at 1.) Capitalizing on its expertise with the Intel IA-32, Santa Cruz began work on porting its operating systems to the Itanium, IA-64 chip. (Ex. 354, ¶ 8; Ex. 362, ¶ 8.)
25. [S.7] The strength of Santa Cruz's market position at this time is described in the expert reports of Dr. Gary Pisano and Dr. Jeffrey Leitzinger, and those findings are incorporated herein by reference. (Ex. 284 at 40-47, Ex. 281 at 9-20, respectively.)
26. [S.8] In contrast to SCO, IBM in 1998 had almost no presence in the market for UNIX-based operating systems on Intel chips. Instead, IBM had focused its efforts on its operating system called AIX for Power, which ran on servers using IBM's RISC-type Power processor. (Ex. 214 at 181047252; Ex. 166 at 8:11-9:17.)
27. [S.9] Accordingly, IBM began considering the benefits of partnering with Santa Cruz. A May 6, 1998 IBM document states: "Tight partnership with SCO to exploit their code, channels, attract ISVs with a single AIX O/S marketed by both companies to be explored." (Ex. 189 at 1710117588.)
28. [S.10] In an IBM confidential memo dated July 30, 1998 concerning IBM's UNIX Strategy, addressed to IBM's CEO Lou Gerstner, IBM's R.M. Stephenson discussed Santa Cruz's competitive position in the Unix-on-Intel market. (Ex. 204 at 1710117641.) Lou Gerstner was informed: "While HP and Sun have been successful at driving commitments to 64-bit Intel, today's clear leader in the UNIX on Intel market is Santa Cruz Operation (SCO) with over 80% of the $3B Unix-Intel market." (Id.)
29. [S.11] An IBM document dated August 5, 1998 related to a "strategic issue discussion" of UNIX and Java, reflecting Mr. Gerstner as an attendee, describes Santa Cruz's strong market position. Specifically, the document states: "Based on 1997 estimates, SCO captured 15% of the revenue and 40% of the volume in the UNIX industry [IDC [International Data Corporation], quoted on SCO's website]. In the segment of UNIX operating systems running on Intel processors, SCO was believed to have 80% of the revenue." (Ex. 197 at 1710136584.) The IBM document further states that "SCO's operating system is an important component for solutions in the Intel high-volume server market" and that "[s]olutions built on SCO provide the robustness and extendibility of UNIX with the cost advantages of an Intel platform." (Id. at 1710136589.)
30. [S.12] In addition, the August 5, 1998 IBM document describes Santa Cruz's market segments, customers, and applications. (Id. at 17101365890-92.) For instance, it states that independent software vendors ("ISVs") work with Santa Cruz because Santa Cruz has "one of the industry's strongest support infrastructure, with over 10,000 authorized resellers, 100 distributors, 250 vertical solution providers and system integrators, and 140 education centers" and because Santa Cruz had "Dominant marketshare in Telecom and In-store Systems in Retail Industries (e.g., installed in 14 out of top 16 biggest pharmacies, all major auto-part stores and grocery stores)." (Id. at 1710136591.)
31. [S.13] Santa Cruz's technology was also attractive to IBM for another reason:
Santa Cruz's UnixWare 7 operating system was based on UNIX System V Release 4 ("SVr4") technology, the most recent version of UNIX. (Ex. 354, ¶ 9; Ex. 362, ¶ 9.) In contrast, IBM's AIX operating system was based on an earlier UNIX release. (Ex. 205 at 181017195.) Santa Cruz owned the more recent UNIX source code. (Ex. 227 at 181472999.) IBM had opted not to buy from SCO an upgrade of its UNIX license to the SVr4 code base. (Id.) 32. [S.14] Like Santa Cruz's UnixWare, Sun Microsystems' UNIX operating system, Solaris, was based on SVr4 code. (Ex. 205 at 181017194.)
33. [S.15] Some at IBM perceived Sun Microsystems ("Sun") as a significant competitor, and expressed that incorporation of SVr4 code into AIX would help it compete against Sun, whose Solaris product had steadily been gaining market share at the expense of IBM's AIX. (Ex. 285 at 76-77 (quoting contemporaneous documents); Ex. 216 at 181677477-79; see also paragraph S.42, infra, for details on IBM's interest in obtaining the SVr4 code to compete with Sun.)
34. [S.16] In October 1998, IBM "announced a major UNIX operating system initiative with a number of industry partners" (Ex. 240 at 1), specifically, Santa Cruz, Sequent, and Intel; and this initiative came to be known as Project Monterey. (Ex. 240; Ex. 354, ¶ 9; Ex. 362, ¶ 9; Ex. 17 ¶ 9). Project Monterey was described by IBM as a "major UNIX operating system initiative" (Ex. 214 at 181047251) that would deliver a "single UNIX operating system product line that runs on IA-32, IA-64 and IBM microprocessors, in computers that range from entry- level to large enterprise servers." (Ex. 240 at 1.)
35. [S.17] In the press release announcing Project Monterey, IBM stated: "We're extending into broader markets with our award-winning AIX software that delivers the reliability and security required of an enterprise-class operating system . . . . Working with these companies, we're capitalizing on the base of proven leadership technologies to deliver the world's best UNIX on Power microprocessor and high-volume Intel microprocessor systems." (Ex. 240 at 1-2.)
36. [S.18] The agreement between Santa Cruz and IBM was reflected in a Joint Development Agreement ("JDA"), signed by the parties and dated as of October 1998. (IBM Ex. 245, at 1710141492; Ex. 214 at 181047251.)
37. [S.19] Through the JDA, the parties undertook to jointly develop an operating system that would run on Intel's forthcoming 64-bit chip. This operating system was defined as the "IA-64 Product" (sometimes referred to herein as the "Project Monterey Operating System"). The "IA- 64 Product" was to be part of a "family of products" that would be sold by IBM and Santa Cruz. (IBM Ex. 245, at Preamble and § 1.10 (JDA); Ex. 166 at 21:6-9; Ex. 214 at 181047252; Ex. 191 at 1710013164.)
38. [S.20] The agreement contemplated that Santa Cruz would continue to develop and sell its 32-bit operating systems and would also be able to upgrade or migrate its customers to the jointly developed Project Monterey Operating system on the 64-bit chip. (IBM Ex. 245 at Preamble and §§ 1.9 and 9.0-9.4 (JDA); Ex. 214 at 181047252-53; Ex. 176 at 181441556.)
39. [S.21] The agreement provided that, after a "generally available" "Release 1" of the IA-64 Product, IBM would earn a license to use any SVr4 source code contained in Release 1 in its existing products, such as AIX for Power. This would make it easier for customers to migrate from AIX and the Power microprocessor to the Project Monterey Operating System and the 64-bit processor. (IBM Ex. 245 at § 2(d)2 (JDA); Ex. 81 at § 4 (JDA Supplement B); Ex. 85 at 1710013964 (JDA Amendment 5); Ex. 214 at 181047252-53; Ex. 17 at ¶ 9.)
40. [S.22] One of the goals of the agreement was to enable that both SCO customers (using Santa Cruz's UnixWare operating system software on computers with Intel's 32-bit processors) and IBM customers (using IBM's AIX for Power operating system software on computers with IBM's Power processor) to upgrade to the jointly developed Project Monterey
Operating System software (the IA-64 Product), which was to be compatible with computers using either the 32-bit or the 64-bit Intel chip or the IBM Power chip. (Ex. 214 at 181047252-53; Ex. 176 at 181441556 (11-3-98 draft of "SC98, High Performance Networking and Computing: Executive Overview" stating: "IBM and SCO offer a smooth migration path from
AIX to IA-64 and from UnixWare to IA-64".)
41. [S.26] In an e-mail dated October 15, 1998, the same month the JDA was signed, IBM executive William Sandve asked internally, in response to a draft of a planned IBM Linux announcement: "Does the announce message on Linux needed for 10/26 undermine the SCO alliance and the Monterey Family strategy to the degree that we would need to rethink our SCO
relationship plans?" (Ex. 191 at 1710013164.)
42. [S.27] In early 1999, an IBM executive stated that the "SCO/Monterey plans should not be stopped until we have a better plan to move to." (Ex. 234 at 181349130.) An undated IBM memorandum describes five options, one of which was the "elimination of SCO" and "[r]eplac[ing] UnixWare with Linux" as IBM's vehicle for entry into the "low end" segment
of the UNIX-on-Intel market. (Ex. 371 at 181526163.) However, the memorandum cautioned that, under this option, IBM would not attain the right to use the SVr4 code, and therefore SCO and its UnixWare "should be retained in order to have access to SCO's SVR4/5 and other technologies." (Id. at 181526164.)
43. [S.28] IBM then began cutting the Monterey budget, causing employees to question the viability of the project:
a. A January/February 1999 IBM document states: "Current budget outlook which factors in a substantial challenge from SG Development and additional unfunded Monterey family line item content, would result in an uncompetitive AIX/Monterey product line by 2H2000." (Ex. 368 at 181442681.)
b. In February 1999, an IBM employee stated in an internal e-mail that IBM was not "investing in the tools to make Monterey successful." (Ex. 242 at 181016130.)
c. In March 1999, an IBM employee stated in an internal e-mail, "I know that this is not an either/or decision, but working on both Monterey and Linux is defocusing." (Ex. 236 at 181349188.)
d. In February 1999, an IBM employee stated in an internal e-mail, "Below is a note that notes the high degree of concern I am hearing from my technical team and others concerning Linux strategy and the collision with Monterey." (Ex. 187 at
181016068.)
44. [S.29] In March of 1999, IBM publicly announced its support of Linux at the LinuxWorld event (IBM Ex. 21 at 4) - a fact which IBM admits in its brief (at ¶ 12).
45. [S.30] However, IBM continued to tell SCO and announce publicly that it was also fully supporting Monterey as its enterprise level operating system. For instance, in an August 10, 1999 article about IBM's support of both Linux and Project Monterey, IBM assuaged concerns:
IBM's John Prial said Big Blue is comfortable with many operating systems under its roof, and that AIX today and Monterey tomorrow will sell in a different area than Linux. "We're very comfortable having many operating systems," he said. "Monterey will be popular in high business-value transactional systems and heavy-duty business intelligence," Prial said. Linux, on the other hand, currently is popular in Web servers, file and print servers, and other smaller-scale computers, though that could change two or three years down the line.
(Ex. 252 at 2.). In addition, IBM made representations directly to SCO that "nothing has changed with respect to the AIX/Monterey initiatives" (Ex. 186 at SCO1235090) and IBM was "pursuing Project Monterey vigorously." (Ex. 351 ¶¶ 17; see also id. ¶ 22.)
46. [S.31] SCO believed IBM's representations. (Ex. 351, ¶¶ 17-18; Ex. 17 ¶ 10; Ex. 351 ¶ 17.) In an August 19, 1999 article about IBM's support of Trillian (the IA-64 project for Linux), Santa Cruz CEO Doug Michels was quoted as follows:
"IBM is not looking at Trillian as an alternative to Monterey. The real interest in Linux is coming from all the software companies that sell databases and transaction based tools because they are frustrated that Microsoft more or less gives these things away as part of the Back Office bundle. So they say 'if you give us a free OS, we'll make money from it'."
But Trillian is not intended to make Linux an enterprise class OS and there are no real efforts elsewhere to do so either, he claimed.
(Ex. 253 at 1-2 (emphasis added); see also Ex. 351 ¶ 18.)
47. [S.32] However, IBM executive Sheila Harnett stated in an internal November 1999 e-mail: "The distinction used to position Monterey versus Linux is that Monterey is targeted for high-end servers, whereas Linux comesin at the lower to mid range of servers. However, this distinction is a fragile one, since IBM is working as fast as it can to bolster Linux's ability to compete in the mid to high end range of servers." (Ex. 175 at 181436864(emphasis added).)
48. [S.33] In late 1999 and 2000, IBM executives made the following recommendations regarding Monterey and Linux:
a. In an internal October 1999 e-mail, IBM executive Irving WladawskyBerger identified as a "possible solution" to a perceived IBM problem, among other things: "Embrace Linux in a very major way" and "Drop Monterey, with a transition to Linux for whatever commitments we have in place" and "move at lightning speed." (Ex. 183 at 181668451.)
b. In an internal November 1999 e-mail, another IBM executive stated:
"Wild thought . . . instead of taking NUMA-Q to Monterey, why don't we take it to Linux. We then get a high end Intel/Linux play. (Ex. 301 at 181518284.) By contrast, a July 1999 IBM document states: "The Project Monterey line will be strengthened by the incorporation of Sequent's innovative technologies including NUMA architecture . . . ." (Ex. 214 at 181047252.)
c. In an internal May 2000 e-mail, IBM executive Steve Mills stated: "As soon as possible we should announce," among other things, "A transition of our AIX and Monterey efforts to Linux." Among other things, he stated: "Monterey will not gain enough industry following to be viable," and, "Our resources and messages are fragmented. We need a bold move that is without qualification. We need a single marketing and sales message." (Ex. 184 at 181669431-32) (emphasis added.)
d. An IBM internal memorandum expressly recognized that, if IBM opted for this strategy, it would "document identifies one of the "Cons" of delivering a Monterey branded version of Linux as follows: "Likely to squeeze target opportunities for [SCO's] UnixWare from low end. Not only is the result loss of revenue for SCO, but this may also damage the volume proposition for Monterey business partners (ISVs, resellers, system integrators, etc.)." (Ex. 371 at 181526162-63.)
49. [S.35] In direct contrast to IBM's internal de-emphasis on Monterey, at a December 21, 2000 OEM Council Meeting, IBM's Charlie Reese reassured the Monterey participants, including SCO: "We have a strong commitment to remain focused on Itanium." (Ex. 172 at 181005905.)
50. [S.36] Even as IBM was publicly stating its support for Monterey but internally transitioning away from Monterey to Linux, IBM obtained SCO's SVr4 code through the partnership and used it in its non-Intel AIX for Power product.
51. [S.37] On October 24, 2000, IBM placed Santa Cruz's SVr4 source code into a PRPQ (IBM's internal name for a beta test version), "early adopters" of AIX for Power (named AIX 5L for Power 5.0), which was intended for certified software developers and "not intended for general production use." (Ex. 289.)
52. [S.38] Then, on May 4, 2001, IBM included Santa Cruz's code in the first "generally available" version (AIX 5L for Power 5.1). (IBM Ex. 229 at 30:12-15, 30:22-31:10, 33:8-23, 107:21-32; Ex. 229; Ex. 82 at 3-4.)
53. [S.39] The SVr4 code IBM placed in AIX for Power was valuable to IBM's strategy for competing with Sun's Solaris operating system. This was achieved through IBM's use of SVr4 code to enhance the affinity between AIX and both Solaris and Linux. In addition, IBM used SVr4 code and expertise obtained from Santa Cruz through Project Monterey to mature Linux into a commercially hardened operating system capable of handling missioncritical workloads. (Ex. 286 at 36-43, 76-77; Ex. 287 at 9, 37-38.)
54. [S.40] IBM has continued to use SCO's code in every subsequent version of AIX 5L for Power. Indeed, IBM is still distributing AIX 5L for Power, which continues to contain SVr4 code, to this day. (IBM Ex. 229 at 30:12-15, 30:22-31:10, 33:8-23, 107:21-32).
55. [S.41] IBM fully recognized that this SVr4 code it was using had come to IBM from SCO via Project Monterey:
a. On April 24, 2001, an internal IBM e-mail from Kim Tom listed the "functions/features that are available on AIX 5.1 for Solaris Affinity," and added that in "the next phase we are planning to bring up a number of the base commands to SVR4
level using SCO code." (Ex. 225 at 181472943.)
b. On May 18, 2001, IBM executive William Sandve stated that IBM had secured the SVr4 code that was incorporated into AIX "in our Project Monterey relationship with SCO, who owns the SVR4 code base." (Ex. 227 at 181472999.)
c. On June 15, 2001, Mr. Sandve stated: "Truss is a SVR4 tool . . . . Since AIX is not a SVR4 licensee, AIX has never supported this specific tool in the past. In AIX5.1 however, because of our joint code development with SCO (Project Monterey) who owns the SVR4 source code base, we gained rights to provide this and other selected functionality in our AIX5.1 code release . . . ." (Ex. 230 at 181473050.)
56. [S.42] As discussed above at Paragraph S.15, this SVr4 code was fundamental to IBM's ability to establish greater affinity between its AIX operating system and Sun's SVr4-based Solaris operating system, and thus, lure Sun's customers to IBM. It was highly valuable to IBM for that reason. (Ex. 286 at 76-77.) The value and necessity of SCO's SVr4 code to
IBM's strategy to compete against Solaris is reflected in IBM documents detailing how IBM used SVr4 code it gained access to in Project Monterey to create "Solaris Affinity" in AIX for Power. (Ex. 225 at 181472943; Ex. 373 at 181473004; Ex. 229 at 181473018-19; Ex. 230 at 181473042-43; Ex. 372 at 181473052-53.)
57. [S.43] AIX 5L for Power, which ran on RISC - not Intel - architecture was not the "IA-64 Product" under development in Project Monterey, and SCO could not collect any royalties or other benefit from its sales. (IBM Ex. 245 at §12 (JDA provision setting forth that royalties are only to be paid to SCO for IBM's distribution of Release 1 of the IA-64 product)).
Thus, SCO would benefit and IBM would obtain the right and license to use SCO's SVr4 code it obtained through Project Monterey in AIX for Power only if IBM in good faith completed and released a working, generally available Project Monterey Operating System (the IA-64 Product):
a. Project Monterey Supplement B to Agreement Number 4998CR0349 Version 1.0 February 19, 1999, at Section 4, states: "The Licensed Materials detailed in Attachments 3 and 4 are to be used solely for development of the IA-64 Product. Notwithstanding the foregoing, any such Licensed Material included in the IA-64 Product Release 1 shall be licensed pursuant to the terms and conditions set forth in the [JDA]." (Ex. 81 (JDA Supplement B).)
b. The fact that Release 1 had to be a "generally available" release is evidenced by Project Monterey Amendment 5 to Joint Development Agreement 4998CR0349, which excepts from royalty payments under the JDA any "distribution of Pre-Release IA-64 product" - which was defined to mean any distribution that is prior to "general availability of the IA-64 Product Release 1." (Ex. 85 (JDA Amendment 5, executed October 15, 1999); see also Ex. 17 ¶ 9, Ex. 35 ¶ 15.)
58. [S.45] Once IBM used the SVr4 code in AIX for Power, it fully recognized that it could not legitimately back out of Monterey (as some IBM executives had urged) while keeping the code. On May 11, 2000, IBM executive Helene Armitage stated:
We will need to renegotiate the rights to ship SVR4 and UW7 capabilities in the AIX base, or remove the code. Actually shipping it with AIX is the preferred direction, because it helps us with Solaris compatibility issues.
(Ex. 96 at 181511617 (emphasis added).)
59. [S.46] Similarly, a June 2000, report of the IBM Academy of Technology OS Consultancy states, with regard to a potential revolutionary transition from AIX to Linux, that: "backing off from our Monterey commitments will have nontrivial legal implications." (Ex. 239 at 181291955 (emphasis added).)
60. [S.47] IBM was also interested in using SCO's code to advance its Linux initiatives:
On May 11, 1999, IBM executive Krieger sent an e-mail detailing IBM's need for SCO's SVr4 ABI and ELF code in order to implement "game chang[ing]" strategy of making Linux enterprise hardened. (Ex. 217 at 181510778.)
b. In July 2000, IBM programmer Kaena Freitas informed his colleagues that IBM would not have the right to include SVr4 code in AIX for Power unless and until there was a "generally available" release of the Project Monterey Operating System: "I believe the SCO agreementstates that if we don't ship the code when we GA Monterey, we will lose the rights to the code." (Ex. 198 at 1710057885 (emphasis added).)
c. On September 13, 2000, an internal IBM e-mail from Michael Day stated: "It would be useful to get favorable licensing termsthat would allow us to open source the X86 emulation code on IA64 that SCO did, that we have since revamped to support Linux IA32 binaries." (Ex. 219 at 181525203.)
d. An undated IBM document states: If resource availability is not a constraint, delivering an IBM Monterey Linux product should be selected. This option could be improved upon if we could convince SCO to change their company strategy to be a Linux strategy and remove UnixWare from Monterey product line while keeping SCO involved in Project Monterey. If not, UnixWare should be retained in order to have access to SCO's SVR4/5 and other technologies.(Ex. 371 at 181526164 (emphasis added).)
e. On January 12, 2001, IBM programmer Kaena Freitas explained that SCO code was used to create a Linux affinity package in AIX 5L for Power as a response to Sun. He acknowledged that IBM would have the right to use SCO's SVr4 code in AIX 5L for Power only if IBM included the SVr4 code in a publicly available version of the Project Monterey Operating System. (Ex. 221 at 2.) IBM had to "make this technology available . . . [or] forfeit IBM's rights to the code as signed between IBM and SCO."
61. [S.48] A May 11, 2000, e-mail from Helene Armitage of IBM states:
If the goal of canceling Monterey is to speed up work on Linux, I can take much more action in parallel with a slower move off Monterey. If the largest concern is a naked OS, we can probably play the chicken-and-egg game at the launch - saying that ISVs are just coming on board, that this is the first release . . . .
(Ex. 96 at 181511618 (emphasis added).) (Id.)
62. [S.50] A January 27, 2001, an internal IBM e-mail from Warren Washington asks for comments on "our IA plans" including: "Release AIX 5.1 for IA-64 as an I-Listed PRPQ on the planned April schedule" and "Compilers are not included in the PRPQ . . . ." (Ex. 97 at 181014956.) Internally at IBM, an I-Listed PRPQ (Programming Request for Price Quote) is a developmental, beta test version, intended for certified software developers, not for general use, and only available to customers who have IBM lab approval. It is something entirely different from a GA (Generally Available) release. (Ex. 72 at 46:14-16; Ex. 289; Ex. 374 at 87:19-88:6; Ex. 166 at 135:2 to 135:4.)
63. [S.51] In a January 29, 2001, internal IBM e-mail, IBM employee Rose Ann Roth replied to Warren Washington's January 27 e-mail: "I think the compiler MUST be available in some form or the whole thing just doesn't make any sense (i.e. SCO won't buy it)." (Ex. 97 at 181014956.)
64. [S.52] Nevertheless, on April 17, 2001, IBM announced the pretextual availability of AIX 5L for Itanium as an I-Listed PRPQ, and made it "available" on May 4, 2001. (Ex. 89 at 181015076; Ex. 97 at 181014956.) Unlike the PRPQ of AIX 5L for Power in October 2000, the PRPQ of AIX 5L for Itanium was so spurious it did not even have a compiler to make it work and there was "no confirmed compiler plan." (Ex. 301 at 181015003.) Moreover, the PRPQ was offered free of charge, without support. (Id.)
65. [S.53] A compiler is a program that takes an application and processes it, or "translates" it, to allow it to run on specific computer architecture. (Ex. 72 at 142:23-143:1.) As IBM executive Anthony Befi stated: "If a compiler wasn't available there wouldn't be applications to run on it, so you wouldn't sell very many." (Id. at 159:4-17.)
66. [S.54] IBM's own experts and witnesses have admitted that software not containing a compiler cannot legitimately be called an "operating system." (IBM Ex. 208 at 28; Ex. 166 at p. 81:7-9.)
67. [S.55] Indeed, IBM distributed only 32 copies of the sham PRPQ in 2001. (Ex. 159 at 1710118968-69.) Curiously, although IBM did not charge a fee for the premature PRPQ, and therefore owed no royalties pursuant to JDA Amendment 5, IBM tendered to SCO a $256 royalty for these copies. (Id.; Ex. 85 at 1710013964.) The PRPQ was not on IBM's price lists, and was not marketed. (Id.)
68. [S.56] In short, this pretextual PRPQ was not the functional, generally available Release 1 contemplated in Project Monterey, and IBM recognized this. IBM's "AIX 5L for Itanium strategy" was to "continue to ship AIX 5L as a PRPQ" in "stealth mode only." (Ex. 89 at 181015076 (emphasis added).) In addition, even as it was announcing the premature PRPQ, IBM plotted: "At the appropriate time announce plan not to GA AIX 5L and withdraw the PRPQ." (Id.)
69. [S.57] Nevertheless, IBM shrewdly developed its external positioning on this product in order to try to maximize its appearance of satisfying the Monterey requirements. On April 4, 2001, William Saulnier sent Ms. Armitage an e-mail containing a draft proposal for the "AIX 5L Announce Positioning Re Itanium." (Ex. 88 at 181028285.) He stated: "I believe this proposal does the best possible job to announcing what we intend to do while allowing us some increased flexibility with regard to NUMA-Q directions." (Id.) Ms. Armitage largely rejected his proposal, indicating that she took a "heavy hack" at his thoughts. (Id. at 181028284.) She stated: "I'm concerned that your words define a delayed GA to 2H01 for the AIX product, and do not call the PRPQ GA, so I have taken a stronger hand in stating our delivery." In other words, Ms. Armitage was concerned that Saulnier did not describe the premature PRPQ as "GA" or "generally available." Ms. Armitage then explained: "As you know, we need to GA this PRPQ to gain rights to SCO code we want for our base AIX product delivery - and every [one] is rather tired of me remaining and harping on this point." She then went on to articulate the
external position she wanted to see on the product, but acknowledged, "I know the fine lines we are walking here." (Id.)
70. [S.58] On April 23, 2001, in an e-mail entitled "IBM Confidential: Conflicting messages on AIX-5L support for IA/64 Itanium," IBM employee Atul Gupta asked for a clarification of what he described as the "two conflicting messages" that were delivered. (Ex. 90 at 181472978-79.) On May 2, 2001, William Saulnier responded, providing the "[c]urrent messaging in a nutshell":
AIX 5L is available on POWER and Itanium based servers It is GA [i.e., generally available] on POWER and available as a controlled release on Itanium (due to lack of GA servers at this time) IBM plans to move this product to GA status in the future We continue to work with our OEM partners. . . .
Id. at 181472975 (emphasis added).) Mr. Saulnierthen went on to state:
There are significant challenges for AIX 5L which will have to be overcome before we would GA the product. The compiler issue is currently open, the processor is very late, Linux is gaining momentum and capability.
Id. (emphasis added).)
71. [S.59] In contrast to IBM's external "messaging," a July 22, 2001, internal IBM e-mail from Bill Sandve described "[t]he net internal position" as "AIX/IA64 is dead" and "gone" and "not going to happen." (Ex. 91 at 181473067.)
a. On July 20, 2001, IBM employee Gerry Hackett sent Bill Sandve an email with the subject "AIX on IA64," asking: "What is the party line when customers indicate interest?" (Id. at 181473068.) Mr. Hackett explained to Mr. Sandve that he was in a briefing for the customer "BP" when the customer expressed interest in AIX on IA64. (Id.)
b. The next day Mr. Sandve responded by explaining both IBM's "internal position" and its "external position" on AIX on IA-64:
The net internal position: AIX/IA64 is dead. The IPMT direction to the PDT was that it should not bring forward a plan dcp package for continued product development in 2002. Do not encourage BP to consider AIX 5L on an XSeries box since it is not going to happen.
The external position: Although Saulnier and mktg team do not want to distribute any formal statement, even internally, here's what we've been saying:
We have been disappointed in the schedule slips and lack of progress on the rollout of Itanium processors. Based on the
substantial delays and the related lack of near-term interest by many of our ISVs, the AIX/Itanium product is on hold as we
evaluate what the right level of investment and should be. The AIX 5L for Itanium I-PRPQ remains available for evaluation use as may be appropriate. (It is available only as-is without support, as is the VA complier it was built with).
(Id. at 181473067 (emphasis added).)
c. Mr. Sandve also acknowledged to a colleague: "As for Monterey - I think it could have been used to make sure that HP would not have yet another chance to survive in spite of their confused strategy. The facts are, though, that the rest of IBM just would not support us - when the VA complier[sic] was allowed to drop support for AIX/IA64, the OS was already gone." (Id. at 181473066 (emphasis added).)
d. As an I-Listed PRPQ available only to lab-approved IBM customers, the sham May 2001 PRPQ patently was not "generally available." Nevertheless, IBM in bad faith described this sham to SCO (but to no one else) as a true, "generally available"
product. (Ex. 376 at SCO1184064.)
72. [S.60] However, as IBM's Ron Saint Pierre tellingly stated on November 1, 2001: "Monterey has not gone GA and never will." (Ex. 86 at 1710066677) (emphasis added.) Outside observerssimilarly noted that "AIX for Itanium never went beyond beta." (Ex. 67 at 2.)
73. [S.61] Caldera International (plaintiff SCO) closed its acquisition of the UNIX assets of Santa Cruz on May 7, 2001, three days after the sham PRPQ of the Project Monterey Operating System. (Ex. 141 at 1710137001.) This acquisition was publicly announced on about August 1, 2000. (Ex. 113; Ex. 142.)
74. [S.62] Several weeks before the public announcement, Santa Cruz complied with Section 16.1 of the JDA and provided IBM with a detailed notice of the proposed transaction and an opportunity to tender a counteroffer within 15 days, pursuant to Section 16.2 of the JDA. (Ex. 206 (6-21-00 Santa Cruz's notice to IBM of Caldera offer).)
75. [S.64] In 2001 IBM affirmatively indicated approval of the Santa Cruz-Caldera deal by offering to enter into a Support Services Agreement for AIX 5L for Interim-Board Systems ("SSA"). (Ex. 291, Ex. 335; Ex.222; Ex. 209; Ex. 354, ¶ 14; Ex. 362, ¶ 12.) The SSA was drafted to cover any "Generally Available" release of the IA64 Product (but which excluded "Pre-Release" developmental beta distributions such as the forthcoming pretextual PRPQ). The proposed SSA also included a "no liability" clause that would have released IBM from any intellectual property infringements. The agreement was not executed. (Ex. 209 (5-18-01 draft Services Agreement between IBM and Caldera).)
76. [S.65] Moreover, long after the announcement of the transaction, IBM reiterated its "strong commitment" to Project Monterey. At various meetings with executives of both Caldera and Santa Cruz, IBM reiterated its support (Ex. 172 at 181005905; Ex. 17 ¶ 10; Ex. 351 ¶ 17; Ex. 356 ¶ 6; Ex. 6 ¶ 15.)
77. [S.66] Before the transaction was closed, Caldera met with IBM representatives, who affirmatively discussed plans for continuing with Project Monterey. IBM's team never suggested that IBM intended to terminate the Project or that they thought the Project would not or should not continue once Santa Cruz sold its UNIX assets to Caldera. (Ex. 356 ¶ 6; Ex. 6 ¶
15.) Caldera's representatives were led to believe that IBM would continue the project after the closing. (Id.)
78. [S.67] IBM timed the May 4, 2001 sham PRPQ of the Project Monterey Operating System to occur just three days before the May 7 closing of the Santa Cruz-Caldera transaction. (Ex. 89.) On the same day, IBM released the first "generally available" version of the SRV4-enhanced AIX 5L for Power. (Ex. 82.) Then, shortly after the closing, and after
execution of its pretext for claiming that it had earned the right to use the SVr4 code in AIX for Power, IBM invoked Section 15.2 and cancelled the JDA. (Ex. 207 at 1710013930.)
79. [S.68] In light of IBM's pre-closing conduct, IBM's cancellation was a major shock and disappointment to Caldera, since the joint venture with IBM was critically important to Caldera's decision to acquire SCO's UNIX assets and Caldera had fully expected to proceed with IBM on Project Monterey. (Ex. 362 ¶ 13; Ex. 269 ¶ 8; Ex. 356 ¶ 6; Ex. 6 ¶ 15.)
80. [S.72] Furthermore, even if SCO knew by March 2001 that its SVr4 code had been used in IBM's PRPQ beta test release of AIX 5L for Power 5.0 in October 2000, this alone would not have been cause for concern or suspicion, because it was expected that IBM would fulfill its obligations and earn the contingent license to use the SCO code in its other products. In fact, it was expected that an SVr4-enhanced AIX 5L for Power would be a part of the Monterey "family" of operating systems. SCO certainly did not know in March 2001 that IBM had no intent to fulfill the obligations that would have legitimized its use of that code. SCO did not actually learn of IBM's use of SVr4 code until 2004, during discovery in this case. (Ex. 57; Ex. 354 ¶¶ 19-20; Ex. 362 ¶ 15, Ex. 351 ¶ 17.)
81. [S.73] IBM was still grappling with its Monterey positioning - in response to a query from SCO - in late 2002, over a year after it terminated the project. In an October 2002 email, Bill Bulko (assistant to IBM executive Anthony Befi) stated: "Tony and I were in a conference call with SCO Group (formerly called Caldera) on Friday. . . . During our discussion,
they asked about Project Monterey and what its current status and positioning are. We told them that it's a PRPQ, and explained what that meant - but neither Tony nor I were confident that we were up-to-date on what the current 'official response' should be." (Ex. 57 at 1710015451; Ex. 72, at 38:13-16.)
82. [S.74] On November 6, 2002, Mr. Bulko then sent a "Project Monterey update" to Mr. Befi, indicating, "Tony: you asked me to collect some data on the current status of Project Monterey in order to update you before you meet with SCO (Caldera) again . . . . Here is a capsule summary of our position with Project Monterey." (Ex. 84 at 1710015441.) He then
explained: "The deal was to do joint development, and then establish licensing back and forth between the two companies. The license would be royalty-free everywhere else except in Monterey. Even though SCO code is now embedded within AIX, we would only have to pay royalties to SCO when we distributed Monterey." (Id.) He further stated: "Our initial license to SCO code was contingent on our making an attempt to distribute an IA-64 product. Consequently, we need to be clear that we have been trying to distribute Monterey, but no one wants it." (Id.) (emphasis added). Mr. Bulko further disclosed that IBM had "no plans to make AIX available on the Itanium platform" and was "planning to EOL [end of life] Monterey by the end of this year." (Id.)
83. [S.75] Although SCO had specifically requested this information, Mr. Befi never relayed this update to SCO. (Ex. 72 at 57:24-58:2.)
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