1 1 IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA 2 IN AND FOR THE COUNTY OF SANTA CLARA 3 BEFORE THE HONORABLE LESLIE C. NICHOLS, JUDGE 4 DEPARTMENT NO. 21 5 ---OOO--- 6 7 DVD COPY CONTROL ASSOCIATION, INC.,) A DELAWARE CORPORATION, ) 8 PLAINTIFF,) ) 9 VS )NO.1-04-CV031829 KALEIDESCAPE, INC., A DELAWARE ) 10 CORPORATION, ) DEFENDANT.) 11 __________________________________) AND RELATED CROSS-ACTION ) 12 13 14 15 REPORTER'S TRANSCRIPT OF PROCEEDINGS 16 HELD ON MARCH 29, 2007 17 18 19 20 APPEARANCES: 21 FOR THE PLAINTIFF: 22 BY: WILLIAM COATS, ATTORNEY AT LAW BY: HEIDI L. KEEFE,ATTORNEY AT LAW 23 BY: MARK WEINSTEIN, ATTORNEY AT LAW BY: MARK LAMBERT, ATTORNEY AT LAW 24 BY: SAM O'ROURKE, ATTORNEY AT LAW 25 FOR THE DEFENDANT: BY: THOMAS E. MOORE, III, ATTORNEY AT LAW 26 BY: RICHARD R. WIEBE, ATTORNEY AT LAW BY: NICOLE V. ECONOMOU, ATTORNEY AT LAW 27 COURT REPORTER: MICHELLE V. LARIOS 28 C.S.R. NO. 9244, C.R.P. NO. 043 2 1 SAN JOSE, CALIFORNIA MARCH 29, 2007 2 3 PROCEEDINGS: 4 (Whereupon, court convened and the 5 following proceeding were had:) 6 THE COURT: Good morning. We're all 7 together on the matter of DVD Copy Control 8 Association versus Kaleidescape, Inc. I think I 9 mentioned informally just a short time ago that I 10 would like to get your agreement on this. What I 11 thought I would do is deal with the nonsuit motion 12 first and then take a little recess and get set up 13 with my materials for announcing the decision on the 14 Plaintiff's case. 15 Is that agreeable? 16 MR. COATES: Yes, Your Honor. 17 MR. MOORE: That's fine, Your Honor. 18 THE COURT: First I want to come down from 19 the bench and thank you all for a job very well 20 done. 21 It's a necessity to work with people who 22 are not an A team. We all do that. But every party 23 has obviously brought the A team to the contest, and 24 I appreciate that because it makes -- helps direct 25 the Court away from error and in the direction of a 26 sustainable decision, which is not, of course, by 27 definition satisfactory to each party. 28 But I think it's underappreciated in the 3 1 community, the very important role of advocates in a 2 free society. Everybody complains about it until 3 they need them, and then they can't live without 4 them. And I lived in that environment for many 5 years, people asking me, how could you represent 6 someone when you know they're guilty? You know, 7 those kinds of questions. And then, of course, some 8 great celebrity or member of Congress is arrested, 9 and, of course, they're cloaked with all the 10 assumptions of a free society that they 11 appropriately should be cloaked with. 12 I'm going to first talk briefly about the 13 nonsuit, and I can take a short time on that, I 14 think. But I want to be real clear because the 15 rules concerning a nonsuit motion are pretty clear. 16 I'm going to state those rules in a moment. But 17 it's important that the grounds be stated. 18 And without getting in to rework this, I 19 understand that the grounds that were asserted were 20 three in number. But connected with that of 21 necessity was the -- the asserted ground that -- and 22 by virtue of those matters, there are not facts of 23 sufficient substantiality to submit to a jury. 24 Isn't that the gist of it? 25 MR. COATES: That's correct, Your Honor. 26 THE COURT: I think you understood that, 27 didn't you? 28 MR. MOORE: Yes, Your Honor. 4 1 THE COURT: The nonsuit motion represents 2 a balancing of interests that is reflected in the 3 law. There is a strong policy for trial on the 4 merits. Yet not at all surprisingly there are ways 5 in which parties can intervene from the beginning of 6 a lawsuit until a jury verdict or decision by the 7 United State Supreme Court to terminate the 8 litigation. And some of the vehicles, for example, 9 are the demurrer; the challenge to the legal 10 sufficiency of the complaint. 11 If Alfred files a complaint and says that 12 William hit him and he brings -- and he serves the 13 papers upon Jane. Jane may come before the Court 14 and say, This has nothing to do with me. Why am I 15 here? Please let me go home. The Court will say, 16 perhaps there's some inadvertence in the preparation 17 of your claim. I'll uphold the claim and allow you 18 to amend. And if you fail to do so, Jane is out of 19 the lawsuit. 20 There are other ways in which litigation 21 is terminated along the road of litigation. It 22 might be that one party consistently refuses to turn 23 over evidence, it's discoverable, making it 24 difficult or impossible for another party to defend 25 or prosecute their claim. And when that happens, as 26 you can well imagine, the law is not a blunt 27 instrument. It works at it level by level, 28 ordinarily determining whether the answer ought to 5 1 be provided, perhaps provide monetary sanctions to 2 level that playing field so someone can't crush the 3 other litigant by virtue of superior resources. 4 Moving it along, ultimately, perhaps, precluding the 5 evidence on an issue and sometimes terminating the 6 lawsuit as a last resort. 7 There was a decision in the appellate 8 court just the other day that showed that the courts 9 do take those obligations seriously. And we'll 10 exercise the most dramatic remedy available when 11 pressed. 12 You've also had experience with the motion 13 for summary judgment or summary adjudication. The 14 parties file papers. They enumerate what they claim 15 are undisputed issues of fact going to the merits. 16 Each party may seek to knock out the other person's 17 claim or a claim -- a whole claim. And the trial 18 court may grant or deny that. 19 The denial of the motion simply moves it 20 into the trial department. The grant may lead to a 21 review by the appellate court. And all judges who 22 serve for any duration have been reversed on those 23 close issues because it represents the real tension 24 between get rid of those frivolous lawsuits, you 25 hear about them in the newspaper, and, of course, 26 the strong policy on the adjudication on the merits. 27 Because as Americans we have a right to petition to 28 address grievances. It's right there in the 6 1 constitution. 2 And it moves into the trial department, 3 and understandably there is a little bit more flex 4 there. Muscle if not used atrophies. And then on 5 the other hand, the trial court will try to make 6 decisions to allow the case to fully come to 7 maturity if that can be done. 8 And so the mechanisms provided, some 9 statutory, some common law, some the legislature 10 adopted the practices of the court in express 11 legislation, start with the motions in limine, which 12 I heard. Actually, I -- to be clear on what 13 happened there, of course, I announced -- I 14 suggested that counsel may want to know my 15 preliminary thinking on those matters. Counsel 16 agreed. I did that. And no one pressed for a 17 ruling on any in limine at that time. Two of the 18 motions come up now in a nonsuit. Other than that, 19 no ruling was ever sought on those matters, and 20 evidence in the case came in leaving the motion in 21 an open way a very free admissibility of evidence 22 without objection in almost every particular. I 23 think in every way that counts. 24 That's one way that a case could be 25 terminated. That's very unusual that that occurs. 26 Another is at the end of the opening statement. 27 Another way is at the motion for judgment or 28 directed verdict, at the end of the presentation by 7 1 the plaintiff, or at the end of the presentation of 2 all evidence. Of course, then the Court has a role 3 in fashioning instructions that may take away or 4 limit certain claims, all of which is recorded. 5 Finally, there was a verdict, and then, of 6 course, there are motions for judgment 7 notwithstanding the verdict or a motion for new 8 trial. On the latter, a lot of discretion is given 9 to the very liberal rule of interpretation on the 10 appellate court. That very last motion the Judge 11 acts as, some have said, kind of like a 13th juror, 12 but in any event have substantial input in each 13 case. When they're jury fact-findings, obviously, 14 the courts examine that very closely. There are 15 those that we go about it. 16 This is a motion for nonsuit. There is a 17 leading case often cited. The case is Estate of 18 Lances, L-a-n-c-e-s. It's a 1932 case, at Volume 19 216, of the California Supreme Court reports, page 20 397. It's cited in Witkin on this subject, and 21 it's a classic case as the leading case. 22 And it reads as follows on this issue: "It 23 has become the established law of this state that 24 the power of the court to direct a verdict is 25 absolutely the same as the power of the court to 26 grant a nonsuit. A nonsuit or a directed verdict 27 may be granted only when disregarding conflicting 28 evidence and giving the Plaintiff's evidence all the 8 1 value to which it is legally entitled, herein 2 indulging in every legitimate inference which may be 3 drawn from that evidence. The result is that there 4 is a determination that there is no evidence of 5 sufficient substantiality to support a verdict in 6 favor of the Plaintiff if such a verdict were 7 given," close quote. 8 "Unless it can be said as a matter of law 9 when so considered, no other reasonable conclusion 10 is reasonably deducible from the evidence and that 11 any other holding would be so lacking in evidentiary 12 support that a reviewing court would be impelled to 13 reverse it upon appeal or the trial court to set it 14 aside. As a matter of law, the trial court is not 15 justified in taking the case from the jury. 16 "In other words, the function of the trial 17 court on a motion for directed verdict is analogous 18 to and practically the same as that of a reviewing 19 court in determining on appeal whether there is 20 evidence in the record of sufficient substance to 21 support a verdict." 22 I think that you did indicate very 23 candidly that in order to advance the claims on the 24 cross-complaint, the breach of contract or the 25 breach of implied covenant of good faith and fair 26 dealing and to reach a jury, you are -- you would 27 need the testimony of the mediator ombudsman. That 28 is my understanding. 9 1 MR. MOORE: Yes, Your Honor. 2 THE COURT: Okay. Fine. So that really 3 focuses the issue. 4 There were three grounds noted. I find it 5 necessary only to go to that second ground, as I 6 recall, which was basically that the mediator can't 7 be called. There is no evidence it can be presented 8 concerning the mediation process more generally. 9 And for that reason and really distinct from any 10 claimed merits that there cannot be evidence of any 11 substantiality to reach a jury. And I agree with 12 that proposition as a matter of law. 13 And I'll briefly refer to -- to make a 14 record of the things that I considered. I did 15 consider the summary adjudication order from Judge 16 Elfving. But, of course, it's not binding in any 17 way. The Judge followed the Court of Appeal 6th 18 District decision, it did not rule on evidence 19 objections. Other districts suggest it's required. 20 We'll get resolution on that some day. 21 But it really left open the question 22 because, of course, the motion's judge had to 23 balance a lot of different things, and we speak in 24 one voice. I'm just saying, well, I really don't 25 believe it's not my province at this time to dispose 26 of the cross-complaint in this way. 27 The law is absolutely clear that the 28 denial of a motion for summary judgment in no way 10 1 equates with any limitation on the authority of the 2 trial judge to grant a motion for nonsuit. 3 The Court read all the motions in limine, 4 and I take judicial notice of those. There were 5 attachments, and, as relevant, I've considered all 6 that. There were two motions in limine, Number 4 7 and Number 10, that were specifically presented. 8 And an opposition was filed with reference to Number 9 4, but not to 10. But I've taken into account the 10 briefings and the discovery order, so I have a good 11 sense of the arguments that were advanced there. 12 I take judicial notice of the filings and 13 orders in the case, including orders which quashed a 14 motion for production of documents and quashed -- I 15 think it was the deposition notice, wasn't it? 16 MR. COATES: Yes, Your Honor. 17 THE COURT: Those were orders from 18 discovery and the determinations of Judge Manoukian 19 in that regard, who was hearing discovery matters. 20 I think without going through all the 21 cases, I can say that I was recently attending a 22 California judges conference and Justice Gilbert 23 from the Court of Appeal in its annual review, and 24 he picked out these mediation on arbitration cases 25 for some discussion. And there are a number of 26 cases, really, collateral to what we have here. 27 What happens if the mediator and the parties say, we 28 have a deal, and they -- and they have a document 11 1 called, deal points or terms of agreement, but it 2 doesn't expressly provide, for example, that it 3 shall be enforced in court. 4 You know, it may be that it's protected by 5 the mediation privilege frustrating the reasonable 6 expectation of the party. But because of the strong 7 legislative policy, so mediators are learning to cap 8 the deal, say here's the pen. You want to subscribe 9 your name, then do it. That type of thing. 10 I think it's not necessary to prolong it 11 because I cited the various court orders. Let me 12 just refer to one case because I think it's 13 illustrative. And I try as best I can to be 14 informative to justify my decision so that people 15 can understand it. 16 This is the case, and it was attached by 17 Mr. O'Rourke to the reply to the Plaintiff's -- Re: 18 Plaintiff's Motion in Limine Number 4. It was a 19 photocopy of a California Supreme Court case, 20 Foxgate Homeowners Association versus Bramelea, 21 B-r-a-m-e-l-e-a. I'm not saying it's right on 22 point. There are so many cases that are now 23 developing in this area. I'll just refer to it. 24 I'm going to refer to the summary. It's not a 25 substitute to reading the whole case. I don't want 26 to bludgeon you into somnolence by reading this 27 whole thing. 28 This was a Supreme Court decision on July 12 1 9th, 2001, a unanimous decision, in a construction 2 defects action. The plaintiff homeowner's 3 association filed a motion, just a word for a 4 request for an order, against the defendant 5 developer and its attorney, under Code of Civil 6 Procedure 128.5, a sanctions provision, for failing 7 to participate in good faith in court-ordered 8 mediation and to comply with an order of the 9 mediator. 10 Now, if anything, that introductory 11 language suggests it's more supportive of the 12 Plaintiff's argument than less supportive because it 13 was court-ordered mediation, not contractual 14 mediation. So it would invoke the authority of the 15 court to control judicial processes. 16 Reading on, attached to the sanctions 17 motion were the report of the mediator and a 18 declaration by Plaintiff's counsel reciting 19 statements made during the mediation session. 20 The trial court granted the motion for 21 sanctions. The Court of Appeal reversed. It 22 concluded that a mediator may reveal material 23 necessary to place sanctionable conduct in context, 24 but that in this case the mediator's report included 25 more information than was necessary. 26 Now, there is no automatic right to appeal 27 to the California Supreme Court. There are some 28 direct appeals like death penalty cases. But 13 1 ordinarily review is discretionary on an application 2 called petition for hearing. The Supreme Court 3 granted a hearing and affirmed the judgment of the 4 Court of Appeal but only because the Court of Appeal 5 had reversed the sanctions order. 6 The Supreme Court held that the Court of 7 Appeal erred in judicially creating an exception to 8 Evidence Code Section 1119, confidentiality of 9 mediation communications, and Evidence Code Section 10 1121, confidentiality of mediator's reports and 11 findings. These statutes unambiguously conferred 12 confidentiality on the material at issue, and there 13 was no need to create a judicial exception to carry 14 out the purpose for which the statutes were enacted 15 or to avoid an absurd result. 16 I'm sure the moving lawyer said that's 17 absurd, the person stonewalled mediation, and the 18 court ordered it. No need to create a judicially 19 created exception to the statute. 20 The Court held that if on remand the 21 plaintiff -- I'm sending it back to the lower 22 court -- the plaintiff elected to pursue the 23 sanctions motions, no evidence of communications 24 made during the mediation could be admitted or 25 considered. Justice Baxter -- I've been instructed 26 from him ever since we were in the first year of law 27 school together -- expressing the unanimous view of 28 the court. 14 1 Now, of course, in this case we have an 2 Evidence Code provision that the mediator is not 3 competent to testify as a witness. And I think this 4 is quite instructive to the trial court in the 5 unanimous decision. And so on that ground without 6 the need to going into the purported contractual 7 waiver and whether that would be illustrative or 8 unduly harsh or things that might not properly be 9 attended to on nonsuit, I don't have an opinion to 10 express on that. I think the Court will take up at 11 this time -- I assume there is no objection for the 12 record; that is, there was a motion to quash the 13 subpoena of Geoffrey Tully. I will quash the motion 14 for the subpoena of Geoffrey Tully based on the 15 grounds stated. 16 But it's really the flip side of the same 17 coin, isn't it? That is, that I'm determining that 18 he would not be competent as a witness. And I think 19 it's merely part and parcel of what's been 20 presented. 21 Do you agree, or do you want to add 22 something? 23 MR. MOORE: No, I think you may have 24 misspoke. I think you said you wanted to quash the 25 motion. I think you mean you're granting the 26 motion. 27 THE COURT: Excuse me. I think I used a 28 double twist there. I mean there is motion to quash 15 1 the subpoena, and that motion is granted. 2 MR. MOORE: Okay. 3 THE COURT: Thank you. And so now I will 4 just say this is the kind of ruling that along with 5 any ruling can be tested on appeal. I will say now 6 what I will say later. I would urge the parties 7 within the time permitted by law, and for reasons 8 I'll suggest later, the second phase, to 9 reconnoiter, consult with counsel, consider the 10 options. Any grievous error should certainly be 11 corrected. 12 I don't view my decisions to be anything 13 other than the broad stream of the developing common 14 law and pursuant to law and statute, good reasoning. 15 But when I did hear the opening statement that by 16 virtue of a constellation of facts largely described 17 as follows: That the parties entered into a 18 contract; that there was a contract that provided 19 for a mediation ombudsman policy; that the plaintiff 20 referred the matter to mediation; that the -- 21 Dr. Malcolm and others spent a good deal of time 22 talking to Mr. Tully; that some months went by; that 23 they heard from Mr. Tully, who reportedly said on 24 the offer of proof, I haven't heard from DVD. I 25 thought that I would have heard. I would expect, 26 although I've never done a mediation for DVD in the 27 past, I would expect that I would be called upon to 28 report to them. And then later a lawsuit was filed, 16 1 that we all read newspaper accounts and so forth. 2 I don't take any account of that, the idea 3 that the corporation would be with the increasing 4 income that has been described would claim that by 5 virtue of that constellation of facts they're 6 seeking $12 million. I just lay it out to you to 7 consider. Certainly before a, quote, econometric 8 expert would jump up on the witness stand and talk 9 to a jury, some other judge or even me, if I were 10 entrusted with it -- sometimes people say the judge 11 is prejudiced after he's judged. But the point is 12 that some other judge would be called upon to 13 determine whether there is anything that an expert 14 could offer on that issue, possibly hearing out of 15 the presence of the jury, it's commonly done. 16 So that under the code there is a default 17 position, but I should make it clear. This 18 constitutes an adjudication on the merits. A 19 judgment entered would be incorporated in any other 20 judgment. 21 I would say just so there is no suspense 22 that although because either party on either claim 23 could later provide -- file a cost bill and a -- 24 including a request for attorney's fees, I will say 25 that although counsel said that as a courtesy I 26 could have reference to the earlier testimony in the 27 case, I really viewed this in terms of anything that 28 I had to do as really stand-alone on these papers. 17 1 It's to me in no way -- I did grant the 2 motion under 597 of the other phase in trial. I 3 don't view all of that time as anything to do with 4 this determination of law. That is the 5 determination. I think that covers the ground. 6 I want to look at my notes for one second. 7 Yes, I think I said everything that needs 8 to be said and no more on that motion. Are there 9 any questions? 10 MR. MOORE: No. 11 MR. COATES: No, Your Honor. 12 THE COURT: We'll take a recess because 13 I'll be going at it a longer time on the actual 14 adjudication on these fact issues. 15 MR. COATES: Very good. Thank you, Your 16 Honor. 17 (Whereupon, a short recess was taken, 18 after which the following proceedings were had:) 19 THE COURT: We're here together for the 20 Court to continue in announcing decisions in 21 connection with the submitted matter DVD Copy 22 Control Association, Inc., a Delaware corporation, 23 versus Kaleidescape, Inc., a Delaware corporation. 24 All parties, counsel are present. 25 I want to confirm what I believe we placed 26 on record yesterday. That is, what I say, and your 27 ability to get a transcript of what I say, will 28 constitute, obviously, my notice of intended 18 1 decision, but also the statement of decision unless 2 within the time periods prescribed in the Code of 3 Civil Procedure Section 632 and the corresponding 4 rules of court you proceed to file objections or 5 other proposed statements or take further action. 6 Is that agreed? 7 MR. MOORE: Yes, it is, Your Honor. 8 MR. COATES: Yes, Your Honor. 9 THE COURT: After I'm done I will, as I 10 indicated before, have a recess so that while these 11 matters are fresh in your mind if you wish to seek 12 further clarification, I'll give you that 13 opportunity to do so. This process of going back 14 and forth on papers is expensive enough without me 15 adding to your burdens. If I can be responsive, I 16 like to do that. 17 I want to say at this separate stage of 18 this proceeding, again, I want to thank counsel and 19 the parties for their courtesies throughout. It's 20 my knowledge that in the kind of work that I do 21 daily, somebody perceives that I've done violence to 22 them. Under rule of law, we make every effort to 23 see if parties can come to voluntary agreement, but, 24 of course, we have rules that need to be enforced. 25 And everyone would love to have their 26 favorite judge, but what you're entitled to is a 27 neutral person. I'm absolutely clear on that. And 28 hopefully someone that brings some background and 19 1 training and experience to the task. 2 There are lots of ways that that's 3 evaluated. Every two years our bar association 4 sends out questions, asks lawyers to rate the 5 judges. We are subject to the complaints of the 6 judicial performance commission. We went through 7 our own substantial review, a constitutional body, 8 before I became a judge 23 years ago, and subject to 9 the challenge at the polls every six years. And 10 having been a mayor, I've done that twice in a 11 nonpartisan capacity. I'm grateful that that's 12 never occurred when I've served as a judge. 13 So I have a right to expect -- it's 14 disappointing from time to time that counsel will 15 address the Court with complete candor, but that 16 expectation has been fully satisfied here. I 17 appreciate directness and the cordiality shown by 18 counsel. No one has confused they're zealously 19 advocating for the clients, not the Court, but the 20 clients, but they are officers of the court and 21 enjoy that high standing, and it's an honored 22 profession. 23 The Code of Civil Procedure -- I'll take 24 awhile. If anyone -- if you think we should take a 25 break, I'll take a break. If anyone can't stand 26 what they're hearing, they could quietly leave. Of 27 course, I expect the same courtesy that I've given 28 to others. 20 1 The Code of Civil Procedure in section 2 632 -- and I refer to these details because these 3 are legislative enactments that judges construe and 4 apply in higher court decisions which guide the 5 trial courts -- quote, "In Superior Courts upon the 6 trial of a question of fact by the court, written 7 findings of fact and conclusion of law shall not be 8 required. The court shall state a written decision 9 including the facts and written statements for the 10 decision on each of the principal controverted 11 issues at trial upon the request of anyone appearing 12 at trial." 13 That's the basic guideline. Time periods 14 are set forth and so forth. Of course, the 15 appellate courts have dealt with the general 16 subject, and I won't tarry on this too long, what do 17 those obligations entail? 18 Well, first I'll do my best to attend to 19 what I have understood were the principal 20 controverted issues at trial. When I'm done, after 21 recess if someone identifies something else that 22 they thought was a principal controverted issue, 23 they can tell me, and I'll attend to it. But I 24 believe the parties have adequately identified those 25 issues so I can go forth at least preliminarily now. 26 Numerous cases are cited in the treatises 27 to illustrate that it is sufficient to state the 28 ultimate facts that support a decision. It's not 21 1 necessary to state evidentiary facts. 2 In other words, just in one case a judge's 3 finding of misrepresentation didn't have to specify 4 which acts or which language constituted 5 misrepresentation. A test is whether the details 6 given fairly disclose the Court's determination on 7 all issues of fact. 8 And I say that because sometimes zealous 9 advocates have sent me lists of, in effect, 10 interrogatories and I don't do those things. I just 11 strike them from the record if they're not in 12 accordance with law. But there is a procedure, as I 13 indicated, to get a fair statement. 14 I'm going to comment about the witnesses 15 that testified in the case in the broadest overview. 16 And I'm going to explain what I understand the 17 standard review by higher courts are. Not that that 18 adds anything to what I say, but to acknowledge to 19 counsel and the parties the importance of what I do 20 from my own perspective and to show that if I'm 21 going on a little bit at length, it's because I take 22 these obligations freely and as I said in the oath, 23 without any mental reservations or purpose of 24 evasion. 25 And I think you'll see that on these 26 issues where there might have been claims for a jury 27 trial had money been claimed, the Court has the very 28 same obligations plus others, but it all really 22 1 relates to the facts. And as to the facts, really 2 the broadest scope of evidence has been presented 3 once the parties were satisfied that the case would 4 be tried not to a jury, but before a judge, who is 5 used to separating the wheat from the chaff. So it 6 all came, and that's because although the Defendant 7 took the position that the words of the contract 8 were clear, and the Plaintiff took the position that 9 the words of the contract were clear, I think maybe 10 decisions were made in the nature of hedging bets to 11 put it all in so that the parties would really feel 12 that their story had been told, heard, and acted 13 upon. And I certainly honor that decision. It just 14 places obligations on me. 15 And then I'll go through what I understand 16 to be some of the rules of contract interpretation. 17 It's all in the papers, but I've actually had cases 18 over the years with very distinguished attorneys 19 I've given a shorthand rendition, and people looked 20 at me that they didn't have a clue to what's going 21 on. That's not true with you folks because you've 22 had every opportunity to review each of these legal 23 briefs had you elected to devote your valuable time 24 to that enterprise. But you're stuck with me really 25 summarizing in the way that makes sense to me. And 26 that's because upon request, I'm required to do this 27 not in secret, but here in public. Not just to hear 28 myself talk, although you may think that by the time 23 1 I'm done. 2 Here were the witnesses in order. If I've 3 omitted, it really doesn't make any difference. I 4 considered everything. I'm trying to respect you by 5 going through the main points that I understood. 6 Please don't frown if there is some point that you 7 thought was important, because it's not my purpose 8 to read the transcript. 9 Jane Sunderland testified. She worked for 10 Fox legal as vice president of content protection. 11 She is and was a board member at the relevant time. 12 I make little side points because they're not 13 dispositive here. I make little summary notes. 14 Please don't think I omitted that. It's just that 15 I'm trying to give a little overview. 16 And she, along with other witnesses, 17 talked about the basic understanding that board 18 members have concerning the purpose and intent and 19 fact, really, of the contract documents. I say 20 contract documents because the contract itself did 21 incorporate something specifically. Something 22 specifically. And arguments arose about other 23 things. 24 She said what she said on the subject of a 25 lack of trust not being manifested yet. I did go 26 through the transcript. It is all subject to my 27 interpretation. The point is that the words of the 28 witness don't control. It's what the trial judge 24 1 who evaluates the believability of the witnesses 2 draws inferences from what they say, puts it all 3 together, finds to be the case. 4 Many an appeal has been taken by someone 5 who felt that they lost, said that these are the 6 words that I said. And being very gentle about it, 7 I will say that in resolving all these issues, I 8 resolve all issues of credibility in favor of the 9 findings which are necessary, explicit, implicit or 10 appropriate. 11 So I've had cases in which people ask for 12 further statements, and I look at them, you know, do 13 you really want that? Because my purpose is to be 14 very respectful to everybody and not to disparage 15 anyone. So I think the broad form of statement on 16 credibility has certainly been appropriate to my use 17 and actually appellate courts in my experience. 18 In other words, I knew that she talked 19 about the issue of pirates, other rogues, I think 20 the reference was, who really were people outside 21 the main stream of the -- upon whom the corporation 22 relied and others relied in doing business. And 23 they had not had any real significant effect on the 24 operations of the DVD CCA because DVD CCA is really 25 dealing to the marketplace of people who are really 26 trying to play by the rules. 27 However, in expressing opinions as to the 28 fact that there had been no untoward -- let me 25 1 restate that. In expressing the opinion that lack 2 of trust had not yet been manifested as of this 3 time, of course, that was her opinion. It wasn't 4 put forth as an expert opinion. It was an opinion. 5 And I can draw inferences and conclusions based on 6 all the facts when we later get to the issue of 7 irreparable harm. 8 She along with others voted on the issue 9 of bringing a lawsuit. She relied on counsel. 10 Pretty much what came forward was that certain 11 witnesses said certain things, but once it got into 12 the important meeting where they all acted, they all 13 said, I relied on counsel, and that's about it, and 14 I prefer not to talk about what counsel said. And I 15 said, yes, indeed, don't talk about what counsel 16 said. Because there was an objection, and it is an 17 important privilege. I didn't think too much about 18 what the board was thinking, what it did when it 19 did. 20 And I think a main purpose of 21 Ms. Sunderland along with other witnesses was to 22 give context and meaning and nuance to the whole 23 development of this process from her own knowledge 24 and also to inform the Court's opinion as it relates 25 to the effects of any breach upon the -- upon the 26 plaintiff. 27 Alfred Perry testified next, vice 28 president of legal affairs for Paramount. As all of 26 1 the witnesses are persons of distinguished 2 background, persons of real achieving, and he along 3 with other witnesses did not read the particular 4 document claimed to be the contract which existed 5 between the plaintiff and the defendant. And when I 6 say he and others, I'm talking about these first 7 several witnesses called by the Plaintiff. He, as 8 well, relied upon the advice of counsel. He had 9 similar opinions, his own perspective concerning his 10 own opinions as to any breach. 11 Brian Berg testified at length. He was a 12 designated expert witness, and he testified 13 concerning violations. He did a demonstration. The 14 Court has the benefit of his power point 15 submissions. I don't know if they were marked in 16 evidence. Everybody said I could look at those. 17 They were shown on the screen. And certainly what 18 he presented is going to be made part of the record. 19 There is no dispute about that because I heard his 20 testimony and saw the presentation. 21 He talked about the various paragraphs and 22 the documents and his conclusions that the 23 defendant's actions were noncompliant with the terms 24 of what he understood to be the contract. Everybody 25 made clear, the Court acknowledged on many occasions 26 that, as I've said, these can be the brightest 27 people in the world, but I'm the one that gets 28 reversed. So no one expressed opinions on legal 27 1 conclusions, although they were expressing opinions 2 on ultimate issues. And one of the ultimate issues 3 is the issue of whether or not there has been a 4 breach. 5 Also I have to -- the Court alone can, 6 does interpret the contract. The Court alone 7 interprets the contract. But the Court also acts as 8 a fact-finder to determine what was the contract. 9 Wade Lowell Hannibal is a technologist, 10 Universal Pictures, has a long career. He was on 11 the DVD CCA board from 2002 to 2006. He chaired the 12 License Enforcement Activities Committee, LEAC. He 13 and Bruce Turnbull, an attorney, I later learned was 14 actually active in drafting the subject of the 15 contract, 156. With some exception, I'm thinking 16 now the technical committee was -- at least I draw 17 an inference that he was intimately involved in all 18 aspects of producing the legal product; that is, 19 what was claimed to be the contract. 20 And those two individuals met with the 21 founders, representatives of Kaleidescape at Las 22 Vegas at the Consumer Electronics show in January of 23 2004. I learned from Mr. Hannibal that DVD Copy 24 Control Association's concerns were not assuaged. 25 Really, they were just personal observations at that 26 time, although there was no doubt he was a board 27 member, a key person to do preliminary work on 28 behalf of DVD, and that was a predicate for future 28 1 action. 2 At a board meeting Bruce Turnbull was 3 chair of the litigation committee. I think 4 Mr. Hannibal made it clear to me that he wouldn't 5 have done these things that he described unless he 6 felt, whether by formal vote or not, he was acting 7 on behalf of the corporation. And that has not been 8 challenged, I believe. 9 He is the one that testified Mr. Turnbull 10 had been involved in the drafting of Exhibit 156, 11 the CSS licensing agreement. Mr. Hannibal himself 12 did not review that license, the license signed by 13 the Defendant. He was aware of some of the 14 technical specifications, but he was not aware of 15 the technical specifications at the time noted; that 16 is, the time of executing the contract -- excuse me, 17 at the time the decision was made to sue, he along 18 with others relied upon counsel. That was left a 19 little hanging. I wasn't entirely clear what was 20 communicated, but although I was frequently involved 21 in questioning. It really wasn't worth the time, 22 and it wasn't exactly clear when he reviewed it. At 23 the time he voted, he said he was I was not clear 24 with the specifications. 25 Dr. Alan Bell. All acknowledged that he 26 was a man of impressive credentials and great 27 achievements. We all like to write these 28 achievements in our book of life. I say that very 29 1 sincerely, very humbling. I hear all manner of 2 people. It's a liberal education. I get paid for 3 it. I'm still pinching myself. 4 Tremendous background. Totally unknown to 5 Kaleidescape. He could not help in determining the 6 actual intentions between the parties. He was 7 really called upon to give great and deep historical 8 knowledge concerning the whole evolution of the 9 process, a very intricate process requiring the 10 close interactions between a number of constituent 11 groups, and the meetings that were in many ways open 12 to individuals who would call themselves consumers. 13 And I'm just broadly speaking. Whatever the actual 14 constitution of the governing board might be 15 described, something that was a process that was 16 intended to be beneficial and speaking to the public 17 interest, be beneficial to the public and allow the, 18 I think, technology to thrive and he didn't comment 19 on the details, certainly, of anything that happened 20 between these parties because he didn't know about 21 it. 22 He did testify that any breach of the 23 contract -- and I really tend to think from what I 24 heard that it would be his understanding of the core 25 elements of the contract. He was not called as a 26 lawyer, draftsperson, anything like that. Who in 27 the world would come in to testify about these 28 matters and offer opinion on the details of these 30 1 contracts unless they purported to know as a 2 scientific knowledgeable person? He's not going to 3 go beyond his knowledge, I think. 4 He did express opinions. And as it 5 relates to opinions, as it relates to opinions not 6 based on personal knowledge of facts, the Court has 7 an obligation to consider one expert as to that of 8 another and give it what weight, if any, I think 9 it's entitled to. 10 I think I explained in our colloquy 11 earlier that there was no obligation of either party 12 to call an expert of law. It's not a medical 13 malpractice case in which one cannot bring a claim 14 against a licensed professional in many instances 15 unless there is someone who will stand up and be 16 accountable for their opinions as the person 17 violating a standard of care. The standard of care 18 is really passed on to ancient learning and 19 licensure procedures and the like. 20 So when he said any breach, I don't think 21 he was opining on the specifics of any interaction 22 between the parties here. But he certainly was 23 given questions in the nature of hypotheticals. How 24 would this impact upon the corporation? And he 25 indicated, I think rather robustly, it would 26 constitute irreparable harm, very significant 27 damage, an erosion of trust. He also, in response 28 to questions, had an opinion that it was not 31 1 feasible to put markers on rental DVD's among other 2 things. 3 Andy Parsons spoke. He is at Pioneer 4 Electronics; a DVD CCA board member. He voted to 5 bring the action. He talked about the production 6 and the low cost. If what Kaleidescape does is 7 replicated, cost will be driven down. This will 8 threaten the business and consumer electronics 9 industry. 10 And I appreciate Mr. Coates drawing his 11 testimony to my recollection in our colloquy in 12 argument. Because I did go back through my notes on 13 that issue. He felt that producers wouldn't sell. 14 I think he -- someone said perhaps Paramount was the 15 last to come in. At least that's my recollection. 16 In other words, from my -- Paramount said, we were 17 the last to join because we were concerned about 18 security. Of course, Mr. Parsons did not read the 19 CSS license agreement. He, too, relied upon 20 counsel. 21 Mr. Cheena Srinivasan. I'll probably go 22 through these witnesses and then take a little break 23 and then continue. He was a founder, really an idea 24 man. He has two degrees, I think, from MIT, a 25 Master's degree and an MBA from the Sloan School of 26 Business. He expressed the view on behalf of the 27 Defendant. I think Chief Operating Officer. If I 28 have the titles wrong, it's incidental and not 32 1 necessary to anything I'm doing here. Very 2 responsible person. One of the founders. Fully 3 authorized to speak as a knowledgeable person on 4 behalf of the Defendant. That he held a strong 5 belief that it was important for customers to know 6 that the Defendant was fully compliant and know that 7 it had and maintained all necessary licenses. 8 He did -- there was some deposition 9 testimony on his reading of the general 10 specifications, whether he thought they were part of 11 the technical specifications. He was asked in a 12 deposition, do you have any reason to doubt that 13 the -- in effect, the general specifications are the 14 technical specifications? His answer to that 15 question, Do you have any reason to doubt? was, 16 quote, no, close quote. 17 He indicated -- I'll comment on this later 18 about the -- Mr. Collens' work as a founder and his 19 general development, to the responsibilities and 20 acts of Mr. Collens, as the social workers say in a 21 passive voice, concerning to all of the corporation 22 at the time the certain action was taken. 23 Ultimately, Mr. Collens voluntarily left 24 to move on, as he said later, maybe get involved in 25 another small venture. This one was growing. 26 I wrote the name Rod, last name 27 D-j-u-k-i-c-h. 28 MR. COATES: Djukich, Your Honor. 33 1 THE COURT: I believe that Mr. Srinivasan 2 said that that person, Rod was the only person that 3 he dealt with directly at DVD CCA. He expressed the 4 opinion that the corporation was in compliance with 5 its contractual obligations. And he testified 6 concerning the heavy emphasis that he said 7 Kaleidescape placed and clearly communicated to all 8 dealers that they must be fully compliant. 9 He indicated when the product was shipped, 10 the various prestigious and technical awards and 11 association awards, about 25 in number, that had 12 been awarded to Kaleidescape. 13 Mr. John Julian Hoy testified on a couple 14 of occasions, most recently in a brief rebuttal. He 15 testified on Monday, March 26th. He was the 16 president and secretary of DVD CCA. DVD CCA was 17 described as a corporation that has officers and no 18 employees. And I won't belabor the record because 19 the constituent membership was well described and is 20 really not contested. I understood how that 21 organization maintains its membership and its 22 governing board, its terms of years, and its process 23 for the renewal or putting up new nominees and the 24 like. 25 He indicated that documents Exhibits 4, 26 17, and 156 are all publicly available for anyone to 27 look at on the Plaintiff's Website. He described 28 procedures to -- in order to secure a licensing 34 1 agreement and how one then obtains the technical 2 specifications after, and in no particular order, 3 the execution of the agreement, the filling out of 4 forms, the payment of the appropriate money 5 consideration. 6 He acknowledged that Exhibit Number 156 at 7 page KAL -- I think it was 605, 621 -- did not list 8 the general specifications on the list. The point 9 and counterpoint was developed, perhaps in rebuttal 10 as well, as to what to make of that, if anything. 11 He talked about the CP Twig, the Content 12 Protection Technical Working Group, and CPAC, the 13 Content Protection Advisory Counsel. He 14 emphasized -- he talked about the drafting 15 committee. The drafting committee -- and Dr. Bell 16 confirmed this. Dr. Bell testified that he attended 17 about two meetings, perhaps one or two meetings of 18 the drafting committee. Really he was passing the 19 baton at that time to the committee that met over a 20 hundred times to draft the document that is said to 21 be the contract. Legal counsel of Toshiba wanted to 22 talk, Matsushita, Hitachi, IT counsel, and a now 23 defunct company. And he noted that Exhibit 4 at 24 page KAL 018753 did not include the general specs, 25 specifications, in words. 26 Michael -- Dr. Michael Alexander Malcolm 27 testified. He talked about his background as an 28 entrepreneur. And along with other founders at 35 1 Kaleidescape and key people at Kaleidescape did not 2 have a background in video or consumer electronics 3 entertainment, mostly was in education and teaching. 4 He got together with Mr. Srinivasan; and Mr. Collens 5 later testified, they were brainstorming what they 6 wanted to do. They wanted something simple, safe, 7 reliable, like an appliance that my mother-in-law 8 could operate. 9 I'm not disparaging mother-in-laws. My 10 wife is a mother-in-law. She handles this stuff. I 11 can't get this, push the buttons, she does that very 12 ably. If I don't, I say, I'm going to go to my room 13 and read. No, no, I want you to see this movie. 14 They visited Hollywood. As an 15 entrepreneur, he understood he was voluntarily 16 undertaking big risks. There were high hurdles. 17 Did research. The product concept evolved a lot 18 over time were his words. He said, we were Silicon 19 Valley computer people with no experience in video 20 or electronics. We, quote, came from Enterprise, 21 Star Trek, didn't want to make dollars off somebody 22 else's misfortune. 23 Now, I understand all of this is subject 24 to characterization, self-serving as opposed to 25 fully accurate. We're all people. Lots of study on 26 memory has showed that our memory evolves over time, 27 our story gets told. Most people don't come into 28 court to strap on an arm or to tell a lie. There is 36 1 so many classic studies in psychology about people 2 who saw the Harvard Boston game, something happened 3 on the field, they repeat it. I'm morally certain 4 that Stanford won the Big Game and that the band ran 5 onto the field. Other people who count say no. 6 I've long lived to accommodate myself to that fact 7 of life. 8 He indicated there were lots of 9 discussions and research on how to prevent misuse. 10 He got into the specifics. He talked about the 11 benefits and burdens of different choices. And he 12 talked generally about the idea of large changers. 13 He said they were unreliable, very expensive, took a 14 lot of electricity, had need for repairs. This 15 wasn't going to work we thought with consumers who 16 are high end who don't want to have a repair person 17 come to their home every day. Considered the vault 18 box. Had a little fun at the former vice president. 19 He talked about DVD destruction, escrowing DVDS. 20 He did investigation of copyright, 21 contacted counsel. I didn't hear any testimony. In 22 fact, I think it was the contrary, nobody secured a 23 written legal opinion on which they purport to rely 24 here in court, I understand. But the each of the 25 witnesses -- and I'll go through them. In a short 26 time, we'll take a recess. I'm pretty sure we can 27 get this done by noon. If not, we'll continue. 28 That everyone, that is, Mr. Collens, 37 1 Mr. Srinivasan, and Dr. Malcolm, were concerned. 2 They were anxious, it appears, about what would be 3 in that contract, would it prohibit their evolvement 4 and concept of the business model. 5 He was relieved -- he was relieved when 6 there was no prohibition for persistent digital 7 copying. The contract from his perspective seemed 8 to be written in anticipation of people making 9 copies, Dr. Malcolm said. 10 He had then Collens review compliance. 11 There was, quote, never an intention to make a 12 noncompliant system. Later Dr. Stephen Watson got 13 involved in a second compliance investigation. 14 Quote, a double-sure audit is how he characterized 15 it. 16 He put a lot of money into the business 17 venture, up to $6 million of his own money. He 18 Alpha tested it with his kids. He Beta tested it, 19 too. Somebody corrected me. Whatever that might 20 mean. 21 He talked in detail about the features of 22 the product which are not dependent upon resolution 23 of this disputed issue. The access data, title, the 24 cover art, the run time, the aspect ratio, which is 25 a height to width ratio, movie guide service. The 26 company has 43,000 movies in its database. That's a 27 very important part of their service, he says. 28 The technical -- they provide technical 38 1 support to dealers, 668 in the U.S. and Canada as of 2 a few weeks ago, 190 elsewhere around the world. 3 870, 42 countries. 4 He emphasized the efforts of Kaleidescape 5 to make an exceedingly secure system. And he talked 6 about the marking of DVD's and what, based on his 7 research, he thought industry people could do so 8 that this could end up being a win-win situation for 9 everybody. That is, the movie producers, all the 10 constituent elements. 11 And I took that as testimony on the issue 12 of relative hardships, indicating that his opinions, 13 just like other opinions, were offered and not 14 objected to. Although there is no suggestion from 15 his testimony that DVD Copy Control Association, 16 Incorporated, could force change, that industry 17 players could through its processes see the light, 18 from his perspective, and everyone could do well, he 19 thought. 20 He testified about the meeting in Las 21 Vegas, the thoughts he had before executing the 22 contract that there would be some sort of meeting or 23 justification required. He was surprised that that 24 was not going to happen. 25 Each of the witnesses testified, those who 26 had personal knowledge on Kaleidescape's side, and 27 personally ratified by Mr. Hoy, that on -- well, 28 Mr. Hoy ratified the process, not acknowledge about 39 1 the defendant's conduct. But the defendants said 2 they were expecting to meet and confer. They called 3 a number, were told there were no employees, sign 4 the deal or not. No negotiation. No clarification 5 possible. 6 And they thought it was essential to get 7 the license, as it has been essential to get any 8 other licenses, which defendant says there have been 9 rigorous justification, but not problematic to 10 attain. I may have gone too far in suggesting it 11 was not problematic to obtain. This was the most 12 burdensome process. And we held the other licenses 13 without objection. 14 Dr. Malcolm testified that really the 15 company is at stake. He was cross-examined by 16 reference to Websites, publications, and the like, 17 that the company would continue to serve its 18 customers and would continue to provide other 19 services. In the nature of impeachment, questions 20 based on prior statements, Dr. Malcolm indicated 21 that -- I took from his testimony that it would be 22 probably a slow ride, maybe a quick ride downward. 23 They would obviously honor, from his perspective, 24 their contractual business obligations as long as 25 they could. But their business model is based on 26 their ability to do what Plaintiff challenges. And 27 he talked about the general sales and how that would 28 be impacted in a general way. 40 1 Daniel Collens testified. He talked about 2 the super secure system with the AES 256. 3 Is that the right number, 256? 4 MR. MOORE: Yes, Your Honor. 5 THE COURT: More secure than a standard 6 operating server -- system, excuse me. He didn't 7 know either about the DVD CCA processes. I'll 8 shorthand it by saying more of the same, but from 9 his perspective -- as to saying how they would have 10 attained the license and a surprise that there was 11 no procedure for a sit-down, that type of thing. 12 But when the license documents came and he received 13 them in Waterloo, he read them once very carefully, 14 probably twice, and, quote, dozens of time since, 15 trying to follow an analytical path on specific 16 issues. 17 But at the time -- I had in my notes, 18 figuratively speaking -- but like Dr. Malcolm and 19 Mr. Srinivasan, that his heart leaped with joy that 20 the business model was not prohibited. He went 21 forward, he said. 22 And he indicated in some detail from his 23 mathematical and logical background how he 24 attempted -- I'm quite sure it was Mr. Collens, 25 although Dr. Watson testified to the same effect -- 26 how they went about attempting to insure compliance, 27 and to themselves they were compliant. 28 He confessed to his own transgressions and 41 1 indicated what happened. His mother came over, and 2 he put Mom's rental in the DVD machine. And he 3 testified about that. And he was chastised for 4 that, in effect. He deleted it, he said, right 5 away. 6 Dr. Stephen Watson testified. And he 7 testified about the history of compliance efforts, 8 the work of Mr. Bryant, the early feeling that that 9 work was not sufficiently well-grounded, that the 10 company could rely upon it, and the passing of that 11 baton to Mr. Collens, Mr. Collens' effort and -- 12 just one second. Maybe counsel can help me. I'm 13 thinking of 343 and 344. One was about a year 14 before Dr. Watson's effort 15 MR. COATES: That's right, Your Honor. 16 Dr. Watson was 2003. 17 THE COURT: And so Dr. Watson's, was his 18 compliance report 344 or 343? 19 MR. MOORE: One of those two, Your Honor. 20 THE COURT: Don't worry about it. I 21 acknowledge that there was a sequence from the 22 E-Mail with Mr. Bryant and then later with 23 Mr. Collens' effort and then a further detailed 24 presentation. 25 MR. MOORE: I now have the answer, Your 26 Honor. Dr. Watson's effort was Exhibit 344. 27 THE COURT: That's what I had noted. 28 MR. MOORE: Yes. 42 1 THE COURT: Okay. And I think -- so that 2 343 was -- 3 MR. MOORE: Was Mr. Collens' precontract. 4 THE COURT: Right. Daniel Harkins 5 testified. And he testified to his review -- he was 6 a designated expert witness as well. And he 7 testified that the general specifications are 8 informative, not normative. And he talked about 9 what people in his line of work do to take these 10 documents and apply them, as these people with 11 specialized knowledge do, to apply them to their 12 tasks to carry out their assignments. 13 And he said that the general 14 specifications were not the normative documents that 15 people in his line of work use to determine what 16 shall and shall not be done, what may or may not be 17 done, what must or must not be done. Instead they 18 were inspirational, aspirational goals. And that's 19 been the subject of briefing and argument, as well. 20 Denise Malcolm testified. She testified 21 that she's general counsel. I think they need to 22 get that straightened out. I thought her husband 23 said she was acting general counsel. I don't 24 involve myself in that way. It's an important 25 position within the corporation and in law. She 26 has, like everybody else, a distinguished background 27 and testified that she really does soup to nuts, 28 whatever she can do to help out the business 43 1 enterprise. But she carries out the general counsel 2 tasks. 3 And that she along with other witnesses 4 testified that they were very surprised when after 5 receiving Mr. Roodman's letter and preparing -- with 6 testimony from Dr. Malcolm and others, Dr. Stephen 7 Watson -- perhaps a good part of four to five weeks 8 to prepare this submission, that it was, I think, 9 pretty rudely rejected. 10 But that's not -- it's only contextual. 11 Because I know there's an offer that the parties 12 never got to a meaningful exchange. It suggests 13 that the parties wanted that meaningful exchange. I 14 upheld all objections coming to that. 15 People sometimes come to court and say, 16 how did that happen? And Monday -- I have a day set 17 aside for mediation. People say they came. I told 18 the lawyers, don't waste my valuable time unless 19 these parties are in a mood to mediate. Otherwise 20 I'll say goodbye in a half hour. 21 Jeffrey Franklin was the last witness for 22 Kaleidescape. He's an installer, works in Corte 23 Madera, and talks about what he does and the 24 Kaleidescape product is really very advanced. 25 Plaintiff has certainly never disparaged the product 26 and holds -- it's an important part of his work. 27 And he talked about other details that I won't go 28 into. 44 1 And then, finally, Mr. Hoy testified. I 2 believe I've touched upon all the witnesses here. 3 MR. MOORE: Yes, Your Honor. 4 MR. COATES: Yes, Your Honor. 5 THE COURT: Well, I think it's an 6 appropriate time to take a recess. This isn't 7 necessary to a statement of decision technically, 8 but my own belief that parties are in a better 9 position to decide how to exercise their claimed 10 rights, and there are many, or on the other hand to 11 conform their conduct to law if they believe that 12 the Judge in a demonstrated way paid careful 13 attention to all that they said and did. I believe 14 that's an important part of my obligation as a 15 public official. That's my duty. 16 We'll be in a recess, and then we'll 17 continue. 18 (Whereupon, a short recess was taken, 19 after which the following proceedings were had:) 20 THE COURT: We now move, in my way of 21 thinking, to the question of invoking what is called 22 equity jurisdiction. And there is a maxim, of 23 course, along with many other maxims of juris 24 prudence, that equity follows the law. So soon 25 you're going to be moving into this issue of, under 26 the law, what is this contract? And then I'll be 27 called upon to comment upon some of the issues 28 concerning the request to invoke the equity 45 1 jurisdiction of the court. 2 And first, before doing that, I want to 3 talk to you a little bit about equity. This all 4 goes back to as early as the 14th Century. You say, 5 oh, no, we'll be here all weekend. No, I'll get out 6 of here by noon or a little bit later. The parties 7 have entrusted this to the court. I want them to 8 know a little bit about this. 9 It happened in early law there were very 10 strict rules. We heard, for example, there was a 11 musical, Le Miserable, chasing the person around 12 forever who stole the loaf of bread to feed his 13 children, when stealing a loaf of bread was a 14 capital offense. 15 Well, juries dispensed with that rule 16 because they would routinely find people like that 17 not guilty, and it's a form of jury nullification. 18 And that's part of the law. 19 The great Rosco Pound said that, and I 20 don't adopt this, and I'm just saying a part of 21 history, that in its actual administration, jury 22 lawlessness is a great correctiveness of the common 23 law. I'm not speaking heresy. I'm talking about 24 the dean of the Harvard Law School. 25 Basically the King of England, through his 26 chancellors, gave authority for there to be a little 27 lubrication in the joints to avoid the harsh, more 28 draconian aspects of the applications in the strict 46 1 letter of the law. And that has evolved over 2 centuries, a very vital part of our juris prudence 3 today, I might say, as well in Canada, of course. 4 I was just looking at the case notes that 5 I studied in 1964. And this isn't ancient because 6 I've already given historical reference back many 7 hundreds of years, but the great Walter Wheeler 8 Cook, the great professor of law at Northwestern 9 University Law School, wrote in his treatise, until 10 the rise of the modern legislative body, equity was 11 the most -- excuse me -- equity is the great force 12 of legal reform in Anglo American law. And by 13 development of uses and trusts, it profoundly 14 modified the land law of England and America. It 15 developed by means of the law of trust the first 16 married woman's property law. It enabled married 17 women to contract with reference to their separate 18 property in equity. It was the first to enforce 19 simple contracts as early as the 15th Century in 20 developing the law of, you guessed it, specific 21 performance of contracts. 22 Well, the conveyance of land, it effected 23 other important changes in the law of real property. 24 It made things called choses of an action assignable 25 before the common law adopted fully the Roman Law 26 device of the power of the attorney. It developed 27 much of our tort law in connection with the issuance 28 of injunctions, in labor disputes, unfair 47 1 competition. It created substantially the whole of 2 the law of mortgages with its equity of redemption 3 and bills to foreclose that equity. 4 It prevented the enforcement of judgments 5 of law, which it deemed inequitable to permit -- 6 when it deemed it inequitable to permit their 7 enforcement. It ordered the reconveyance of land 8 where the conveyance had been obtained by fraud or 9 it was made by mistake. In fact, it wrote new 10 chapters in practically every field of law. 11 In Theodore Pluckett's test, 12 P-l-u-c-k-e-t-t, a concise History of Common Law, 13 it's written that the decisive test for the 14 existence or not of an equitable rule or remedy is 15 to be found in the search of the records and 16 decisions of the courts of chancery, that's this 17 court, and it's modern successors. There are, 18 indeed, a number of maxims which have almost 19 attained the dignity of principles, but deduction 20 alone will not reveal the content of our system of 21 equity. The only authoritative source is the custom 22 of the court, and that must be gathered from an 23 examination of the cases. 24 This is such a case. What I'm going to be 25 engaged in is interpreting the contract in 26 accordance with my understanding of the law and 27 making decisions and resolving conflicts in 28 evidence. And then, although you should rely on 48 1 your attorneys and not the Court on this issue, if 2 there is a claim that anything I did was fatally 3 defective, you would be in a higher court where the 4 judges would not have seen the drama, but where they 5 would have read the papers, the text, the printed 6 page. 7 And there is a venerable principle related 8 to what the appellate courts do when examining 9 claims of error in resolving conflicts in evidence, 10 and it's called the rule of conflicting evidence. 11 And I'm citing from Witkin, a great scholar, 12 California 4th Edition, on appeal. I'm doing this 13 because I'm communicating this directly. Because 14 I've read hundreds of briefs and hundreds of 15 opinions which repeat this rule at Section 359, page 16 408, volume 9. 17 "Where the evidence is in conflict, the 18 Appellate Court will not disturb the verdict of the 19 jury or the finding of the trial court. The 20 presumption being in favor of the judgment, the 21 Court must consider the evidence in light most 22 favorable to the prevailing party, giving the 23 prevailing party the benefit of every reasonable 24 inference and resolving conflicts in support of the 25 judgment." 26 I've seen this written in scores of 27 decisions reviewing my works. I'll just quote it. 28 "The exposition in Crawford versus Southern Pacific 49 1 Company, 1935, 3 Cal.2d, 427, is typical. This is 2 the language of the California Supreme Court. "In 3 reviewing the evidence on such an appeal, all 4 conflicts must be resolved in favor of the 5 respondent," That's the winning party, "and all 6 legitimate and reasonable inferences indulged and to 7 uphold the verdict is possible." And that, take my 8 word for it, applies to the decision when parties 9 proceed without a jury. 10 This is quoting from the Supreme Court. 11 "It is an elementary, but often overlooked principle 12 of law that when a verdict is attacked as being 13 unsupported, the power of the appellate court begins 14 and ends with a determination as to whether there is 15 any substantial evidence, contradicted or 16 uncontradicted, which will support the conclusion 17 reached by the jury." And that rule has been 18 applied to judge trials. That is, the decider of 19 fact. "When two or more inferences can be 20 reasonably deduced from the facts, the reviewing 21 court is without power to substitute its deductions 22 for those of the trial court." 23 Another decision goes on to say, "And the 24 rule is identical where the trial is by the court." 25 Another case, Bancroft Whitney Company 26 versus McHugh, M-c-H-u-g-h, a 1913 decision, Volume 27 166 Cal. page 140. "In examining the sufficiency of 28 the evidence to support a questioned finding, an 50 1 Appellate Court must accept as true all evidence 2 tending to establish the correctness of the finding 3 as made, taking into account, as well, all 4 inferences which might reasonably be thought by the 5 trial court to lead to the same conclusion. Every 6 substantial conflict in the testimony is under the 7 rule which has always prevailed in this court to be 8 resolved in favor of the finding." 9 Witkin goes on, "This fundamental doctrine 10 is stated and applied in hundreds of cases." 11 Now, I digressed on that just for a 12 moment, not to in any way -- because I couldn't and 13 wouldn't. I wouldn't want to usurp the function of 14 you meeting with your learned counsel. But to speak 15 directly because, of course, I'm always hopeful that 16 people can resolve their matters to their mutual 17 satisfaction. And having at least been represented, 18 the parties never really meaningfully talked about 19 this conflict before coming here. I'm talking to 20 them directly for what it's worth. But if you think 21 the Court made an egregious error, go for it. The 22 California constitution says, no error matters 23 unless prejudice is shown; it is never presumed. 24 But I've certainly been reversed. That's for sure. 25 I'll now really focus on the first 26 substantial controverted issue, which is -- I think 27 simply stated is the document called, General 28 Specifications, which is Exhibit 3, part of the 51 1 contract Exhibit 156. If so, does Exhibit 3, if 2 found to be part of the contract Exhibit 156, the 3 only document signed by the lawful representatives 4 of the Plaintiff and Defendant, impose obligations 5 on Kaleidescape, which should be specifically 6 enforced or the subject of an injunction? 7 What does 156 say? Well, it's set forth 8 in writing. I'm not going to really go through all 9 the details here, but I'm going to talk about some 10 rules of interpretation that have been summarized or 11 touched upon. And by doing that, it's really 12 communicative, it's not designed to purport and cite 13 every rule, of course. If it's not expressly made 14 part of the contract, is Exhibit 3 by necessary 15 implication or proper rule of judicial construction, 16 most of those rules having been embodied in 17 legislative enactments which really confirm rather 18 ancient practices, is it sufficiently identified so 19 as to be part of the contract? 20 Well, I conclude that no part of Exhibit 21 156 specifically calls out in clear words the 22 general specifications. So it -- from the text of 23 156 alone is not part of the contract. But, of 24 course, that begins the discussion. It doesn't end 25 it. It might end it if I took a view that Parol 26 Evidence was inadmissible, except that the argument, 27 fully accepted for purpose of presenting evidence, 28 is that Exhibit 4 does not vary or does not 52 1 contradict the terms of the contract as is the 2 Plaintiff's argument. It is an essential part of 3 it. We've heard a lot of testimony. 4 Interpretation of contracts exist in 5 ascertaining the meaning to be given to the 6 expectation of the parties. I'm not going to cite 7 the code section. I'm pretty much marching through 8 them. They're all short sentences. Where the 9 language of a contract is clear and not absurd, it 10 will be followed. Well, if a contract is reduced to 11 writing the parties' intention is ascertained from 12 the writing alone, if possible, subject to other 13 provisions governing the interpretation of 14 contracts. 15 As I've said, based upon the writing 16 alone, that is 156, it appears that exhibit is not 17 part of the contract. However, it appears that much 18 extrinsic evidence was introduced not to vary the 19 terms of the writing, but to assist the Court in its 20 fact-finding and interpretation of contract duties. 21 So the rule of law is that where extrinsic 22 evidence has been properly admitted and the evidence 23 is in conflict, any reasonable construction by the 24 trial judge will be upheld under the general rule of 25 conflicting evidence which I just read to you, 26 citing two always upheld California Supreme Court 27 decisions. This being a matter of state law. 28 An overlay on these rules is a restatement 53 1 section of contract section 207. The American Law 2 Institute drew together legal scholars and 3 practitioners over time, and although the influence 4 of the restatement is said to have waxed and waned 5 over the years, it is an effort to draw together in 6 so many areas of law which there is not legislative 7 compulsion. And I don't mean that in a recalcitrant 8 way, of course. I mean the legislature has often 9 left whole fields of law to case law development. 10 So when you hear the simplistic question 11 on TV, it is an activist judge that makes the law? 12 Of course we do. We're required to do so because 13 anybody who has an actual case or controversy has 14 access to the court. And many of the problem issues 15 that are confronted are matters where elected 16 representatives have said -- well, I won't 17 characterize why. I can't read their mind. I 18 wouldn't do that -- but we're not going to get 19 involved. We'll wait so that we can get a good 20 understanding of how the law is developing, and then 21 exercising our superior authority on behalf of the 22 people, if we think it is a proper case for 23 legislative intervention, we'll do that. That's 24 part and parcel of how the law develops. Of course, 25 the theory is we're not making all the findings. We 26 understand how scholars have dealt with that issue. 27 So the restatement of contract section 28 2307 reads, quote, "In choosing among the reasonable 54 1 meanings of a promise or agreement or a term 2 thereof, a meaning that serves the public interest 3 is generally preferred." And this is cited at 4 Witkin on Contracts section 743. 5 "In determining the intention of the 6 parties an objective test is applied. A contract 7 must be interpreted as to give effect to the mutual 8 intention of the parties as it existed at the time 9 of contracting so far as the same is ascertainable 10 and lawful. The modern approach is to avoid the 11 terminology of intention, in quotes, and to look for 12 the expressed intent. 13 "Under an objective standard, similarly it 14 is said that the rules of interpretation of a 15 writing" -- excuse me -- "of written contract is for 16 the purpose of ascertaining the meaning of the words 17 used therein. Evidence cannot be admitted to show 18 intention independent of the instrument." 19 That rule of law certainly comports with 20 what the parties have to say. They wrote in their 21 contract, paragraph 10.1, entire agreement. "This 22 agreement and the exhibits hereto constitute the 23 entire agreement between the parties related to the 24 subject matter of this agreement hereto and 25 supercede all oral or written agreements on this 26 subject matter entered prior to this agreement. 27 Subject to Section 10.7 this agreement may not be 28 modified except by a written agreement dated 55 1 subsequent to the date of this agreement and signed 2 by both parties." 3 And section 10.7 is a long paragraph that 4 says amendment, but no one has claimed this contract 5 has been amended, and no one claimed that there were 6 discussions before the contract was signed between 7 the parties. 8 So the proposition I've just announced is 9 entirely unproblematic and entirely consistent with 10 the words the parties chose to express themselves. 11 A special directive. "If the term of a 12 promise is ambiguous is -- or uncertain applies, the 13 contract must be interpreted in the sense in which 14 the promisor, in this case Kaleidescape, believed at 15 the time of making it, that the promisee 16 understood." 17 Well, I don't think this really helps the 18 Plaintiff, and there is no basis to know what DVD 19 CCA meant. Because Mr. Hoy confirmed that really 20 there were no discussions, no basis to know. And 21 all the defense witnesses said, any time we sought 22 to find a basis what they might think about this, we 23 were politely told, sign it or not, your choice. So 24 in short, the Defendant received no information and 25 would have no basis to know what the Plaintiff 26 believed. 27 "The whole of a contract is to be taken 28 together so as to give effect of every part if 56 1 reasonably practicable, each clause helping to 2 interpret the other. Where there are several 3 provisions or particulars, such construction, if 4 possible, is to be adopted as to give effect to 5 all". 6 This last sentence, of course, begs the 7 question. The question is, is the document, General 8 Specifications, Exhibit 3, one of those documents 9 which should be given effect? You know, the general 10 principle that I talked about relates to writings 11 and escrow agreements, and you have to sort it out, 12 but ordinarily do not deal with the integrated 13 contract in which there is a statement that these 14 pages constitute the entire agreement. 15 Another rule is that several contracts 16 related to the same matters between the same parties 17 and made as part of substantially one transaction 18 are to be taken together. But this is not 19 applicable here because of the entire agreement 20 language of the contract signed by Mr. Srinivasan 21 and Mr. Hoy, Exhibit 156, expressly makes that rule 22 of interpretation inapplicable. 23 The Plaintiff has emphasized the rule of 24 interpretations found in Civil Code Section 1647 as 25 follows, quote, "A contract may be explained by 26 reference to the circumstances under which it was 27 made and the matter to which it relates," close 28 quote. 57 1 And a code section, I think perhaps not 2 cited, but not an omission, it's just a venerable 3 principle of law, is found in Code of Civil 4 Procedure 1860. Quote, "For the -- for the proper 5 construction of an instrument, the circumstances 6 under which it was made, including the situation of 7 the subject of the instrument and of the parties to 8 it, may also be shown, so that the judge be placed 9 in the position of those whose language he is to 10 interpret," close quote. 11 There is another one that says he. It 12 might include the pronoun she. But we modernly read 13 them she. They don't say S, slash, he. I'm just 14 reading. 15 Evidence of circumstances is admissible, 16 if relevant, to prove a meaning of which the 17 contract is reasonably susceptible. A few other 18 rules are that subsequent conduct of the parties 19 after the execution of the contract and before any 20 controversy has arisen may be considered in 21 determining the meaning of the contract. And 22 plaintiff cited this section. 23 Here, of course, there was no real ongoing 24 relationship between the parties in their conduct 25 that would give real help to the court related to 26 how they mutually intended to be carried out. But 27 that doesn't end the discussion because -- and so 28 that provision and the one found also in Restatement 58 1 of Contract section 2 of subpart 4 is not expressly 2 applicable. But here the Plaintiff has pointed to 3 some E-mails and other matters found in discovery, 4 and the question then would be, well, can the Court 5 consider the conduct of only one party. The answer 6 is yes. And I'll refer to that case now. 7 I shouldn't apologize for taking this 8 time. I know its burdensome. But since everybody 9 chews over the Judge's decision later, I thought I 10 would be thorough. 11 I've just presented a question and an 12 answer. Is it possible for the Court to consider 13 evidence of only one party after the contract was 14 executed if it might have some benefit in figuring 15 out what the contract means? The answer is yes. 16 And I'll read from a case. The facts are 17 not really important, but it's the language that is 18 explanatory from a higher court. I'll refer to it 19 now. It's Southern California Edison Company versus 20 Superior Court, found at 37 Cal.App. 4th, page 839 21 at page 851. This was actually a review of a 22 summary adjudication, where it's completely 23 different standards and so forth, but then when a 24 trial judge has actually laid his or her eyeballs on 25 a witness, listened and done what only a trial judge 26 can do, and that is make appraisals. But at page 27 851 the Court in the cited case states the 28 following, quote: "The rule is well settled that in 59 1 construing the terms of a contract, the construction 2 given it by the acts and conducts of the parties, 3 plural, with knowledge of its terms and before any 4 controversy has arisen as to its meaning is 5 admissible on the parties' intent." 6 I will not cite the internal citation. 7 It's there for you to find it. But there was a 8 case, continuing, "Contrary to Energy Development's 9 claim, this rule is not limited to the joint conduct 10 of the parties in the course of the performance of 11 the contract." 12 "As stated in Corbin on Contracts," that's 13 C-o-r-b-i-n, "the practical interpretation of the 14 contract by one party evidenced by his words or acts 15 can be used against him on behalf of the other party 16 even though that other party had no knowledge of 17 those words or acts when they occurred and did not 18 concur in them." 19 "In the litigation that has ensued, one 20 who is maintaining the same interpretation that is 21 evidenced by the other party's earlier words and 22 acts can introduce them to support his contention," 23 close quote. Citing Corbin on Contracts and another 24 California appellate case. 25 The Court of Appeal completes this 26 statement with the following words: "We emphasize, 27 the conduct of one party to a contract is by no 28 means conclusive evidence as to the meaning of the 60 1 contract. It is relevant, however, to show the 2 contract is reasonably susceptible to the meaning 3 evidenced by that party's conduct," close quote. In 4 other words, it gets left with the trial court, 5 that's my own gloss, if there is a conflict. 6 Now, in cases -- I'm getting close to 7 these rules and to the end of these general rules of 8 interpretation, specific ones. "In cases of 9 uncertainty not removed by these preceding rules" -- 10 and I should reference the rule, as well, and not 11 omit it -- "that a contract must receive an 12 interpretation as will make it lawful, operative, 13 definite, reasonable and capable of being carried 14 into effect, if it can be done without violating the 15 intention of the parties," close quote. 16 That was cited by Plaintiff as well as 17 Defendant. One of the many rules. I went through 18 the exhaustive treatises. There are other rules. 19 My omission doesn't mean they -- there aren't rules, 20 but I don't think they're as directly applicable and 21 were not separately argued by the parties. 22 "In cases of uncertainty not removed by 23 all the preceding rules, the language of a contract 24 should be interpreted most strongly against the 25 party who caused the uncertainty to exist." That's 26 been cited, and it's emphasized that it's the last 27 rule if the Court is in doubt, not the first. 28 And the rule that any ambiguity caused by 61 1 the draftsman of a contract must be resolved against 2 that party applies with specific force in the case 3 of a contract of adhesion. And quoting from a case 4 here, "In a contract of adhesion, the party's 5 superior bargaining power not only prescribes the 6 words of the instrument, but the party who 7 subscribes to it lacks the economic strength to 8 change such language. Hence, any ambiguity in the 9 contract should be construed in favor of the 10 subscribing party." 11 It's not necessary for the Court to make a 12 legal finding in this case that this is a contract 13 of adhesion. I cite that rule because both the rule 14 in 1654 in the Civil Code that is, ambiguities 15 resolved against the draftsperson if that's 16 necessary after considering all other rules, and the 17 adhesion rule operate in the same way. This 18 contract certainly has elements of an adhesion 19 contract. Such a formal determination I believe it 20 is unnecessary to a determination because it's clear 21 that if the other rules do not resolve the 22 interpretation issue, section 1654, which I just 23 cited on ambiguities, works in the very same way as 24 the adhesion contract rule. 25 The result of establishing an adhesion 26 classification is only to permit a favorable 27 construction of uncertainty. That is, whether the 28 General Specifications, Number 3, is part of the 62 1 contract, or any other ambiguous term, in the 2 absence of uncertainty or ambiguity, the contract is 3 enforceable in accordance with its terms. And 4 although there is a separate body of law concerning 5 unconscionability, that hasn't been argued. It's a 6 related theme in the law, but is not applicable 7 here. 8 The Court determines -- those are the 9 rules. I've cited the testimony. I'll give my 10 conclusion on that now and then move to other 11 issues. 12 The Court does determine that the General 13 Specifications -- and in doing this I've considered 14 all the evidence and weighed the testimony of all 15 witnesses and read all the documents, all the briefs 16 exhaustively. 17 The Court determines that the General 18 Specifications found in Exhibit 3 are not part of 19 the contract signed by the parties. That contract 20 being Exhibit Number 156. The Plaintiff has 21 ratified on several occasions that the only terms of 22 the purported contract upon which it brings claim 23 are found in Exhibit 3, and, therefore, by 24 definition the claim fails. 25 The Court adopts the analysis of 26 Kaleidescape's trial brief, filed on March 20th of 27 2007, and the brief on, quote, Determining the 28 Writings of the Contract, close quote, filed on 63 1 March 27, 2007. Without reading them out loud, 2 the -- those briefs adequately state in detail 3 without beating you over the head with it the 4 Court's analysis on the proper construction, in 5 addition to what I've done myself here in court. 6 In making this determination finding, the 7 Court has resolved in its mind the factual 8 resolution on each of these rules of interpretation 9 and considered the case file, all the documents that 10 were the subject of judicial notice, the exhibits 11 submitted without notation, the broad scope of 12 evidence submitted for the Court's consideration 13 without objection, and resolves all credibility in 14 favor of every finding, express, implied, necessary 15 or appropriate to this court's determination. 16 I will just go back for a moment on a 17 couple of these points. I think I've alluded to 18 them, certainly the testimony of defense witnesses, 19 to the effect the Plaintiff asserts, the Court does 20 not adopt that interpretation. I saw this as a case 21 in which everyone tried to do discovery in a way to 22 kind of make up for the fact that nobody sat down 23 and met and talked. 24 And I do adopt and find credible not the 25 claim that the defendant corporation ab initio, or 26 as they say, from the beginning, conspired and 27 planned -- I'm somewhat overstating, but not much -- 28 the Plaintiff's thesis to dodge and weave and 64 1 violate the terms of the contract. But rather that 2 hard money was put down in an entrepreneurial 3 environment taking a risk, that that risk was 4 enhanced by the fact that they really couldn't get 5 answers in the contract formation process. That the 6 documents were delivered and analyzed. And I've 7 heard the testimony of everyone at the defendant who 8 said they tried to analyze it. The Court finds it 9 credible. 10 I give credit to the -- and resolve the 11 conflict in experts not in favor of Brian Berg, but 12 in favor of Daniel Harkin's interpretation. It 13 makes sense that this is a contract that is not 14 touchy feely, but is strong and normative and tells 15 people what their obligations are. 16 Especially -- and I do find that the -- 17 that there is really no conflict. Having resolved 18 it, the Court's quite readily able to determine this 19 without resort to 1654, but the Court does resort to 20 that as well because the lawyers say there's an 21 ambiguity. And that is that this was a product 22 created by a committee of lawyers. And if a 23 committee of lawyers meeting on -- and this is 24 no criticism of the parties. It is just one of 25 those things gets delegated. 26 On occasion as a solo practitioner it 27 would bring joy to my heart when there were 27 on 28 the other side. I might have a chance winding my 65 1 little dinghy through the process because at least I 2 knew what was in my mind. I'm not being -- trying 3 to make light of it. 4 But the plaintiff had every advantage, the 5 resources of the whole industry and three of them to 6 come together. And in a way, it's as if everybody 7 is responsible, but nobody is responsible. The best 8 lawyers who were attainable from everybody on all 9 sides of this case had access to what they believe 10 are the best lawyers. I'm not criticizing anybody. 11 They came together on over a hundred occasions. 12 Now, in evaluating the believability of 13 this, it almost seems self-evident that there is 14 potential for confusion. It seemed to me in reading 15 these documents kind of like hedging the bets, that 16 clear, unequivocal, decisive decision was not made. 17 And the language of 156 when it calls out words, the 18 attachment -- and after all, the question before the 19 Court is -- is resolved in many ways on what's 20 called the burden of proof. 21 I heard something on C-Span. Somebody was 22 telling me about one of these continuing education 23 courses. One judge, a new judge, was vexed by the 24 problems of understanding. And an old line, 5th 25 Circuit Federal Judge said, we've had this problem 26 for a hundred years. It's resolved by what is 27 called the burden of proof. It is the obligation of 28 lawyers and parties to make themselves understood in 66 1 accordance with the burdens of proof. 2 If this were a jury trial, I would have 3 instructed you in accordance with the jury and in 4 accordance with a standard instruction, that a party 5 must persuade you by the evidence presented in court 6 that what he or she is required to prove is more 7 likely to be true than not true. This is referred 8 to as the burden of proof. After weighing all the 9 evidence, if you cannot decide that something is 10 more likely to be true than not true, you must 11 conclude that the party did not prove it. You 12 should consider all of the evidence, no matter which 13 party produced the evidence. 14 And, of course, judges don't lose sight of 15 that obligation. The committee of lawyers worked on 16 this. It ultimately was presented for people to 17 take it or not. I assign no weight to the fact that 18 memos were being prepared in Kaleidescape, or 19 Ph.D.'s and math, logic and everything else, MBA's 20 talking about what they could do and not do. None 21 of that really adds to what was in the contract. 22 I do understand -- I'll now move briefly 23 to some other issues. Because that single ground is 24 sustainable, it dispenses of all claims. The 25 plaintiff unconditionally and forever gave up its 26 claim which could have been litigated here claiming 27 money relief. 28 The question arises whether there is 67 1 irreparable hardship. I'm simply making cumulative 2 findings now because I think the classic issue is, 3 was there a contract? I will say as an alternative 4 finding, that if by legal compulsion this supposedly 5 fact-intensive determination were found not to be 6 sustainable, then another rule is invoked, and that 7 is that specific performance cannot be granted 8 unless the terms of the contract are sufficiently 9 definite for the Court to know what to enforce. 10 That's found in Civil Code 3390, parenthesis 5, 11 close paren. 12 It's not definite to me. These words seem 13 to be statements of what the computer scrambling 14 device is supposed to do. Document 3, itself, 15 refers -- not to this contract, but there is another 16 contract which very much applies. It is outside of 17 that document. It's just a big omission if the 18 lawyer committee in a hundred meetings didn't do it. 19 That's -- they presented to the Plaintiff's 20 corporation -- it's no criticism of Mr. Hoy, of 21 course. This is a document of the committee, 22 everybody or nobody prepared. And this is what you 23 give to people. They can sign it or not. 24 Of course, I've determined on the merits 25 that the Plaintiff cannot assert a claim, but 26 sometimes people do mediate or discuss things in the 27 shadow of uncertainty. But according to the 28 Defendants, there was never really a chance to do 68 1 that. 2 In looking to the other matters of 3 irreparable hardship, I believe that the -- from all 4 the papers that I have read, that the Court should 5 give deference to a contractual provision and each 6 provision. 7 I do believe from the cases cited, and 8 there was one of the cases cited by the Plaintiff 9 from the chancery court. I didn't know if it was 10 shepherdized because a later case was cited. I hope 11 and trust that Plaintiff's counsel had no knowledge 12 of that. I should be guided in the direction of the 13 truth. I make no bad assumption about that. 14 It seems to me that the question I asked 15 on the first day of trial, that on the issue of 16 irreparable hardship, is there any law that would 17 guide me in the direction of whether the contractual 18 provision is dispositive or one factor to be 19 considered? 20 It seems to me from reading the cases, no 21 California case being precisely on point, and given 22 the important obligations of the court to take great 23 care in robustly exercising authority that is 24 lawfully and appropriately given or refraining from 25 doing so, that the -- that the great modern trend 26 and the majority rule seems to be, that the parties 27 cannot control the sound exercise of jurisdiction by 28 the trial court acting in equity. 69 1 And that means that I would consider that 2 provision in light of all the facts and 3 circumstances. It's academic -- but I should 4 announce on each of the contested issues. It's 5 academic because I believe my contract determination 6 is fully dispositive. But it was one of the 7 substantial controverted issues presented. And it 8 seems to me I should give appropriate consideration 9 to the contract and all the facts and circumstances 10 surrounding it, which I described in detail or 11 touched upon in detail. 12 And in that regard, I did not find 13 persuasive the claim of irreparable harm. I did 14 indicate and was corrected. It's no offense. I 15 asked the question of counsel concerning 16 Ms. Sunderland's testimony. And her statement can 17 be fairly read, offer an opinion that it's possibly 18 true that these rogues out there who do all sorts of 19 pirating, have not adversely impacted this 20 contractual arrangement and have not hurt the 21 Plaintiff for the reasons that she said. 22 To the -- I don't recall exactly, but 23 assuming that she offered an opinion that any breach 24 would irreparably harm the Plaintiff, as others did 25 testify to, so it's not that there is an omission in 26 the record on that. I credit that as being the 27 sincere belief of those parties not controlling on 28 the court. 70 1 And balancing -- it seems to me that 2 essentially every witness said, these are the bad 3 things that will certainly happen. And I believe 4 that I'm entitled to take into account those bad 5 things that have not been -- have not been 6 demonstrated to have occurred in the several years 7 since this dispute arose. In assessing and 8 interpreting this all in the context of when it can 9 be done, in a way so as to promote the public 10 interest, the Court should do that if it can without 11 violence to the contract and all of the facts. 12 And I have not been satisfied that there 13 is irreparable harm or at this point any 14 demonstrated harm. Although I recognize the 15 forecasts; I also recognize fully to the extent that 16 the law permits and it is said to permit it on 17 specific performance. And if specific performance 18 is not issued, my analysis on injunctions and 19 whether there is a contract to enforce fully are 20 equitable here. That to the extent the Court is 21 permitted to balance hardship, it does appear that 22 there would be a great hardship overcoming any claim 23 of harm that would befall the defendant corporation 24 and its employees. 25 I credit Dr. Malcolm's opinion that the 26 corporate -- corporation would be dramatically 27 scaled back. I recognize that as a risk of doing 28 business. That if I found a strong claim of the 71 1 existence of a contract, and if I had made other 2 analyses, it would not have foreclosed me in my view 3 for granting injunctive relief or specific 4 performance relief. 5 It all fits in in evaluating this very 6 broadly, my determination that there has been no 7 showing of bad faith by the defendant or any of its 8 representatives. And obviously, if that were a 9 different finding, it could have led to a different 10 result. 11 I don't mean to be ambiguous, myself, 12 about that. I've made my strong determinations on 13 the contract issue. But I think I look to the whole 14 issue of good faith in going forward. And certainly 15 I do not cast aspersion upon Mr. Hoy, obviously. 16 You know, I think that this all in many ways 17 happened before his time in the sense that the 18 product was delivered. The product was the 19 contract. And I believe that the defendant was able 20 and permitted, never having gotten a voice with 21 anybody, to read the contract, rely upon it, and 22 what it said. 23 Equities are strongly in favor -- in 24 contract interpretation issues are strongly in favor 25 of the defense and against the plaintiff on that 26 issue. 27 There wasn't a lot of testimony on this, 28 but it does -- from what I have heard and everything 72 1 that I've heard in this case, there is nothing that 2 I heard that suggests that the public interest is 3 adversely affected by honoring this contract as 4 interpreted. And I've really heard nothing here 5 that would equate in this trial the conduct of 6 Kaleidescape and its agents and employees with 7 rogues or pirates. 8 And obviously, as I said, whether the 9 evidence captures a kind of a visual depiction in 10 one's mind does matter. And there is no sense of 11 that. That I have rightfully credited the statement 12 that they intend to create a robust, viable business 13 enterprise, take risks and live with risks. But the 14 issue was sharply joined by the Plaintiff's action, 15 and they have defended successfully. Albeit, I find 16 that the cross-complaint is without merit based upon 17 my legal ruling. 18 As to the fair use issue, that gets even 19 further attenuated in terms of the necessity for the 20 Court to rule. I think in light of my findings that 21 there is no necessity for ruling. It's just that my 22 understanding of the posture of the case is that the 23 Plaintiff did not seek to invoke the copyright 24 statute as a sword in the case. 25 I understand the Defendant's brief did 26 raise the copyright matter as a defensive matter. 27 The most recent brief filed by the defendant 28 indicates that fair use implicates the full range of 73 1 equitable principles. And all I need say at this 2 time is that I haven't seen anything that Defendant 3 has done is unfair without tiptoeing into the area 4 of -- obtuse areas of Federal Copyright Law, Nimmer 5 on Copyright or anything else. I'm not going to need 6 that. It's unnecessary to the Court's 7 determination. And frankly, I think it bolsters the 8 defense because I'm accepting the Plaintiff's 9 argument for this purpose that it is not necessary 10 in interpreting this or ruling on the classic state 11 law issues to do that. So there is no error in 12 failing to do so, at least in terms of framing the 13 Court's judgment. 14 In considering the no harm and good faith, 15 I did consider, among others, of course, Mr. Jeffrey 16 Franklin. He's representative of many of the people 17 out there doing their work. And it really seems to 18 me that much of this dispute, at least based on the 19 evidence presented here, is at present more in the 20 nature of an academic inquiry than any demonstration 21 of actual harm. 22 It does appear that these customers are 23 high-end customers. And I haven't heard anything 24 that persuades me -- although there is a possibility 25 that the price will rapidly fall, it's far beyond my 26 competence to -- that's not a substantial 27 controverted issue. Might happen; might not. The 28 business might be here today, gone tomorrow. And if 74 1 so, those are the hazards of doing business in the 2 valley. Some people get obscenely rich. There is 3 nothing wrong with people going broke in the 4 enterprise, and we need all of us. 5 So I believe that in doing this I have now 6 attended to all of the issues described as 7 substantial controverted issues. What I want to do 8 is go off the bench for five minutes and give you a 9 chance to reconnoiter and ask me if there are other 10 issues that you want me to address. If not, on the 11 face of it, I'll accept the concept. You can file 12 papers. I've given the whole legal teams on each 13 side the opportunity to point out any substantial 14 omissions or ambugity, failings. This is a 15 substantial statement of decision, and I'll say no 16 more. I'll be in a short recess. 17 (Whereupon, a short recess was taken, 18 after which the following proceedings were had:) 19 THE COURT: Is there anything else that 20 you require? 21 MR. COATES: Not at the moment, Your 22 Honor. 23 THE COURT: You'll assess this? 24 MR. COATES: Exactly. 25 THE COURT: That's fine. 26 MR. MOORE: Not from the defense, Your 27 Honor. 28 THE COURT: I wanted to just add one 75 1 statement. On this whole issue of good faith and 2 irreparable hardship, I've been quite comprehensive 3 in an attempt to cover every detail. But, 4 specifically, I find and believe that the testimony 5 concerning the four interactions over the several 6 years with dealers and the one interaction with 7 Mr. Collens shows to me that the company, far from 8 attempting to do anything bad, seems to have 9 internal procedures to carry out what they say 10 they're trying to do, which is to proceed in an 11 entirely compliant, lawful, and ethical way. And it 12 suggests to me that there being only four of those 13 documented situations, that things are not as dire 14 as the plaintiff opines. 15 Thank you. 16 I will ask if there is anything further. 17 I will probably delegate -- I'll indicate now I'll 18 ask counsel to work together in preparing an 19 appropriate form of judgment. It should acknowledge 20 the Court's resolution on the nonsuit. It should 21 acknowledge the Court's resolution on this matter. 22 If there are no further requests, the 23 Court having given an opportunity to clarify it face 24 to face with everybody right now, then you'll make 25 them. I'd prefer to do as much as I can here while 26 the parties are here and have a chance to appraise 27 my conduct and while I have the documents present. 28 And I realize people should be able to confer with 76 1 their clients. 2 I would encourage voluntary resolution 3 between the parties, of course. If my words have 4 been persuasive, fine. I mean that in a true sense. 5 If not, people will proceed as they deem 6 appropriate. But one thing that is required is 7 that, of course, if there is no further request, 8 then the statement of decision I'm announcing on 9 this day shall be the statement of decision unless 10 you proceed within the timelines suggested. I defer 11 to the rules, but I ordinarily would see those as 12 pointing at any substantial omission or ambiguity. 13 And from your perspective, have I touched 14 on what were the substantial controverted issues? 15 MR. MOORE: Yes, you have, Your Honor. 16 THE COURT: All right. If there are other 17 proposals, fine. I've done this in oral form. It's 18 not necessary that the transcript be placed in the 19 official case file as far as I'm concerned for the 20 benefit of the parties. But if anyone challenges 21 this, with all respect of course, I would probably 22 delegate to Plaintiff to just bill it out, turn the 23 crank, do what you do. 24 I've tried to save everything discussed 25 for the parties using this as a template. You don't 26 have to go through all the matters. A statement of 27 decision can be a whole lot shorter than what I've 28 done. I've tried to be really comprehensive. 77 1 If either party upon the execution of a 2 judgment, which should be submitted in the time 3 frame required, and I'll delegate that to -- the 4 laboring ore, to defense counsel to initiate this, 5 which should also encompass the Court's resolution 6 against the cross-complaint, one final judgment. 7 Then if there are attorney's fee requests, 8 that you hopefully can negotiate. You have a little 9 time to do that. But if that is not resolved to 10 your satisfaction, you can tee that up. As far as 11 I'm concerned, you can do it on a cost bill listing 12 the costs that you believe were subject to being 13 claimed. 14 Frankly, on each party prevailing on some 15 issue, I would think most of the time people can 16 recognize that the process of billing attorney's 17 fees over costs far outweighs usually the disputed 18 items. But I see many a dispute over small items, 19 people refer to litigation. But on the attorney 20 fees issues, hopefully you can recognize that I've 21 made a determination on the merits against the 22 cross-complaint. I see that as a small part of the 23 case, but, hopefully, you can merge these issues. 24 If you come to agreement on costs and 25 attorney's fees -- of course, it's not acquiescence 26 in the judgment. People would then have their full 27 rights of review, if you believed on everything I've 28 said there was a good basis; or if not, you can 78 1 still do it. 2 The -- just one second. When the judgment 3 is prepared and entered, I would direct the official 4 preparation of a notice of entry of judgment. 5 Because it's very important that the parties know 6 that from this Court's perspective I like the case 7 to move along. Many times lawyers just leave it out 8 there, six-month appeal periods. No, it should be a 9 60-day period from notice of entry of judgment so 10 parties can fish or cut bait and get on with their 11 lives. 12 Thank you. Thank you so much. 13 MR. MOORE: Thank you, Your Honor. 14 MR. COATES: Thank you, Your Honor. 15 THE COURT: Looking forward to having the 16 privilege of working with you again on any issue 17 that would come up. Thank you. 18 MR. MOORE: Thank you, Your Honor. 19 MR. COATES: Thank you, Your Honor. 20 (Whereupon, proceedings were concluded.) 21 22 23 24 25 26 27 28 79 1 State of California ) ) SS. 2 County of Santa Clara) 3 4 I, Michelle V. Larios, do hereby certify 5 that the foregoing is a full, true and correct 6 transcript of the proceedings had in the 7 within-entitled action held on the 29th day of 8 March, 2007; 9 That I reported the same in stenotype 10 being the qualified and acting official Court 11 Reporter of the Superior Court, in and for the City 12 and County of Santa Clara, appointed to said court, 13 and thereafter transcribed into typewriting as 14 herein appears. 15 I further certify that I have complied 16 with CCP 237(a)(2) in that all personal juror 17 identifying information has been redacted if 18 applicable. 19 20 Dated: April 2, 2007. 21 22 ________________________ 23 Michelle V. Larios,C.S.R. 24 License No. 9244, C.R.P. 25 NO. 043 26 27 28