RSA v. PGP 2

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18 August 1997
Add link to June 4, 1997 stipulation and order to stop PGP Motion to Compel Arbitration and Demurrer to Complaint pending RSA/Caro-Kann arbitration.

18 August 1997 Add documents 6 and 7 to this package.

3 August 1997
Source: Hardcopy from John Gilmore

See RSA v. PGP suit: http://jya.com/rsavpgp.txt

See Lemcom License Exhibit A: http://jya.com/pkplem.htm

1. Pretty Good Privacy, Inc.'s Amended Notice of Hearing on Motion to Compel Arbitration and Demurrer to Complaint and Proof of Service (3 pp. hardcopy)

2. Pretty Good Privacy, Inc.'s Notice of Hearing on Motion to Compel Arbitration and Demurrer to Complaint (2 pp.)

3. Pretty Good Privacy, Inc.'s Demurrer to Complaint (2 pp.)

4. Pretty Good Privacy, Inc.'s Memorandum of Points and Authorities in Support of Its Motion to Compel Arbitration and Demurrer to Complaint (10 pp.)

5. Declaration of Robert H. Kohn in Support of Pretty Good Privacy, Inc.'s Motion to Compel Arbitration and Demurrer to Complaint (3 pp.)

5.1 Exhibit A - Cylink Letter (4 pp.)
5.2 Exhibit B - Tomlinson Zisko Letter (3 pp.)
5.3 Exhibit C - RSA Letter (1 p.)
5.4 Exhibit D - PGP Letter (5 pp.)
5.5 Exhibit E - PGP Letter (2 pp.)
5.6 Exhibit F - PGP Letter (1 p.)
5.7 Exhibit G - PGP Letter (2 pp.)
5.8 Exhibit H - PGP Letter (3 pp.)
5.9 Exhibit I - Tomlinson Zisko Letter (2 pp.)

6. Pretty Good Privacy, Inc.'s Appendix to Non-California Authorities

7. Pretty Good Privacy Inc.'s Proof of Service

[Computer printed form]

SUPERIOR COURT OF CALIFORNIA, COUNTY OF SAN MATEO

CASE NO. 400585
DATE 13 JUN 1997

TITLE OF ACTION: RSA DATA SECURITY, INC., VS. PRETTY GOOD PRIVACY, INC.

NATURE OF EVENTS: 01,DEFT PRETTY GOOD PRIVACY MOTION TO COMPEL ARBITRATION
02,DEFT PRETTY GOOD PRIVACY DEMURRER TO COMPLAINT

X THE ABOVE MATTER IS CONTINUED TO 6-16-97 [by hand:] ph atty Locker, 5-23

[Unused balance of form omitted]

[1]
FILED
SAN MATEO COUNTY
MAY 23 1997
Clerk of the Superior Court
By [Illegible signature]
DEPUTY CLERK

MICHAEL BARCLAY, State Bar No. 088993
NINA F. LOCKER, State Bar No. 123838
RODNEY G. STRICKLAND, JR., State Bar No. 161934
AHMED E. TAHA, State Bar No. 184540
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (415)493-9300

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO
14.-

RSA DATA SECURITY, INC., a Delaware ) CASE NO.: 400585
corporation )
) PRETTY GOOD PRIVACY,
Plaintiff, ) INC.'S AMENDED NOTICE
) OF HEARING ON MOTION
v. ) TO COMPEL ARBITRATION
) AND DEMURRER TO
PRETTY GOOD PRIVACY, INC., a ) COMPLAINT
Delaware corporation, and DOES 1 through )
25, inclusive, ) Date: June 16,1997
) Time: 9:00 a.m.
Defendants. ) Dept.: 10
) Est. Time for Hearing: 15 mins.
)
__________________________________________)

TO PLAINTIFF AND TO ITS ATTORNEYS OF RECORD:

PLEASE TAKE NOTICE THAT the Motion to Compel Arbitration and Demurrer
filed by defendant Pretty Good Privacy, Inc. ("PGP") have been set for
hearing on June 16, 1997, 9:00 a.m., or as soon thereafter as counsel may
be heard, in Department 10 of this Court, located at 401 Marshall Street,
Redwood City, California 94063.

The Motion and Demurrer is based on the binding arbitration clause in
the License Agreement between PGP and Public Key Partners, and is made on
the grounds that (1) plaintiff RSA Data Security, Inc.("RSA") has failed to
exhaust its contractually required arbitration remedies, and (2) RSA is not
a party to the License Agreement between PGP and Public Key Partners, and
therefore it cannot unilaterally terminate the agreement without the consent
of its partner in Public Key Partners.

The Motion and Demurrer are based on this Notice, the accompanying
Demurrer to the Complaint, the accompanying Memorandum of Points and
Authorities, the Declaration of Robert H. Kohn, the pleadings and papers on
file herein, and such argument of counsel as may be presented at the hearing.

Dated: May 23, 1997 WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

By [Signature]
Nina F. Locker

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

::ODMA\PCDOCS\SQL1\148285\2

PROOF OF SERVICE BY HAND DELIVERY

I, Sandra Kodani, declare:

I am a citizen of the United States and a resident of the County of
Santa Clara. I am over the age of 18 years and not a party to the within
action. I am readily familiar with Wilson, Sonsini, Goodrich & Rosati's
practice for collection and processing of correspondence for same-day
delivery by messenger. In the ordinary course of business, correspondence
would be consigned to a messenger service on this date.

On May 23, 1997, I caused to be served

Pretty Good Privacy, Inc.'s Amended Notice of Hearing on Motion to
Compel Arbitration and Demurrer to Complaint

on the persons listed below by placing the document(s) described above in an
envelope addressed as indicated below, which I sealed. I consigned the
envelope to a messenger delivery service by placing it/them for collection
and processing this day following ordinary business practices at Wilson,
Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304-1050, to be personally served on the following:

James R. Busselle, Esq.
Thomas E. Moore III, Esq.
Tomlinson Zisko Morosoli & Maser
200 Page Mill Road, Second Floor
Palo Alto, CA 94306

I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct. Executed at Palo Alto,
California on May 23, 1997.

[Signature]
Sandra Kodani

H:\HOME\SKK\PGP\POS.HAN

[2]
FILED
SAN MATEO COUNTY
MAY 22 1997
Clerk of the Superior Court
By [Rosana Biosic]
DEPUTY CLERK

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO 182.-
14.-
14.-

RSA DATA SECURITY, INC., a Delaware ) CASE NO.: 400585
corporation )
) PRETTY GOOD PRIVACY,
Plaintiff, ) INC.'S NOTICE OF HEARING
) ON MOTION TO COMPEL
v. ) ARBITRATION AND
) DEMURRER TO
PRETTY GOOD PRIVACY, INC., a ) COMPLAINT
Delaware corporation, and DOES 1 through ) 13
25, inclusive, ) Date: June 6,1997
) Time: 9:00 a.m.
Defendants. ) Dept.: 8 [Illegible numbers]
) Est. Time for Hearing: 15 mins.
)
__________________________________________)

TO PLAINTIFF AND TO ITS ATTORNEYS OF RECORD:

PLEASE TAKE NOTICE THAT the motion to compel arbitration (the
"Motion") and demurrer filed by defendant Pretty Good Privacy, Inc. ("PGP")
have been set for hearing on June 6, 1997, 9:00 a.m., or as soon thereafter
as counsel may be heard, in Department 8 of this Court, located at 401
Marshall street, Redwood City, California 94063.

The Motion is based on the binding arbitration clause in the License
Agreement between PGP and Public Key Partners, and is made on the grounds
that (1) plaintiff RSA Data Security, Inc.("RSA") has failed to exhaust its
contractually required arbitration remedies, and (2) RSA is not a party to
the License Agreement between PGP and Public Key Partners, and therefore it
cannot unilaterally terminate the agreement without the consent of its
partner in Public Key Partners.

The Motion and Demurrer are based on this Notice, the accompanying
Demurrer to the Complaint, the accompanying Memorandum of Points and
Authorities, the Declaration of Robert H. Kohn, the pleadings and papers
on file herein, and such argument of counsel as may be presented at the
hearing.

Dated: May 23, 1997 WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

By [Signature]
Nina F. Locker

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

::ODMA\PCDOCS\SQL1\148285\1

[3]
FILED
SAN MATEO COUNTY
MAY 22 1997
Clerk of the Superior Court
By [Rosana Biosic]
DEPUTY CLERK

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO

RSA DATA SECURITY, INC., a Delaware ) CASE NO.: 400585
corporation )
) PRETTY GOOD PRIVACY,
Plaintiff, ) INC.'S NOTICE OF HEARING
) ON MOTION TO COMPEL
v. ) ARBITRATION AND
) DEMURRER TO
PRETTY GOOD PRIVACY, INC., a ) COMPLAINT
Delaware corporation, and DOES 1 through ) 13
25, inclusive, ) Date: June 6,1997
) Time: 9:00 a.m.
Defendants. ) Dept.: 8
) Est. Time for Hearing: 15 mins.
)
__________________________________________)

Defendant Pretty Good Privacy, Inc. ("PGP") hereby demurs to the
complaint filed by RSA Data Security, Inc. ("RSA") on each of the following
grounds:

DEMURRER TO FIRST CAUSE OF ACTION

1. RSA has failed to exhaust its contractually required arbitration
remedies. See Charles J. Rounds Co. v. Joint Council of Teamster No. 42, 4
Cal. 3d 888 (1971); Badgley v. Van Upp, 20 Cal. App. 4th 218 (1994).

2. RSA cannot unilaterally terminate the License Agreement at issue
in this action because it is not a party to that agreement.

DEMURRER TO SECOND CAUSE OF ACTION

3. RSA has failed to exhaust its contractually required arbitration
remedies. See Charles J Rounds Co. v. Joint Council of Teamster No. 42, 4
Cal. 3d 888 (1971); Badgley v. Van Upp, 20 Cal. App. 4th 218 (1994).

Dated: May 23, 1997 WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

By [Signature]
Nina F. Locker

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

::ODMA\PCDOCS\SQL1\148257\1

[4]
FILED
SAN MATEO COUNTY
MAY 22 1997
Clerk of the Superior Court
By [Rosana Biosic]
DEPUTY CLERK

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO

RSA DATA SECURITY, INC., a Delaware ) CASE NO.: 400585
corporation )
) PRETTY GOOD PRIVACY,
Plaintiff, ) INC.'S MEMORANDUM OF
) POINTS AND AUTHORITIES
v. ) IN SUPPORT OF ITS
) MOTION TO COMPEL
PRETTY GOOD PRIVACY, INC., a ) ARBITRATION AND
Delaware corporation, and DOES 1 through ) DEMURRER TO
25, inclusive, ) COMPLAINT
)
Defendants. ) 13
) Date: June 6, 1997
) Time: 9:00 a.m.
) Dept.: 8
) Est. Time for Hearing: 15 mins.
)
__________________________________________)

Defendant Pretty Good Privacy, Inc. ("PGP") respectfully submits this
memorandum of points and authorities in support of its Motion to Compel
Arbitration and Demurrer to Complaint.

I. INTRODUCTION

This dispute began when a company called RSA Data Security, Inc.
("RSA") purported to terminate a contract to which it is not even a party --
namely, a patent license agreement (the "License Agreement") between
defendant PGP and non-party Public Key Partners. Thereafter, RSA's partner
in Public Key Partners -- Caro-Kann, a wholly-owned subsidiary of Cylink
Corporation -- informed RSA in writing that it had no authority whatsoever
to terminate the license agreement, and that RSA's only remedy for PGP's
alleged breach was to demand arbitration.¹ Caro-Kann also informed RSA that
"the issues raised in [RSA's] complaint fall squarely within the explicit
intent of the license's arbitration clause." Id. RSA did not demand
arbitration. Instead, RSA filed this lawsuit, knowing that it lacked the
authority to do so.

_____________________

¹ See Exhibit A to the Declaration of Robert H. Kohn in Support of Pretty
Good Privacy, Inc.'s Motion to Compel Arbitration and Demurrer to Complaint
("Kohn Decl.").

RSA's complaint must be dismissed because the License Agreement
includes an arbitration clause that encompasses the parties' dispute. The
arbitration clause provides that "[a]ll disputes, controversies or
differences between [Public Key Partners] and LICENSEE arising out of or
related in any way whatsoever to this Agreement shall be submitted to
arbitration."² RSA has not claimed -- because it cannot -- that the parties'
dispute is outside the scope of the arbitration clause. Instead, RSA claims
that it unilaterally terminated the License Agreement as a result of PGP's
alleged breach, and that this purported termination of the agreement
nullifies the arbitration clause. RSA's argument fails for at least two
reasons.

___________________

² The License Agreement is attached as Exhibit A to RSA's complaint. The
arbitration clause is found at ¶ 13.1 of the License Agreement. At the time
the agreement was executed, PGP was known as Lemcom Systems, Inc. Kohn Decl.,
¶ 2.

First, RSA is not even a party to the License Agreement. Whether the
actual licensor, Public Key Partners has the power to terminate the License
Agreement would itself be an arbitrable dispute. Although RSA purports to act
on behalf of the partnership, RSA' s former partner in Public Key Partners,
Caro-Kann, has informed RSA that RSA's purported termination is, in
Caro-Kann's words, "ineffective" without Caro-Kann's consent. Thus, even if
a party to a contract could, theoretically, avoid an arbitration clause by
unilaterally terminating an agreement for a purported breach, there is an
arbitrable issue as to whether RSA has the authority to terminate the
agreement at issue.

Second, RSA's only stated "grounds" for terminating the agreement is
PGP's alleged breach of contract. See e.g, Complaint, ¶¶ 20, 34; Kohn Decl.,
Exh. B. Whether PGP has, in fact, breached these provisions must be
arbitrated by the terms of the contract itself. If a party could avoid an
arbitration clause simply by declaring that the agreement has been
terminated due to the other party's alleged breach, arbitration clauses
would be meaningless. Indeed, most contractual arbitrations -- including
this one -- concern whether or not a breach has occurred. The result
advocated by RSA is contrary to the parties' intent and the strong public
policy in favor of the arbitration of disputes.

PGP has performed all that is required of it under the arbitration
clause: it demanded arbitration in writing, and appointed an arbitrator. See
Complaint, Exh. A, ¶ 13.1. RSA has also appointed an arbitrator. Because the
parties' dispute falls squarely within the License Agreement's arbitration
clause, this Court should grant PGP's motion to compel arbitration and
sustain its demurrer. The complaint should be dismissed so that the parties
can arbitrate their dispute in accordance with the express terms of the
License Agreement.

II. STATEMENT OF FACTS

Plaintiff RSA develops and markets computer software for encrypting
and securing information. RSA's software is based on technology that was
invented at, and patented by, the Massachusetts Institute of Technology
("MIT"). In 1983, MIT granted RSA an exclusive license to MIT's patent
(the "MIT Patent"). Complaint, ¶ 9.

Cylink Corporation, which is not a party to this action, develops
and markets computer hardware and software for encrypting and securing
information. Cylink's products are based on technology which was developed
at, and patented by, Stanford University. In 1985, Stanford granted Cylink
a non-exclusive license to the patents (the "Stanford Patents"). In 1989,
Stanford amended its license with Cylink by granting Cylink the right to
sublicense the Stanford Patents.

In 1990, RSA and Cylink agreed to pool their respective sublicensing
rights to the Stanford and MIT patents in a partnership -- Public Key
Partners -- formed between RSA and Cylink's wholly-owned subsidiary,
Caro-Kann. Complaint, ¶ 12. During its existence, Public Key Partners
granted a number of patent licenses. Id., ¶ 13. One of these licenses is the
License Agreement at issue in this case: in November 1992, PKP granted a
patent license to Lemcom Systems, Inc., which is now known as Pretty Good
Privacy, Inc. (or "PGP"). Id., ¶ 15.

In its complaint, RSA alleges that RSA and Caro-Kann dissolved
Public Key Partners in September 1995 and are in the process of winding up
Public Key Partners' business. Id., ¶ 33. Although the terms of the alleged
dissolution agreement have not been disclosed to PGP or the Court, RSA
claims that it retained the "sole authority to enforce" Public Key Partners'
license agreements with respect to the MIT patent. Id.

On March 14, 1997, RSA sent PGP a letter claiming that PGP breached
the License Agreement. See Kohn Decl., Exh. C. By letter dated April 16,
1997, RSA purported to terminate the License Agreement. Id., Exh. B. PGP has
repeatedly requested that RSA provide support for its claim that it has the
authority to act on behalf of Public Key Partners with respect to the
License Agreement and, more importantly, that it has the authority to
terminate the License Agreement on behalf of the partnership. Id., ¶ 12 and
Exhs. D, E, F. RSA has never responded to this request. Id., ¶ 12. To the
contrary, all PGP has received to date is a letter from Cylink -- sole owner
of RSA's former partner, Caro-Kann -- which states unequivocally that RSA
does not have the unilateral right to terminate the License Agreement:

It seems [RSA has] overlooked Cylink's continuing economic interest
in [Public Key Partners'] remaining licenses, including that held by
PGP ... For this reason, Cylink unfortunately can not agree that RSA
has a unilateral right to terminate a [Public Key Partners] license.
That license is for the benefit of both parties. Nor is the license
divisible by a partial termination with respect to only one patent.
Since RSA 's purported termination affects both parties' rights, it
must be deemed ineffective without Cylink 's consent. Id., Exh. A
(emphasis added).

In response to RSA's allegations of breach and purported termination
of the License Agreement, PGP notified RSA and Public Key Partners in
writing of its intent to arbitrate the dispute. Id., Exh. G. Subsequently,
PGP appointed an arbitrator. Id., Exh. H. PGP's actions were in accordance
with the express terms of the License Agreement, which provides that "[e]ach
party shall be entitled to appoint one arbitrator" and that "[d]emand for
arbitration shall be made in writing and shall be served upon the party or
parties to whom the demand is addressed ..." See Complaint, Exh. A, ¶ 13.1.³

_______________________

³ On May 16, 19967, RSA appointed an arbitrator. See Kohn Decl., Exh. I.
Thus, assuming Cylink consents to RSA's designated arbitrator, the parties
have done all that is required to initiate arbitration proceedings under
the arbitration clause.

Despite PGP's willingness to arbitrate this dispute, as is required
by the License Agreement, RSA filed this action on May 6, 1997. RSA's
complaint alleges that PGP breached provisions of the License Agreement,
including the no-copying provisions, source code transfer restrictions,
marking provisions, assignment restrictions, and audit and royalty
provisions. Complaint, ¶¶ 19-20, 28-29, 43. RSA has asserted two causes of
action. The first seeks only a declaration that the arbitration provision
does not survive RSA's alleged termination of the agreement. Id. ¶ 38. The
second seeks an injunction compelling PGP to comply with the audit and
royalty provisions of the agreement. Id. ¶ 43.

III. ARGUMENT

A. The License Agreement Requires the Arbitration of This Dispute

Pursuant to section 1281.2 of the Code of Civil Procedure, an action
must be ordered to arbitration once the Court determines that an agreement
to arbitrate the controversy exists. The statute provides, in pertinent
part, that: '

[o]n petition of a party to an arbitration agreement alleging the
existence of a written agreement to arbitrate a controversy and that
a party thereto refuses to arbitrate such controversy, the court
shall order the petitioner and the respondent to arbitrate the
controversy if it determines that an agreement to arbitrate the
controversy exists ...

Code Civ. Pro. § 1281.2 (emphasis added). PGP's motion to compel arbitration
under section 1281.2 must be granted "unless it may be said with positive
assurance that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute." Retail Clerks Union, Local
775 v. Purity Stores, Inc., 41 Cal. App. 3d 225, 231 (1974), quoting
O'Malley v. Wilshire Oil Co., 21 59 Cal. 2d 482, 491 (1963).⁴

_________________________

⁴ See also Service Employees Int'l Union, Local 347 v. City of Los Angeles,
24 Cal. App. 4th 136, 143 ( 1994) ("where the agreement contains an
arbitration clause, a presumption of arbitrability exists"); Vianna v.
Doctors' Management Co., 27 Cal. App. 4th 1186, 1189 (1994) (an agreement
to arbitrate should be "liberally interpreted, and arbitration should be
ordered unless the agreement clearly does not apply to the dispute in
question"), quoting Weeks v. Crow, 113 Cal. App. 3d 350, 353 (1980);
Tas-T-Nut Co. v. Continental Nut Co., 125 Cal. App. 2d 351, 358 (1954)
("[w]here parties have agreed to arbitrate their differences it is the clear
intent of the California arbitration statute that courts should enforce the
performance of that agreement").

Clearly, the License Agreement at issue here requires this dispute to
be arbitrated; no one -- including RSA -- would argue that the agreement is
not "susceptible of an interpretation that covers the asserted dispute."
This dispute concerns RSA's claim that PGP breached the License Agreement:
the gravamen of RSA's complaint is that PGP failed to comply with provisions
in the agreement regarding (i) reproduction of licensed products, (ii)
marking of product, (iii) transfer of source code, (iv) assignment of the
license, and (v) audits and royalty payments. Complaint, ¶¶ 19-20, 28-29, 43.
As a result of PGP's purported breach of contract, RSA claims to have
terminated the License Agreement. RSA's first cause of action seeks a
declaratory judgment that the arbitration clause does not survive the
purported termination of the agreement. This is not an independent claim but
rather, simply an attempt to avoid the parties' agreement to arbitrate their
disputes. RSA's second cause of action seeks specific performance of the
License Agreement's provisions regarding audits and royalty payments. Id.,
¶¶ 40-43.

These are exactly the type of claims that fall squarely within the
broad and all-inclusive language of the arbitration clause. The clause
provides that "[a]ll disputes, controversies or differences .. arising out
of or related in any way whatsoever to this Agreement shall be submitted to
arbitration." See Complaint, Exh. A, ¶ 13.1 (emphasis added). Clearly,
whether PGP has breached the agreement is a dispute arising out of and
related "in any way whatsoever" to the License Agreement. Likewise, whether
and on what terms RSA -- as opposed to the actual licensor, Public Key
Partners -- is entitled to an audit of PGP's books and records is a dispute
arising out of and related to the License Agreement.

B. RSA's Purported Termination of the License Agreement
Does Not Nullifv PGP's Contractual Right to Arbitrate This Dispute

RSA implicitly concedes that the parties' dispute is one that arises
out of and relates to the License Agreement; it has never contended
otherwise. Rather, RSA contends that the arbitration clause is no longer in
effect because it purportedly terminated the agreement. See Complaint ¶¶
21, 37(a).⁵ RSA's argument is meritless. Whether the License Agreement has
been terminated is an arbitrable dispute.

_______________________

⁵ See also Kohn Decl., Exh. I (Letter from RSA's counsel: "it is RSA's
position that the [License Agreement] was terminated. It is further RSA's
position that the arbitration provisions of the [License Agreement] did not
survive the termination").

Significantly, the License Agreement does not allow the licensor to
terminate the agreement "at will" or "on 30 days notice." Pursuant to ¶ 11.1
of the License Agreement, the licensor may terminate the License Agreement
only if "LICENSEE breaches paragraph 3.2, Article 8 or Article 9." See
Complaint, Exh. A, ¶ 11.1 (emphasis added).⁶ Thus, a breach of the
agreement by PGP is a prerequisite to the termination of the agreement. As
explained above, whether or not PGP has breached any provision of the
License Agreement is precisely the type of dispute that must be arbitrated.
Until the parties' dispute has been arbitrated, and the appointed arbitrators
have found a breach sufficient to justify termination, the agreement -- and
therefore the arbitration clause -- remains in effect.

_____________________

6 The agreement can also be terminated for failure to pay royalties or
submitting a "materially false royalty report." See Complaint, Exh. A,
¶ 11.1. While RSA previously claimed that PGP failed to make adequate
royalty payments (see Kohn Decl., Exh. B), this allegation does not appear
in the complaint. Had RSA made such an allegation, that dispute too would
be arbitrable.

RSA's argument that the arbitration clause does not survive its purported termination of the
License Agreement would render the negotiated arbitration clause meaningless. Under RSA's
interpretation, the licensor can avoid arbitration simply by alleging, but not proving, a breach and
simultaneously giving notice of termination. This interpretation renders the parties' agreement to
arbitrate illusory.

For this reason, courts have uniformly rejected RSA's argument. In Levin v. Ripple Twist
Mills, Inc., 416 F. Supp. 876 (E.D. Pa. 1976), as here, the arbitration clause in a license agreement
provided that "[a]ny dispute, claim, question, or difference arising out of or relating to this
agreement . . . shall be submitted for arbitration . . ." The licensor under that agreement, like RSA
in this action, claimed that the arbitration clause did not survive his termination of the license
agreement for breach. The court disagreed, and ordered the dispute arbitrated. Levin, 416 F. Supp.
at 880. Significantly, the court held that whether the licensor had grounds to terminate the
agreement was "referable to arbitration under this [agreement's arbitration] clause." Id., at 879-
80.⁷

_____________________

⁷ Other federal courts have also held that disputes over termination of an
arbitration clause must be submitted to arbitration. See Brotherhood of
Teamsters and Auto Truck Drivers Local No. 70 v. Interstate Distributor Co.,
832 F.2d 507, 509-10 (9th cir. 1987) ("where as here, the agreement
contains a broad arbitration clause covering all disputes concerning the
meaning of the terms and provisions of the agreement and the clause does
not expressly exclude disputes over the termination provision ... Disputes
over expiration or termination must be submitted to arbitration"); National
Railroad Passenger Corp. v. Boston & Maine Corp., 850 F.2d 756, 762-63 (D.C.
cir. 1988) (affirming district court's order to compel arbitration; when
faced with a broad arbitration clause, "such as one providing generally ...
that disputes 'arising under' or 'concerning' the contract are to be
arbitrated, we will presume that disputes over the termination or expiration
of the contract should be submitted to arbitration").

Likewise, in B.L. Metcalf General Contractor, Inc. v. Earl Erne, Inc.,
212 Cal. App. 2d 689 (1963), a contract between a general contractor and a
subcontractor required arbitration of any controversy ... regarding anything
pertaining to this agreement." The contract also allowed the general
contractor to terminate the contract in the event of a breach by the
subcontractor. The Court rejected the general contractor's argument that
its termination of the agreement "destroyed and terminated the contractual
relation and that therefore no provision for arbitration remained."
The Court found that the parties intended to arbitrate even in the event of
termination of the agreement. B.L. Metcalf General Contractor, Inc., 212
Cal. App. 2d at 692.

Similarly, the License Agreement reflects that Public Key Partners
and PGP clearly intended to arbitrate any dispute between them. See Civil
Code §§ 1636, 1639 (intention of the parties governs the interpretation of
a written contract). The arbitration clause applies to disputes related
"in any way whatsoever" to the agreement. See Complaint, Exh. A, ¶ 13.1.
According to Robert Fougner, Cylink's General Counsel, the language chosen
for the arbitration clause was "deliberately sweeping." See Kohn Decl.,
Exh. A. In light of the parties' undisputed intent to arbitrate whether a
breach of contract has occurred, and the restrictions on the licensor's
right to terminate the agreement, RSA's argument that it can nullify the
arbitration clause by unilaterally declaring that the agreement has been
terminated is devoid of merit.

Moreover, even if a party could avoid an arbitration clause by
terminating an agreement without first proving breach, this dispute would
still have to be arbitrated: whether RSA is authorized to terminate the
License Agreement is arbitratable. As noted above, the agreement allows the
licensor -- Public Key Partners -- to terminate the agreement for breach.
RSA is not the licensor; it is not even a party to the License Agreement.
Although RSA alleges that it is authorized to terminate the License
Agreement on behalf of Public Key Partners (Complaint 1133), its former
partner disagrees. See Kohn Decl., Exh. A ("Cylink unfortunately can not
agree that RSA has a unilateral right to terminate a [Public Key Partners]
license.... Since RSA's purported termination affects both parties' rights,
it must be deemed ineffective without Cylink's consent."). Whether one of
the partners forming Public Key Partners can terminate the License Agreement
without the other partner's consent clearly relates to the License Agreement,
and thus is subject to the arbitration clause. See Complaint, Exh. A, ¶ 13.1
(disputes relating "in any way whatsoever" to the License Agreement must be
arbitrated).

To the extent that plaintiff RSA, as opposed to Public Key Partners,
has any claims against PGP, those claims arise out of and relate to the
License Agreement. Thus, the claims are arbitrable under the broad language
of the arbitration clause. PGP's motion to compel arbitration should be
granted. See Code Civ. Proc. § 1281.2.

C. The Court Should Sustain PGP's Demurrer and Dismiss the Complaint
or, Alternatively, Stay the Action Pending Completion of the Arbitration

The California Supreme Court has held that where, as here, "the only
issue to be arbitrated is covered by the arbitration clause, and where
plaintiff has not first pursued or attempted to pursue his arbitration
remedy," a defendant may demur to a complaint on the grounds the plaintiff
has failed to exhaust its arbitration remedies. See Charles J. Rounds Co. v.
Joint Council of Teamsters No. 42, 4 Cal. 3d 888, 899 (1971); Badgley v. Van
Upp, 20 Cal. App. 4th 218, 221 (1993); see also Cusenza v. Construction Design
and Consulting, Inc., 157 Cal. App. 3d 201, 203 (1984). PGP's demurrer to
the complaint on those grounds has been filed herewith. As explained above,
the License Agreement's broad arbitration clause encompasses all of RSA's
claims. Thus, in addition to ordering that this action be arbitrated, the
Court should sustain PGP's demurrer and dismiss the complaint.

In the alternative, the Court should stay this action in its entirety
pending the completion of arbitration. See Code Civ. Proc. § 1281.4 (after
ordering an action to arbitration, upon motion of a party the Court "shall
... stay the action or proceeding until an arbitration is had in accordance
with the order to arbitrate or until such earlier time as the court
specifies.").

IV. CONCLUSION

For the foregoing reasons, defendant Pretty Good Privacy, Inc.
respectfully requests that this Court grant its motion to compel arbitration.
In addition, PGP requests that the Court sustain its demurrer and dismiss
the complaint or, in the alternative, stay this action pending the
completion of arbitration.

Dated: May 22,1997 WILSON SONSINI GOODRICH & ROSATI

By [Signature]
Nina F. Locker

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

[Doc i.d. pp. 2-10] RGS::ODMA\PCDOCS\SQLI\146644\3

[5]
FILED
SAN MATEO COUNTY
MAY 22 1997
Clerk of the Superior Court
By [Rosana Biosic]
DEPUTY CLERK

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO

RSA DATA SECURITY, INC., a Delaware ) CASE NO.: 400585
corporation )
) DECLARATION OF
Plaintiff, ) ROBERT H. KOHN IN
) SUPPORT OF PRETTY
v. ) GOOD PRIVACY, INC.'S
) MOTION TO COMPEL
PRETTY GOOD PRIVACY, INC., a ) ARBITRATION AND
Delaware corporation, and DOES 1 through ) DEMURRER TO
25, inclusive, ) COMPLAINT
)
Defendants. ) 13
) Date: June 6, 1997
) Time: 9:00 a.m.
) Dept.: 8
__________________________________________) Est. Time for Hearing: 15 mins.

I, Robert H. Kohn, declare as follows:

1. I am the vice President, Business Development, for Pretty Good
Privacy, Inc., defendant in the above-captioned matter. I have personal
knowledge of the facts set forth in this declaration and if called as a
witness could and would testify competently to the matters set forth
herein.

2. In June 1996, PGP, Inc. merged with by Lemcom Systems, Inc. In
connection with the merger of PGP, Inc. into Lemcom, the surviving company,
Lemcom, changed its name to Pretty Good Privacy, Inc. ("PGP").

3. Attached hereto as Exhibit A is a true and correct copy of a
letter dated May 13, 1997, from Robert B. Fougner, the General Counsel of
Cylink, to James R. Busselle, Esq., a copy of which I received from Mr.
Fougner. Mr. Busselle is counsel to RSA Data Security, Inc. ("RSA") in this
action.

4. Attached hereto as Exhibit B is a true and correct copy of a
letter dated April 16, 1997, to Leonard E. Mikus, the former president of
Lemcom, from Mr. Busselle, a copy of which I received from Mr. Mikus.

5. Attached hereto as Exhibit C is a true and correct copy of a
letter dated March 14, 1997, to Tom Steding, PGP's Chief Executive Officer,
from Paul Livesay, Esq., the Director of Legal Affairs of RSA, a copy of
which I received from Mr. Steding.

6. Attached hereto as Exhibit D is a true and correct copy of a
letter dated April 17, 1997, that I sent to Mr. Livesay.

7. Attached hereto as Exhibit E is a true and correct copy of a
letter dated April 28, 1997, that I sent to Mr. Livesay.

8. Attached hereto as Exhibit F is a true and correct copy of a
letter dated May 13, 1997, that I sent to Mr. Livesay.

9. Attached hereto as Exhibit G is a true and correct copy of a
letter dated April 17, 1997, that I sent to Public Key Partners and Mr.
Busselle.

10. Attached hereto as Exhibit H is a true and correct copy of a
letter dated May 13, 1997, that I sent to Mr. Livesay.

11. Attached hereto as Exhibit I is a true and correct copy of a
letter dated May 16, 1997, that I received from Mr. Busselle.

12. As Exhibits D, E, and F reflect, I have repeatedly requested
that RSA provide me with evidence that it has the authority to act on behalf
of Public Key Partners. RSA has not responded to my requests.

I declare under penalty of perjury that the foregoing is true and
correct. Executed this 22 day of May 1997, in Palo Alto, California.

[Signature]

Robert H. Kohn

[Doc i.d. pp. 1-3] ::ODMA\PCDOCS\SQL1\148403\1

[Exhibit A]

[Fax log] 05/13/97 TUE 18:50 FAX 003
[Prior fax log] 05/13/1997 17:32 4087744952 CYLINK LEGAL DEPT PAGE 02

CYLINK

May 13, 1997

By Fax: 415-324-1808
James R. Busselle, Esq.
Tomlinson, Zisko, Morosoli & Maser
200 Page Mill Road, Second Floor
Palo Alto, CA 94306

Re: Letter of Assurances
Settlement Agreement dated 12/31/96

Dear Jim,

Thank you for your letter of May 8 which I received yesterday.
It was nice to hear from you again.

I am more than happy to meet your request for a "letter of
assurance" which satisfies our respective obligations under the
referenced Agreement. To be absolutely correct in this matter, and
to avoid any misunderstandings, I have recited the relevant
clauses, Section 7.2 and 7.3, verbatim. The letter is enclosed and
simply requires someone to countersign on your client's behalf and
return a copy to me. If you are authorized to do so, your signature
will be fine with me.

Please let me know if you are really serious about your
request for mediation. Having met the obligations under Section 21
of the Agreement, I can't imagine what there is left to mediate
about. However, should you wish to exercise this provision, you
will note our joint obligation under Section 30.2 that the parties
first "meet and confer" before proceeding with a mediator.

I do believe that business meeting at this time between PKP's
former partners is an excellent idea. Among other topics, we need
to discuss what to do about PGP's arbitration demand, what caused
it and who should pay for its defense. More importantly, we need to
discuss how Cylink and its wholly owned subsidiary, Caro-Kann
Corporation ("CKC's"), economic interests will be protected.

It seems someone on your side may have overlooked Cylink's
continuing economic interest in PKP's remaining licenses, including
that held by PGP. You will note the royalty rate under PGP's
license is a blended royalty rate. Cylink's interest is not limited
to royalties paid for use of the Stanford Patents, but attaches to
all royalties paid under this license, including those paid for use
of the MIT Patent. While RSA toady may now control the MIT Patent,
this does not mean that Cylink relinquished all economic benefit to
royalties owed for its use under a prior PKP license.

CYLINK . 910 Hermosa Court, Sunnyvale, CA 94086 . 408/735-5800 . FAX 408/735-6643

[Fax logs]

James R. Busselle, Esq.
Tomlinson, Zisko, Morosoli & Maser
Letter of Assurances/Settlement Agreement
May 13, 1997

For this reason, Cylink unfortunately can not agree that RSA
has a unilateral right to terminate a PKP license. That license is
for the benefit of both parties. Nor is the license divisible by a
partial termination with respect to only one patent. Since RSA's
purported termination affects both parties' rights, it must be
deemed ineffective without Cylink's consent.

Apparently, the root of this misunderstanding concerns RSA's
rights to "enforce" the license with respect to the MIT Patent. I
believe the word "enforce" means exactly what it suggests - to
compel delinquent performance and thereby preserve its economic
value to the licensors.

Frankly, RSA has ample remedies at its disposal to compel
PGP's performance without threatening termination of the license.
For example, PGP's purported refusal to account for royalties, if
true, can be resolved easily by appointment of an auditor. Have you
done so? If I can be of assistance by suggesting other, more
appropriate remedies, let me know.

Jim, time to appoint an arbitrator on PKP's behalf is running
short. Since the issue of termination affects both of the former
partners' rights, let's try to work this out as soon as possible.
We can not ignore the deliberately sweeping, all inclusive language
of the arbitration agreement in PGP's license and the issues raised
in your complaint fall squarely within the explicit intent of the
license's arbitration clause.

Let us not forget the serious issues of confidentiality which
attach to the remaining terms of the Settlement Agreement. Should
you have any reason to disclose any portion of the Agreement,
please be sure to do so under the seal of the Court or similar
protective order. If you require a declaration of such a request
please let me know.

As a courtesy, I am providing a copy of this letter to all
interested parties.

Sincere regards,

[Signature]

Bob Fougner
RBF/fnb
enc.

CYLINK . 910 Hermosa Court, Sunnyvale, CA 94086 . 408/735-5800 . FAX 408/735-6643

[Fax logs]

James R. Busselle, Esq.
Tomlinson, Zisko, Morosoli & Maser
Letter of Assurances/Settlement Agreement
May 13, 1997

cc: By Fax
Tom Hogan, Esq.
Paul Livesay, Esq.
Lester Levy, Esq.
Robert Kohn, Esq.
Mr. John Kalb

[Handwritten] 572 1932

CYLINK . 910 Hermosa Court, Sunnyvale, CA 94086 . 408/735-5800 . FAX 408/735-6643

[Fax logs]

May 13, 1997

TO WHOM IT MAY CONCERN:

Pursuant to Section 21 of the Confidential Agreement of
Settlement (the "Agreement") between Cylink Corporation and Caro-
Kann Corporation, on the one hand, and RSA Data Security, Inc., on
the other hand, the parties hereby confirm their respective rights,
as follows:

7. PKP LICENSES

7.2 Enforcing Stanford Patent Licenses. The Parties confirm
that, to the extent an existing PKP licensee breaches or previously
breached (included during the existence of PKP) its license
agreement with regard to the Stanford Patents, or a third party
infringes or previously infringed (including during the existence
of PKP) upon any of the Stanford Patents, Cylink shall have the
sole and exclusive right to enforce such license agreement or
Stanford Patents, except where such claimed infringement is based
on the practice of the MIT Patent, subject to the terms of this
Agreement. Cylink alone shall be entitled to any recovery obtained
from such enforcement effort.

7.3 Enforcing MIT Patent Licenses. The parties confirm that,
to the extent that an existing PKP license breaches or previously
breached (including during the existence of PKP) its license
agreement with regard to the MIT Patent, or a third party infringes
or previously infringed (including during the existence of PKP)
upon the MIT Patent, RSA shall have the sole and exclusive right to
enforce such license agreement or patent, subject to the terms of
this Agreement. RSA alone shall be entitled to any recovery
obtained from such enforcement effort.

Cylink Corporation RSA Data Security, Inc.
By: [Signature] By: [Blank]
Name: Robert B. Fougner Name: [Blank]
Title: Corporate Secretary Title: [Blank]
General Counsel

Caro Kann Corporation
By: [Signature]
Name: Robert B. Fougner
Title: President

[End Exhibit A]

[Exhibit B]

[Thanks to Greg Broiles for transcription http://www.parrhesia.com/rsapgp.html]

TOMLINSON ZISKO MOROSOLI & MASER, LLP
200 Page Mill Road, Second Floor
Palo Alto, California 94306
Telephone (415) 325-8666
Facsimile (415) 324-1808

April 16, 1997
RSA01 4331
VIA FAX AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

Mr. Leonard E. Mikus
Lemcom Systems, Inc.
9033 N. 24th Avenue, Ste. 7
Phoenix, Arizona 85021

Re: Notice of Termination of License

Dear Mr. Mikus:

This law firm represents RSA Data Security, Inc. ("RSA"). RSA has
been granted the exclusive right by Public Key Partners ("PKP") to
monitor and enforce the terms of patent licenses granted by PKP which
deal with Patent No. 4,405,829 - Cryptographic Communications
Systems and Method (The "MIT Patent"). On November 25, 1992, PKP
and Lemcom Systems, Inc. ("Lemcom") entered into a license agreement
(the "License Agreement") by which Lemcom Systems was granted
certain limited rights to utilize the methods described in the MIT Patent.

The purpose of this letter is to notify you that effective immediately, the
License Agreement is terminated because of Lemcom's violations of the
terms of the License Agreement. The most obvious breach arises out of
the recent Lemcom merger.

As a result of this merger, PGP is now claiming that it has the right to
practice the inventions described in the MIT Patent under the Licence
Agreement. We are aware of PGP's claim that somehow no consent to
assignment was required because Lemcom was the surviving entity in a
reverse triangular merger. This is simply not the case. Under a long line
of well established case law, a merger (specifically including a reverse
triangular merger) which involves a change of control over the licensee is
an assignment, which under the License Agreement, required PKP/RSA's
consent. No such consent was ever sought or given. Thus, Lemcom is
in clear violation of Article 12 of the License Agreement.

In addition, RSA has reason to believe that Lemcom has violated other
terms of the License Agreement. For example, Paragraph 3.2.1 of the
License Agreement provides as follows:

Except as provided by §3.3 herein, LICENSEE
may not authorize any party to reproduce,
duplicate, or copy the Licensed Product.

With regard to OEM customers, the applicable provision of Paragraph 3.3
is Paragraph 3.3.2:

For OEM Customers when the Licensed
Product's sole use of this license to the Patent
Rights is limited to implementation of
the Federal Information Processing Standard
known as the Digital Signature Algorithm...

In at least two instances (FTB Software and Network TeleSystems) RSA
understands that PGP has purported to grant rights to copy to these
OEMs which violate the provisions of Paragraph 3.2.1 and do not fall
within the exception created in Paragraph 3.3.2. RSA's understanding
with regard to copying rights purportedly granted by PGP is based not
only on press information but also on the refusal of PGP to respond to
specific questions from RSA. Mr. Jim Bidzos, the President of RSA, sent
an e-mail to Dr. Steding requesting specific information on whether PGP
was licensing OEM's and, if so, whether PGP was granting rights to
copy the software. Dr. Steding's failure to reply to this e-mail indicates
that in fact, PGP is purporting to grant such rights. This is a specific
and independent ground for termination as set forth in Article 11 of the
License Agreement.

An additional apparent material violation of the License Agreement
relates to Paragraph 3.2.2 of the License Agreement which provides as
follows:

In the case of software, LICENSEE may not
transfer any rights to the source code for the
Licensed Product.

We are informed that in conjunction with the merger between Lemcom
and PGP, Lemcom purported to transfer its source code rights to PGP.
We are further informed that PGP, in conjunction with its dealings with
various OEM's has purportedly transferred additional source code rights.
Each of these acts is a material violation of Paragraph 3.2.2 of the
License Agreement and grounds for immediate termination of the License
Agreement under the provisions of Article 11.

Finally, based on press releases issued by Lemcom and PGP, it appears
that Lemcom may well be delinquent in meeting the royalty obligations
set forth in Article 6 of the License Agreement. PKP's records show
that no royalty payments have been made by Lemcom since the third
quarter of 1996. Thus in addition to notice of termination, this letter is
also a demand pursuant to Paragraph 6.6 that Lemcom make its books
and records regarding sales or licenses of Licensed Products available for
inspection and audit by RSA. We will contact you to arrange for a
mutually convenient time for such an audit.

As noted above, the License Agreement is terminated effective
immediately. We fully expect that PGP will cease all commercial
licensing activities of products utilizing the MIT Patented technology.

Finally, in accordance with Article 14 of the License Agreement, this
letter is the required notice that all further communications directed to
PKP or RSA shall be sent to the undersigned with a copy to:

Thomas R. Hogan, Esq.
Law Offices of Thomas R. Hogan
60 S. Market St., Suite 1125
San Jose, CA 95113

Very truly yours,

/s/
James R. Busselle

JRB:sb

cc: Charles Van Cott, Esq. (via facsimile)
Dr. Thomas Steding (via facsimile)
Thomas R. Hogan, Esq. (via facsimile)
Mr. D. James Bidzos

[Following not on hardcopy sent to JYA]

bcc: Paul O. Livesay, Esq. (via facsimile)
Thomas E. Moore, Esq.
Michael W. Stebbins, Esq.

[End Exhibit B]

[Exhibit C]

[Fax log] 03/25/97 TUE 14:23 FAX

[Stamp] Received MAR 19 1997

RSA DATA SECURITY, INC.
100 MARINE PARKWAY
REDWOOD CITY
CA 94065-1031

March 14, 1997

VIA U.S. CERTIFIED MAIL

Mr. Tom Steding, CEO
PGP, Inc.
2121 South El Camino Real, Suite 902
San Mateo, CA 94403

RE: ViaCrypt Assignment without Consent

Dear Mr. Steding:

In reviewing various news clippings and press releases, I was
interested to read that PGP had bought ViaCrypt. While PGP must
certainly be pleased with the transaction, I was left with a couple
of troubling questions relating to some of PGP's rights which
presumably derive from ViaCrypt's various third part agreements.

Of particular interest is a license between ViaCrypt and PGP
relating to U.S. Patent 4,405,829. I presume that in acquiring
ViaCrypt, PGP sought or expected assignment of this and other
agreements from ViaCrypt to PGP. However, my understanding of the
ViaCrypt/PGP license is that it requires consent prior to
assignment by ViaCrypt for any reason. My exploration of the issue
indicates, as I first suspected, that no such consent was requested
and consequently never granted. Accordingly, any purported
assignment of such license to PGP would appear to be improper
thereby rendering such transaction void.

As a beneficiary of PKP, RSA is naturally interested in proper
administration of this license. It is important that we address
this issue soon to evaluate the proper course of action. Please
respond as soon as possible. Time is of the essence.

Sincerely,

[Signature]

Paul Livesay

cc: Jim Bidzos
Phil Zimmermann

Tel 415/595-8782
Fax 414/595-1503

[End Exhibit C]

[Exhibit D]

PRETTY GOOD PRIVACY

2121 S. El Camino Real
San Mateo, CA 94403
Voice: 415.572.0430
Fax: 415.572.1932
Web: www.pgp.com

VIA FACSIMILE, CERTIFIED MAIL,
AND FEDERAL EXPRESS

April 17, 1997

Mr. Paul Livesay
Director of Legal Affairs
RSA DATA SECURITY, INC.
100 Marine Parkway
Redwood City, California 94065-1031

Dear Mr. Livesay:

We have just received the attached letter from a law firm in Palo Alto
saying that they represent RSA Data Security, Inc. Since you and I have had
correspondence on this subject, I thought I would first write directly to
you. Nevertheless, in light of your counsel's letter, I would appreciate
receiving copies of the documentation under which "RSA has been granted the
exclusive right by [PKP] to monitor and enforce" the license agreement
between PKP and Pretty Good Privacy, Inc., since we received no such notice
from PKP, our licensor.

We have consulted with counsel and believe there is no basis for
sending a notice of termination of the license agreement between Public Key
Partners and Lemcom Systems, Inc. As you were undoubtedly aware from press
announcements last summer, and as I indicated to you in my letter to you of
March 21, 1997, Lemcom Systems, Inc. changed its name to Pretty Good Privacy,
Inc. The license agreement is still in place between the parties. Certainly,
RSA was aware of the activities of Pretty Good Privacy, Inc. In addition to
events and activities that were widely reported in the computer industry
trade press, in December, 1996, Pretty Good Privacy was featured on a
nation-wide broadcast of CBS Evening News and in a half-page article in USA
Today. In fact, Pretty Good Privacy was a participating exhibitor at the RSA
Data Security Conference in held in January, 1997 in San Francisco. If there
were a real concern about this, I would have expected to have heard from PKP
or its owners long ago.

I am writing because I am concerned that there may have been a
misunderstanding regarding royalty payments. The letter we received states
that PKP's records show that no royalty payments have been made under the
license agreement since the third quarter of 1996. Our records show that,
over the relevant time period, we have delivered to PKP the following
checks, with corresponding royalty reports, all in accordance with the
license agreement:

Mr. Paul Livesay
April 17, 1997
Page -2-

44430 5/15/96 $7,621.07 Q1'96
44783 8/14/96 25,213.05 Q2'96
45402 11/13/96 17,031.43 Q3'96
45671 12/18/96 10,000.00 Advance
46206 2/12/96 18,186.82 Q4'96

I am enclosing copies of checks numbered 44430, 44783, and 45402, all
of which indicate that they were cashed by PKP. Checks beginning with the
one dated November 13, 1996, including no. 45402 for the third quarter of
1996, bear our new corporate name, Pretty Good Privacy, Inc. After looking
into this, we have discovered that the checks issued in December and February
have yet to be cashed. We have no information as to why.

Perhaps the misunderstanding has arisen from the fact that we have
not received any notice from PKP that their address has changed or that
royalty reports and payments should be made to another party. (In December,
1996, someone from PKP called our accounting department to say that PKP will
be moving and that they would advise us in writing of a new address to mail
checks to. We have not heard from PKP since, and the December and February
checks have not been returned to us as undelivered). All of these payments
and reports were sent to the address to set forth above, the address to
which payments have been made since we received a card from PKP on August 9,
1994 indicating a change of address. We understand now, for the first time,
that all communications with PKP should be sent to the Palo Alto law firm
with a copy to a law firm in San Jose (though we have not received notice
from PKP to this effect).

I will not now respond to the other incorrect allegations of breach
that have been made. However, as a result of the letter we received from the
Palo Alto firm, you should know that we have sent to PKP and to the Palo
Alto law firm, with a copy to you and the San Jose law firm, a notice
invoking the arbitration provision set forth in the license agreement.
Should we prevail in such proceedings, we will hold PKP fully responsible
for the attorneys fees and costs, including our share of arbitration fees,
that we incur in connection with any such proceedings.

We are hopeful, however, that we can avoid the cost and expense of
formal proceedings by sitting down to discuss these matters on an amicable
basis. We would welcome your suggestion as to how we could best proceed to
that end.

Sincerely yours,

[Signature]

ROBERT H. KOHN
Vice President, Business Development

Mr. Paul Livesay
April 17, 1997
Page -3-

enc.

cc: Tom Steding
Leonard Mikus
Jim Bidzos
James R. Busselle, Esq.
Thomas R. Hogan, Esq.

[Photocopies of front and back of three checks omitted. Two checks by
Lemcom, one dated 05/15/96 for $7621.07, another dated 08/14/96 for
$25213.00; one by Pretty Good Privacy, dated 11/13/96 for $17031.cents
cropped.]

[End Exhibit D]

[Exhibit E]

PRETTY GOOD PRIVACY

2121 S. El Camino Real
San Mateo, CA 94403
Voice: 415.572.0430
Fax: 415.572.1932
Web: www.pgp.com

VIA FACSIMILE AND FEDERAL EXPRESS

April 28, 1997

Mr. Paul Livesay
Director of Legal Affairs
RSA DATA SECURITY, INC.
100 Marine Parkway
Redwood City, California 94065-1031

Dear Mr. Livesay:

In reply to your letter of April 25, 1997, I'm happy to meet with you
to discuss any issues you want, including the issues raised in your letter,
subject to the following:

1. My agreeing to meet with you shall not constitute any
acknowledgement or agreement that RSA has the authority to act on behalf of
our licensor or any waiver of our position that RSA does not have authority
to act. If there's anything "striking" about the recent correspondence, it
is your continual refusal to provide us with the documentation supporting
such authority. In any event, it would be helpful if you brought it to the
meeting.

2. Having outside counsel at the meeting is likely to be
counterproductive. Instead, let's either you and I meet alone or let's each
invite one of our appropriate business people to the meeting. For example,
if you invite Mr. Bidzos, I will invite Mr. Lynch or Mr. Steding. Either
way, we are more likely to promote an atmosphere in which mutually agreeable
business arrangements can really be discussed.

3. We believe that we are paying to our licensor the required
royalties under the license agreement (although I don't understand why our
last several checks apparently have not been cashed). The purpose of the
second paragraph of your letter is therefore somewhat unclear. I have already
responded that your lawyers allegations are "incorrect"; I do not understand
what else I am required to "deny." I would therefore like to discuss with
you the reasons why you think you need the information requested in the
third and fourth paragraphs of your letter. If I agree you are entitled to
that information, we can schedule a second meeting promptly afterwards.

Mr. Paul Livesay
April 28, 1997
Page -2-

If you wish to meet solely with me, I have a fairly open schedule
this week and would ask that you please call me by phone to make arrangements
for a convenient time and place. If we need to plan for the presence of
other business people, then please call me as soon as possible so that I can
begin coordinating schedules.

I want to repeat that if RSA proceeds with litigation that is without
basis -- particularly litigation on claims which RSA has no authority to
bring -- I will assert all of the claims mentioned in my April 22, 1997
letter.

This letter is written without prejudice, and nothing in it shall
constitute an admission of any kind by PGP, or a waiver of any of its
rights or remedies.

Sincerely yours,

[Signature]

ROBERT H. KOHN
Vice President, Business Development

enc.

cc: Tom Steding
Jim Bidzos
James R. Busselle, Esq.
Thomas R. Hogan, Esq.
Public Key Partners

[No enc.]

[End Exhibit E]

[Exhibit F]

PRETTY GOOD PRIVACY

2121 S. El Camino Real
San Mateo, CA 94403
Voice: 415.572.0430
Fax: 415.572.1932
Web: www.pgp.com

VIA FACSIMILE AND CERTIFIED MAIL

May 13, 1997

Mr. Paul Livesay
Director of Legal Affairs
RSA DATA SECURITY, INC.
100 Marine Parkway
Redwood City, California 94065-1031

Re: Patent License Agreement dated 11/25/92

Dear Mr. Livesay:

At our meeting on May 1, 1997, Mr. Busselle said that he would make
available to us later that day a letter supporting RSA's alleged authority
to act on behalf of our licensor. Two weeks have passed, and we have not
seen the letter. If you have such a letter, please fax it to me.

We have recently read press reports in which it has been suggested
that PGP is somehow in default of its obligations to permit an audit under
the terms of its agreement with PKP. So that there may be no
misunderstanding, we are prepared to permit an examination of our books and
records under the terms of that agreement. Accordingly, if PKP requests such
an examination, we would be fully agreeable to allow PKP's auditors to
conduct such an examination under the terms of the license. We have not
received such a request from PKP, but if we get one, and there is no issue
with respect to the selection of the auditors, we will be prepared to honor
such request.

This letter is written without prejudice, and nothing in it shall
constitute an admission of any kind by PGP, or a waiver of any of its
rights or remedies.

Sincerely yours,

[Signature]

ROBERT H. KOHN
Vice President, Business Development

cc: Nina Locker, Esq.
James R. Busselle, Esq.

[End Exhibit F]

[Exhibit G]

PRETTY GOOD PRIVACY

2121 S. El Camino Real
San Mateo, CA 94403
Voice: 415.572.0430
Fax: 415.572.1932
Web: www.pgp.com

VIA FACSIMILE, CERTIFIED MAIL,
AND FEDERAL EXPRESS

April 17, 1997

PUBLIC KEY PARTNERS
Attn: Director of Licensing
910 Hermosa Court
Sunnyvale, CA 94086

James R. Busselle, Esq.
TOMLINSON, ZISKO, MOROSOLI & MAZER LLP
200 Page Mill Road Second Floor
Palo Alto, California 94306

RE: PUBLIC KEY PARTNERS

Gentlemen:

Reference is made to the agreement between Pretty Good Privacy, Inc.
(formerly known as Lemcom Systems, Inc.) and Public Key Partners dated
November 25, 1995 (the "Agreement"). In accordance with Section 13 of the
Agreement, demand is hereby made for arbitration. Further, in accordance
with Section 14 of the Agreement. Please accept this letter as notice of
amendment of our address to the following:

PRETTY GOOD PRIVACY, INC.
2121 S. El Camino Real Suite 902
San Mateo, California 94403
Attention: President

WILSON, SONSINI, GOODRICH & ROSATI
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Gary Reback, Esq. S~n Mo~to. CA

Public Key Partners
April 17, 1997
Page -2-

Thank you.

Sincerely yours,

[Signature]

ROBERT H. KOHN
Vice President, Business Development

enc.

cc: Tom Steding
Leonard Mikus
Paul Livesay, Esq.
Thomas R. Hogan, Esq.
Gary Reback, Esq.

[No enc.]

[End Exhibit G]

[Exhibit H]

PRETTY GOOD PRIVACY

2121 S. El Camino Real
San Mateo, CA 94403
Voice: 415.572.0430
Fax: 415.572.1932
Web: www.pgp.com

VIA FACSIMILE, CERTIFIED MAIL,
AND FEDERAL EXPRESS

May 13, 1997

PUBLIC KEY PARTNERS

Attn: Director of Licensing
910 Hermosa Court
Sunnyvale, CA 94086

Attn: Thomas R. Hogan, Esq.
Law Offices of thomas R. Hogan
60 s. Market St., Suite 1125
San Jose, CA 95113

RE: PUBLIC KEY PARTNERS

Gentlemen:

Reference is made to the agreement between Pretty Good Privacy, Inc.
(formerly known as Lemcom Systems, Inc.) and Public Key Partners dated
November 25, 1995 (the "Agreement") and my letter dated April 17, 1997 under
which Pretty Good Privacy, Inc. demanded arbitration in accordance with
Section 13 of the Agreement.
We hereby appoint the following person to serve as arbitrator for
Pretty Good Privacy, Inc.:

Mr. James Pooley
c/o FISH & RICHARDSON, P.C.
2200 Sand Hill Road Suite 100
Menlo Park, California 94025

Mr. Pooley's curriculum vitae is attached for your convenience.

Public Key Partners
April 17, 1997
Page -2-

Thank you.

Sincerely yours,

[Signature]

ROBERT H. KOHN
Vice President, Business Development

enc.
cc: Nina Locker, Esq.
James R. Busselle, Esq.

[Fax log] 05/08/97 THU 10:47 FAX 415 854 0875 FISH&RICHARDSON

FISH & RICHARDSON P.C.

CURRICULUM VITAE OF JAMES COOLEY

Born 1948.

Universite de Paris 1968-69 and Lafayette College, B.A. 1970, with honors

Columbia University School of Law, J.D. 1973, with honors

Mr. Pooley has practiced as a trial lawyer in Silicon Valley for more than
20 years. He is a Director of Fish & Richardson P.C.

Mr. Pooley has authored a number of leading articles and texts relating to
trade secrets and technology litigation, including "Trade Secret Law and
Litigation" (Law Journal Seminars-Press, to be published in 1997), "Trade
Secrets: a Guide To Protecting Proprietary Business Information," McGraw/Hill
1982; Amacom l989 (also published in Japanese in l991 by Chukei Publishing
Co.), "Protection of Technology," CEB, 1983,and "Trying the High Technology
Case,"CEB 1984. He has published and appeared frequently as a speaker for the
Practising Law institute, the State Bar of California and other legal,
business and law enforcement organizations. He is a former Chair of the
Lawyers' Committee of the American Electronics Association and adjunct
professor of law at Santa Clara University School of Law. He has chaired
several national conferences relating to trade secrets and intellectual
property litigation, and is Chair of the Federal Legislation Subcommittee
of the ABA Intellectual Property Section's Trade Secrets Committee

Mr. Pooley serves frequently as a mediator and arbitrator of commercial
disputes, and has been appointed many times as a Special Master by the
California Superior Court and Federal Court for the Northern District
of California in trade secret, patent and copyright disputes.

Mr. Pooley's litigation experience is primarily in the electronics,
computer and software industries, although he has handled cases involving
a wide range of technologies, including biotechnology, pharmaceuticals,
agricultural and medical products.

[End Exhibit H]

[Exhibit I]

TOMLINSON ZISKO MOROSOLI & MASER, LLP
200 Page Mill Road, Second Floor
Palo Alto, California 94306
Telephone (415) 325-8666
Facsimile (415) 324-1808

May 16, 1997
RSA01 4331

VIA FACSIMILE AND FEDERAL EXPRESS

Pretty Good Privacy, Inc.
2121 South El Camino Real
Suite 902
San Mateo, California 94403

Attention: Mr. Robert H. Kohn

WILSON, SONSINI,
GOODRICH & ROSATI
650 Page Mill Road
Palo Alto, California 94304

Attention: Nina F. Locker, Esq.

Re: RSA Data Security. Inc. v. PGP. Inc.

Dear Mr. Kohn and Ms. Locker:

Reference is made to the following:

1. The License Agreement effective November 25, 1992 between
Public Key Partners and Lemcom Systems, Inc. (the "Lemcom
License " ):

2. My April 16, 1997 letter to Mr. Leonard E. Mikus terminating the
Lemcom License;

3. Mr. Kohn's April 17, 1997 letter to Public Key Partners;

4. My April 18, 1997 letter to Gary Reback, Esq.; and

5. Mr. Kohn's May 13, 1997 letter to Public Key Partners and
Thomas R. Hogan, Esq.

As you are aware from the foregoing, it is RSA's position that the
Lemcom License was terminated. It is further RSA's position that the
arbitration provisions of the Lemcom License did not survive the

Mr. Robert H. Kohn
Nina F. Locker, Esq.
May 16, 1997
Page 2

termination and that the PGP/Lemcom merger constituted an assignment
which required RSA's consent. Thus, PGP has no right to demand
arbitration of any disputes which have arisen between RSA and PGP.

Nevertheless, in the unlikely event that a court of competent jurisdiction
should, at some point, determine that some issues between PGP and
RSA are arbitrable, RSA wishes to avoid any potential argument that it
has waived any right that it might have to designate its own party
arbitrator. Thus, without waiving any of its rights to claim that the
arbitration provision did not survive the termination of the Lemcom
License, RSA hereby designates the following as its party arbitrator:

Robert B. Morrill, Esq.
SKJERVEN, MORRILL, MacPHERSON,
FRANKLIN & FRIEL LLP
25 Metro Drive, Suite 700
San Jose, California 95110
Telephone: (408) 453-9200
Facsimile: (408) 453-7979

Very truly yours,

[signature]

James R. Busselle

JRB:sb

cc: Robert B. Morrill, Esq.
Mr. D. James Bidzos
Paul 0. Livesay, Esq.
Thomas R. Hogan, Esq.

72471.1

[End Exhibit I]

[Following two documents added to this site 18 August 1997]

[6]
FILED
SAN MATEO COUNTY
MAY 22 1997
Clerk of the Superior Court
By [Illegible signature]
DEPUTY CLERK

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO

RSA DATA SECURITY, INC., a Delaware ) CASE NO.: 400585
corporation )
) PRETTY GOOD PRIVACY,
Plaintiff, ) INC.'S APPENDIX TO
) NON-CALIFORNIA
v. ) AUTHORITIES
) [Civ. L.R. 3.2.1]
PRETTY GOOD PRIVACY, INC., a ) 13
Delaware corporation, and DOES 1 through ) Date: June 6, 1997
25, inclusive, ) Time: 9:00 a.m.
) Dept. 8
Defendants. ) Est. Time for Hearing: 15 mins.
)
)
__________________________________________)

Pursuant to San Mateo Superior Court Civil Local Rule 3.2.1, defendant
Pretty Good Privacy, Inc. ("PGP") hereby submits the following authorities:

A. Brotherhood of Teamsters and Auto Truck Drivers Local #70 v.
Interstate Distributor Co., 832 F.2d 507, 509-10 (9th Cir. 1987).

B. National Railroad Passenger Corp. v Boston & Maine Corp., 850 F.2d
756, 762-63 (D.C. Cir. 1988).

C. Levin v. Ripple Twist Mills, Inc., 4l6 F. Supp. 876 (E.D. Pa. 1976).

Dated: May 22, 1997 WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

By [Signature]
Nina F. Locker

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

[27 pages of printed text of cited authorties omitted.]

[7]

FILED
SAN MATEO COUNTY
MAY 22 1997
Clerk of the Superior Court
By [Illegible signature]
DEPUTY CLERK

Attorneys for Defendant
PRETTY GOOD PRIVACY, INC.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO

RSA DATA SECURITY, INC., a Delaware ) CASE NO.: 400585
corporation )
)
Plaintiff, ) PROOF OF SERVICE
)
v. ) 13
) Date: June 6, 1997
PRETTY GOOD PRIVACY, INC., a ) Time: 9:00 a.m.
Delaware corporation, and DOES 1 through ) Dept. 8
25, inclusive, ) Est. Time for Hearing: 15 mins.
)
Defendants. )
)
)
__________________________________________)

PROOF OF SERVICE BY HAND DELIVERY

I, Sandra Kodani, declare:

On May 23, 1997, I caused to be served

Pretty Good Privacy's, Inc.'s Notice of Hearing on Motion to Compel
Arbitration and Demurrer to Complaint;

Pretty Good Privacy's, Inc.'s Demurrer to Complaint;

Pretty Good Privacy, Inc.'s Memorandum of Points and Authorities in
Support of its Motion to Compel Arbitration and Demurrer to
Complaint;

Declaration of Robert H. Kohn in Support of Pretty Good Privacy,
Inc.'s Motion to Compel Arbitration and Demurrer to Complaint;

Pretty Good Privacy, Inc.'s Appendix to Non-California Authorities
[Civ. L.R. 3.2.1.]; and

[Proposed] Order Granting Pretty Good Privacy, Inc.'s Motion to
Compel Arbitration and Sustaining Its Demurrer

James R. Busselle, Esq.
Thomas E. Moore III, Esq.
Tomlinson Zisko Morosoli & Maser
200 Page Mill Road, Second Floor
Palo Alto, CA 94306

I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct. Executed at Palo Alto,
California on May 23, 1997.

[Signature]
Sandra Kodani

H:\HOME\SKK\PGP\POS.HAN

[End Package]

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