Novell Douses Smoking Gun Against SCO

By Peter Galli  |  Posted 2003-05-29 Print this article Print

Some members of the open-source community thought they had found a "smoking gun" against the SCO Group and its claims to ownership of the intellectual property rights to the Unix operating system, but Novell on Thursday poured cold water on th

Some members of the open-source community thought they had found a "smoking gun" against the SCO Group and its claims to ownership of the intellectual property rights to the Unix operating system, but Novell Inc. on Thursday poured cold water on that. Buried in SCOs 10-K filing with the Securities and Exchange Commission for the fiscal year ended October 31, 2002, under the section titled "Restricted Cash and Royalty Payable to Novell, Inc.," SCO says that it has an arrangement with Novell in which it acts as an administrative agent in the collection of royalties for customers who deploy SVRx technology. Under that agency agreement, SCO collects all customer payments and remits 95 percent of the collected funds to Novell and retains 5 percent as an administrative fee. SCO records the 5 percent administrative fee as revenue in its consolidated statements of operations.
"The accompanying October 31, 2002 and 2001 consolidated balance sheets reflect the amounts collected related to this agency agreement but not yet remitted to Novell of $1,428,000 and $1,894,000, respectively, as restricted cash and royalty payable to Novell," the filing said.
Open-source lobbyist Bruce Perens on Thursday claimed this was "SCOs admission that Novell owns Unix System V, all revisions—thats what they mean by SVRx, and SCO pays Novell 95 percent of the royalties. SCO gets to keep 5 percent as administrative agent. "This proves the Novell allegations. SCO officers have loudly and repeatedly stated that they own the Unix intellectual property. Those statements were prevarications. SCO may also have intended to deceive by calling the software SVRx instead of something more easily identifiable as Unix," Perens said. But Novell spokesman Bruce Lowry told eWEEK on Thursday that the statements made by SCO in its 10-K filing were accurate. The SVRx component of Novells deal with SCO related to the existing Unix licensees Novell had acquired when it bought the Unix licenses from AT&T. When Novell entered into its agreement with the Santa Cruz Operation, it specifically retained these customers and the revenue that flowed from them. "They got an administrative role for certain types of existing contracts we held, which were explicitly identified in our agreement with SCO," he said. As such, the interpretation that SCO was paying Novell royalties for Unix System V is incorrect, and thus does not pertain to the current question of who owns the copyright and patents to Unix System V, Lowry said. But he also stressed that SCO did not get Unix "lock, stock and barrel. We retain the patent and copyrights to Unix, which is spelled out in our agreement with SCO. A review of both the U.S. Patent Offices records and our review of the asset transfer agreement convinces us that we retain the rights to the patents and copyright to Unix. So we are asking SCO to prove otherwise, which they have not yet done," he said.

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at


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