Novell Goes for SCOs Throat

By Steven Vaughan-Nichols  |  Posted 2005-07-29

Novell Goes for SCOs Throat

Novell is making no bones about it; the company is attacking SCO in court with everything it has in an attempt to land a knock-out punch.

On Friday, Novell Inc. filed its Answer in the U.S. District Court in Utah to The SCO Group Inc.s claims that it, and not Novell, owned Unixs copyrights.

Novell also filed counterclaims asking the court to force SCO to turn over its Unix licenses royalties to it and to attach SCOs assets to ensure that it can pay Novell.

Novell opened up by denying essentially all of SCOs slander of title claims in its July 29 Answer.

SCO had claimed that it, and not Novell, owned Unixs copyrights and that Novells management knew this.

Novell replied that neither the APA (Asset Purchase Agreement) of Sept. 19, 1995, which transferred Unix and UnixWare to Santa Cruz Operations nor Amendment 2 to the APA gave SCO any copyrights to the Unix operating systems.

The NetWare, now Linux, company has long maintained that this was the case.

Click here to read more about the SCO vs. Novell Unix case.

What is new is that in its counterclaims, Novell stated that in late 2002, SCO repeatedly contacted Novell to try to get the company to work with SCO on its SCOsource campaign to get Unix licensing fees from Linux users.

Failing that, Novell claims that SCO CEO Darl McBride tried to get Novell to amend the APA to give SCO Unixs copyrights. Thus, Novell maintains, that SCO knew it didnt have any claim to Unixs copyrights from the start.

Novell, in its counterclaims, however, then goes well beyond simply asserting its Unix IP (intellectual property) rights.

"Our counterclaims are about Novells rights under the Asset Purchase Agreement with The Santa Cruz Operation and whether SCO is going to respect the agreement that its alleged predecessor signed with Novell. SCO has not complied with the provisions of the Asset Purchase Agreement," said Bruce Lowry, Novells director of global public relations.

"In 1995, Novell entered into an agreement with The Santa Cruz Operation that gave each party certain rights and obligations. Under the agreement, Novell transferred to Santa Cruz certain Unix-related assets including licenses to Unix System V," Lowry said.

This "agreement specified not only that Novell retained the Unix copyrights but that Novell retained close controls on Santa Cruzs administration of Unix System V licenses.

Our counterclaims describe the other rights that Novell retained as part of the Asset Purchase Agreement and the related obligations that Santa Cruz assumed."

Next Page: Other rights.

Other Rights

What are these other rights?

According to Novells counterclaims, "Novell retained the right to receive royalty payments under SVRX licenses, prior approval rights relating to new SVRX and amended SVRX licenses, the right to direct Santa Cruz to take certain actions relating to SVRX licenses and the right to conduct audits of the SVRX license program."

In short, SCO owes Novell money for new Unix licenses and Novell has some veto power over SCOs Unix deals.

Novell contends that SCO, as "the alleged successor to Santa Cruz" has violated several of these rights.

Specifically, Novell claims that while SCO has acknowledged that Novell has a right to audit its Unix license program, the Lindon, Utah, company has refused to let Novell audit its Unix business.

In particular, SCO has refused to let Novell audit its 2003 deals with Microsoft Corp. and Sun Microsystems Inc.

It was these multimillion-dollar contracts that gave SCO one of its few profitable quarters in recent memory.

Read more here about SCOs financials.

This revenue also enabled SCO to proceed with its lawsuits against IBM and other Linux-using companies.

In the countercharges, Novells lawyers wrote that on March 1, 2004, Novell again contracted SCO and said, "In order to complete our audit we need the Sun, Microsoft and any other Intellectual Property Licenses for Linux. Stated more categorically, we need all agreements in which SCO purported to grant rights with respect to Unix System V."

Since then, Novell maintains that it has asked time after time for the information it needs to audit not only the Sun and Microsoft contracts, but its other new Unix contracts.

Also, SCO hasnt paid Novell any royalties, as per the APA, for these new Unix contracts.

Therefore, according to Novells lawyers, SCO "had no authority to enter into the Sun and Microsoft SVRX Licenses or the Intellectual Property Licenses with Linux end users and UNIX vendors."

So what does Novell want for these violations?

First, Novell wants the court to impose a trust for all revenues, minus 5 percent, that SCO realized from its Sun, Microsoft and all its Unix and Linux IP license deals.

Novell wants this money placed in a trust immediately, because "SCO is quickly dissipating its assets."

"SCO expects to have only $11 million in cash remaining for its business operations as of Oct. 31, 2005, just a fraction of the revenue it purportedly generated as a result it purportedly generated as a result of its new SVRX Licenecess with Sun and Microsoft."

Moreover, Novell is asking the court to recognize that "Novell is entitled at its sole discretion, to waive its purported claims against IBM, Sequent and other SVRC licensees."

If granted this, SCOs case against IBM would come to an abrupt end.

Novell also wants the court to attach "SCOs assets pending adjudication of Novells contract claims." This would put SCO, as it currently exists, out of business.

Last, but not least, Novell is seeking punitive damages for "SCOs malicious and willful conduct in slandering Novells title to the Unix Copyrights."

What is the purpose of all this?

"Novell has brought these counterclaims to ensure that it gets what it bargained for with Santa Cruz," said Lowry.

"We are also protecting our customers, who have invested confidence in Novell knowing we will protect our intellectual property from challenges. Finally, we are promoting the interests of the open-source community," Lowry said.

Novell is demanding a jury trial for this case.

Blake Stowell, SCO spokesman, said, "SCO lawyers are currently reviewing the document and will respond to the court at the appropriate time."

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