Novell v. SCO: The Telling Blow?

By Steven Vaughan-Nichols  |  Posted 2004-06-11

Novell v. SCO: The Telling Blow?

Its been a busy time for SCO watchers. First, the company—somehow, some way—managed to twist its way out of its deal with BayStar Capital with the lions share of the cash, and BayStar was left holding millions of shares of underwater stock.

Then, in this week alone, weve seen SCO report an absolutely awful second quarter, and a U.S. District Court granted it more time to get its ducks in line for its IBM case.

And last, but by no means least, the same judge told SCO that its case over who really owns Unixs copyright, Novell or SCO, would be fought out in federal court instead of in state court.

Now, if you didnt have a scorecard, you might think the last point was the smallest one. But if youve been playing along at home, or at Groklaw anyway, youll know that the seemingly small change in venue is all-important.

Thats because it completely changes the rules by which SCO will have to show that it, and not Novell, owns Unixs copyright. And without that copyright, all of those other cases SCO is pursuing against AutoZone, DaimlerChrysler, IBM and Red Hat fall apart like a house of cards in a summer thunderstorm.

Im no lawyer; Im just a working journalist whos been following SCO since the late 1980s. But heck, you dont have to take my word that SCO may now be in serious legal hot water. Let me introduce you to Michael R. Graham, intellectual property attorney and partner with the Chicago-based law firm Marshall, Gerstein & Borun LLP.

Graham tells me, "Judge Kimballs decision is a serious loss for SCO. Not only in its slander of title case against Novell, but in SCOs case against IBM. The threshold issue in both cases is whether SCO owns copyright in the Unix software code."

"SCO wanted the case remanded so that the only issue would be contractual: whether the APA [Asset Purchase Agreement] and Amendment No. 2 transferred ownership of the Unix code," Graham says.

"But Judge Kimball concluded that a more fundamental issue is whether the APA and Amendment No. 2 constitute the type of writing required under the federal copyright law to effect a transfer of copyright. This federal analysis could prove fatal to SCOs claim."

Next Page: SCO would have a better chance if the only issue were the terms of its agreement.

Agreement Terms

Why, you ask? Graham explains, "In simplest terms, a state contract analysis would presume that the writing transferred copyright, making the only issue—albeit a complex issue itself—what copyrights were included in a transfer of copyright. This could include testimony and evidence of what the parties thought the agreement transferred."

But that isnt what happened. Instead, Graham continues, "The copyright analysis questions whether the form of the writings and the terms of Amendment No. 2 could even be a writing as required by the Copyright Act and analyzed in case law."

"SCO would have preferred—and could have a better chance of success—if the only issue were the analysis of the terms of the writing. The federal court held, however, that the sufficiency of the writing itself must first be determined," Graham adds.

Now, this is important, Id say vital, because SCOs best shot at claiming the copyright was getting a court to agree that clearly no company in its right mind would buy a proprietary operating system without its intellectual property (IP).

SCO would have had a much better chance of pursuing this common-sense argument in a state court. In the federal court, though, the judge is saying that because good old Amendment No. 2 doesnt clearly and explicitly set out what IP rights were being bought and sold, SCO may actually not legally own any of Unixs IP.

Now, wouldnt that be a kick in the head? Not to mention the death of SCO.

Getting back to the case, Graham goes on, "Notable, too, is the fact that although the court denied Novells motion to dismiss, it allows that the issue might be appropriate for either trial or summary judgment."

Next Page: SCOs situation shows the need to avoid "vague language in essential business agreements."

Vague Language

In other words, during a span of months—or years, since SCO versus IBM isnt scheduled to go to court now until November 1, 2005—SCO could lose its copyright claims, and thus all of its other cases, during the ongoing Novell proceedings.

Graham notes that lawyers watching the case should take "warning against the use of vague language in essential business agreements which relate to intellectual property."

"This underlines, well beyond the scope of this case, the importance such agreements pay in the knowledge economy."

Even if SCO wins some copyrights to Unix from the federal court, the Lindon, Utah, company still isnt out of legal hot water. Graham comments, "Judge Kimball wisely notes that even if the APA/Amendment No. 2 documents are held to be a valid transfer of copyright, the question remains what version of the Unix code might have been assigned by it.

"SCO could only claim copyright in that particular code, and perhaps not in other Unix versions or code. So, this could raise additional issues for SCO."

Such a result, I think, would be almost as bad for SCO as not having any copyright. If the court rules that way, then Novell and SCO would both have Unix copyrights, and the mind boggles at what this would do to SCOs case against IBM.

So, while SCO versus IBM makes most of the headlines, its this case, SCO versus Novell, thats the really vital one. Without a win here, SCO loses it all. Its that simple. And, with this decision, the odds against SCO winning just got longer, a lot longer. Senior Editor Steven J. Vaughan-Nichols has been using and writing about operating systems since the late 80s and thinks he may just have learned something about them along the way.

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