Analysts: Novell vs. SCO Is No Slam Dunk

News Analysis: The future of SCO's lawsuits may rest on ambiguous wording in the contract transferring Unix IP rights between the two companies.

When Novell, in the latest move in the SCO-Novell lawsuit, demanded royalties from SCOs recent Unix licensing business, the company served notice that it was playing for keeps.

But how good are Novell Inc.s chances of winning its counterclaims against The SCO Group Inc. and proving that it, and not SCO, owns Unixs intellectual property?

On these questions hang SCOs entire future as a Unix company, its lawsuits against AutoZone, DaimlerChrysler and IBM, and its defense against Red Hat Inc.

John Ferrell, a founding partner of Palo Alto, Calif.-based technology law firm Carr & Ferrell LLP, said, "The claims and counterclaims involving rejected audit demands, public slander, missed royalty payments, false securities filings, and the like, are all sideshows; contract interpretation is the big-top, main event."

The lawsuit is "about an ambiguously drafted contract and about who has the right to claim ownership of the Unix operating system," Ferrell said.

Ferrell argued that because of the wording of the 1995 APA (asset purchase agreement) between Novell and Santa Cruz Operations, which conveyed Unix to SCO, and Amendment 2 to that agreement, its not clear who truly owns Unixs IP (intellectual property.)

Amendment 2, he said, "allows Novell to keep All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the Agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."

"For SCO this may well be a bet-the-company lawsuit over the meaning of the word required," Ferrell said. However, he added, "Despite all of the public posturing to the contrary, neither company in this lawsuit believes it has a slam dunk case."

/zimages/3/28571.gifClick here to read Senior Editor Steven J. Vaughan-Nichols commentary on SCOs OpenServer.

Thomas Carey, chairman of the business practice group at Boston-based law firm Bromberg & Sunstein LLP, said that if it werent for the seriousness of the matter, it might almost be comical.

"I hereby sell you a rock. But I retain title to the rock. What kind of sense does that make?" Carey said. "[The contract and Amendment 2] should be an embarrassment to the attorneys who drew it up and to the businessmen who negotiated it."

How will the U.S. District Court in Salt Lake City see it?

"If the judge just wants to get rid of the SCO-IBM case, he could decide in Novells favor as a matter of contract interpretation," Carey said. "The decision would be appealed, where it would be a toss-up. If the appeals court agreed with the trial court judge, that would be the end of all this litigation."

It would also be the end of SCOs tangled litigation path.

"The Supreme Court will have no part of a contract interpretation case. And the amount of discovery involved would be much, much smaller than that in the IBM case," Carey said. "The IBM case now stands for procedural purity, where SCO is given every chance to prove its case, which by now seems clearly to have no merit."

/zimages/3/28571.gifRead more here about the latest rulings in the SCO-IBM case.

However, Carey argued, "A ruling in favor of Novell would result in the sacrifice of far fewer trees and man-years on that altar of procedural purity. Will the judge hold his nose and make a dispositive [a motion or decision that will end all or part of a lawsuit] ruling on the basis of a murky contract? He shouldnt, but the temptation will be great."

The SCO-IBM case is now scheduled to go to trial on Feb. 26, 2007.

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