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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.
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Lowry also questioned claims on Wednesday by SCOs McBride that Novell executives had not shown up for a meeting with SCO at which time SCO would have been willing to show them the actual violations in dispute. “That was the first I heard of that, and I have no knowledge of such an event,” he said.
A SCO spokesman would not immediately comment on SVRx and had not responded to eWEEK by print time.
This questioning of SCOs ownership of the copyright and patents to Unix System V comes just a day after Novell released a copy of a letter its CEO Jack Messman sent to SCO CEO Darl McBride, in which Messman pointed out that the asset purchase agreement entered into between Novell and SCO in 1995 did not transfer these rights to SCO. Novell also asked SCO to back up its assertion that certain Unix System V code has been copied into Linux.
“To Novells knowledge, the 1995 agreement governing SCOs purchase of Unix from Novell does not convey to SCO the associated copyrights. We believe it unlikely that SCO can demonstrate that it has any ownership interest whatsoever in those copyrights. Apparently you share this view, since over the last few months you have repeatedly asked Novell to transfer the copyrights to SCO, requests that Novell has rejected,” Messman said in the letter.
But SCO disputed these claims in a statement released on Wednesday. The Lindon, Utah-based firm maintains that it owns the contract rights to the Unix operating system. “SCO has the contractual right to prevent improper donations of Unix code, methods or concepts into Linux by any Unix vendor.
“Copyrights and patents are protection against strangers. Contracts are what you use against parties you have relationships with. From a legal standpoint, contracts end up being far stronger than anything you could do with copyrights. SCOs lawsuit against IBM does not involve patents or copyrights. SCOs complaint specifically alleges breach of contract, and SCO intends to protect and enforce all of the contracts that the company has with more than 6,000 licensees.
“We formed SCOsource in January 2003 to enforce our Unix rights and we intend to aggressively continue in this successful path of operation,” the company said.
Richard Seibt, the CEO of leading Linux distributor SuSE Linux A.G. also weighed in on the controversy yesterday, telling eWEEK in an interview that “I have seen the contract, and it contains specific asset exclusions.” Seibt also welcomed the contents of the Novell letter.
“This is a very important development as I think we will see very soon who is right and who is wrong. They are talking about a public contract document between the two parties,” he said.
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The ownership of the intellectual property rights to Unix System V is critcal for SCOs recent legal action against IBM and its threats against the Linux community. If SCO does not legally own the rights to the Unix intellectual property, patent and copyright, it would be unable to enforce its legal action against IBM and Linux distributors and users for violating this.
The SCO 10-K report also contains some interesting points. “Our success depends in part on our ability to protect our trademarks, trade secrets, and certain proprietary technology. To accomplish this, we rely primarily on a combination of trademark and copyright laws and trade secrets …
“We generally regulate access to, and distribution of, our documentation and other proprietary information. We also enjoy a broad and deep set of intellectual property rights relating to the Unix operating system. We have recently initiated efforts to garner value from these intellectual property assets and believe it will provide us with additional licensing and partnering revenue opportunities,” SCO said in the filing.
“Despite our efforts to protect our trademark rights, unauthorized third parties have in the past attempted and in the future may attempt to misappropriate our trademark rights. We cannot be certain that we will succeed in preventing the misappropriation of our trade name and trademarks in these circumstances or that we will be able to prevent this type of unauthorized use in the future.
“The laws of some foreign countries do not protect our trademark rights to the same extent as do the laws of the United States. In addition, policing unauthorized use of our trademark rights is difficult, expensive and time consuming. The loss of any material trademark or trade name could have a significant negative effect on our business, operating results and financial condition,” the filing said.
In the same 10-K filing, SCO admits that the future success of the company depends partly on both the Linux and Unix operating systems industry, which in turn depends on increased use of the Internet for business and other commercial and personal activities.
“Laws and regulations have been proposed in the United States and Europe to address privacy and security concerns related to the collection and transmission of information over the internet. Our current practices with regards to the collection and transmission of information over the internet do not violate these proposed regulations,” it said.
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