SCO Loses Attempt to Move Novell Case to State Court

UPDATED: SCO really wanted its Unix copyright case with Novell to be heard in state court, but a federal judge ruled that the case will stay in federal court.

The SCO Group Inc. has seen better days. After reporting disappointing losses in its latest quarter, thanks to growing legal costs and shrinking license revenues, SCO executives adjourned their Thursday press conference to discover that the company had suffered a legal setback in its long-running case against Novell Inc.SCOs request that its case with Novell be remaindered, or sent back, to Utah state court. With the ruling, the case will stay in the U.S. District Court.

The two companies are battling over whether Novell sold its Unix copyrights to the Lindon, Utah, SCO in 1995. SCOs $5 billion lawsuit against IBM largely depends on showing that IBM misused its licensed Unix code by contributing it to Linux.

/zimages/3/28571.gifSCO on Thursday reported a major revenue loss for its second quarter. Click here to read more.

At the time of the appeal, Glenn Peterson, intellectual property attorney and shareholder with the Sacramento-based law firm McDonough Holland & Allen, theorized that SCO wanted the case in a state court because of its easier standard.

SCO saw the matter as "a contract dispute that does not trigger federal jurisdiction just because the contract involves copyrights, among other things," Peterson said. SCO chose this route, instead of making its fight over who actually had the copyright, because the company "could not satisfy the copyright ownership-on-paper requirement."

Novell, on the other hand, wanted the case under federal jurisdiction because Novell believed it had a stronger case under federal copyright laws. The Orem, Utah-based networking and Linux firm is arguing that its contract with SCO was not an "instrument of conveyance" for copyright.

At the same time, Novell did not have it all its way in court on Thursday. Novell had asked for SCOs claims to be dismissed outright, and the court refused this request. Still, while Judge Kimball wrote in his order that he cant grant Novells motion to dismiss at this stage, a close reading of the decision shows that such a dismissal could occur later in the trial process.

Pamela Jones, editor of Groklaw, said of the decision, "This is a huge loss for SCO."

Kevan Barney, Novells senior manager for public relations, said, "Novell is pleased that the court denied SCOs attempt to send the case back to state court. We asserted that SCOs lawsuit involves a question of copyright law and is thus a matter for the federal courts, and Judge Kimball agreed. Novell is also encouraged that Judge Kimball dismissed SCOs complaint because it failed to plead special damages.

"On the important issue of copyright ownership, which the court left open for further litigation, the court also said it is questionable whether Amendment No. 2 [which SCO maintains conveyed the Unix copyright] was meant to convey the required copyrights and Novell has raised persuasive arguments on the ownership issue," Barney said. "Novell remains confident that it is the rightful owner of the Unix system copyrights and that this position will ultimately be affirmed by the court."

Marc Modersitzki, SCOs public relations manager, said, "Were pleased with the ruling. We look forward to responding to the courts special damages request." This request gives SCO the chance to amend its complaint against Novell.

SCO has 30 days from the date of the order, Wednesday, to amend its complaint.

(Editors note: This story was updated to include comments from Novell and SCO.)

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