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SCO Group vs. Novell: New round

Published April 27, 2008 12:00 am

Utah software firm to argue it owes nothing for Unix
This is an archived article that was published on sltrib.com in 2008, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

A reinvigorated SCO Group Inc. goes to trial Tuesday to once again defend its claims to a widely used computer software code against Novell Inc.

Although what's at stake in the scheduled four-day trial pales in comparison to the unresolved major claims in the case that have rattled parts of the software community for the past five years, millions of dollars are on the table in a legal battle that has been widely watched.

In play in the courtroom of U.S. District Judge Dale Kimball is as much as $37 million that Novell claims it is owed in the dispute that has forced the tiny Lindon-based SCO Group into bankruptcy and threatened its future. Now, with a proposed takeover by a private capital group and the promised investment of as much of $100 million, SCO goes to trial vowing to argue it owes Novell nothing for the licensing of the Unix software code.

Success here, coupled with the planned financial backing of the private capital group, could help SCO retain clients and perhaps expand the Unix business.

The trial is the latest twist in a legal battle joined in 2003 when The SCO Group accused IBM in a billion-dollar lawsuit of using Unix - which SCO claims it owns - as the basis for code placed in the free Linux operating system, which was turned into products that became direct competitors of Unix. SCO's Unix sales began a steep decline after IBM made the changes, and Linux's sales to businesses began to grow rapidly, the SCO Group says.

Advocates of open-source software, such as Linux, were outraged by the SCO suit against IBM because they viewed it as a commercial assault on the movement to open up software code for public use.

The SCO Group filed a second lawsuit, in January 2004, asserting that Novell was trying to interfere with ownership of the Unix copyrights.

But in August 2007, Judge Kimball tossed out SCO's claim that it owned the copyrights to Unix and UnixWare, a later version of the software that Novell had developed and then sold to a California company, The Santa Cruz Operation, in 1995. SCO says it bought Unix, including the copyrights, from that company in 2001.

Kimball's ruling not only put SCO's claims against IBM in jeopardy but also left it with a potential bill from Novell for Unix fees for as much as $37 million. The trial that begins Tuesday is to determine how much, if anything, The SCO Group owes Novell.

But Lee Hollaar, a professor of computer science at the University of Utah who teaches classes on intellectual property law, said last week the trial is a shadow of what the original case promised to become.

"The case started out to be much more focused on copyright," Hollaar said. "Suddenly they're arguing about contracts. The main issue is sort of lost."

SCO to press its claims

Come Tuesday, The SCO Group finds itself in the uncomfortable position of arguing it doesn't owe Novell any money for licensing fees because it still believes it owns the copyrights.

SCO representatives recently have been placing documents on the company's Web site to bolster that claim, including a March 25, 1996, Novell letter to Prentice-Hall Inc. It purports to show that Novell transferred "ownership" of Unix to The Santa Cruz Operation.

SCO officials argue that Kimball prematurely ruled on the case instead of letting disputed facts be decided at a trial.

Reeling from Kimball's 2007 ruling and declining sales, The SCO Group filed for bankruptcy in September 2007. Today, it is working on a reorganization plan in which Stephen Norris Capital Partners and unnamed Middle Eastern investors would put up, up to $100 million to help it exit from bankruptcy, assume a majority ownership and take the company private.

The promised infusion would mean that SCO could continue to pursue its legal cases and expand marketing of its products, which include software for mobile applications such as sending photographs by cell phone.

Although neither SCO nor Novell representatives would comment for this story, in court documents, Novell says that, based on Kimball's 2007 ruling, it owns the copyright to a version of Unix. Extending that argument, Novell contends that SCO owes it millions of dollars in revenues because SCO improperly licensed the system to other companies without having the rights to do so.

SCO counters that Novell never tried to collect such license fees when The Santa Cruz Operation sold licenses for UnixWare software.

"Novell never asked or suggested to Santa Cruz that it should remit any portion of the fees that Santa Cruz received" from Unix licenses, SCO said in a reply to Novell's claims.

After The SCO Group acquired the Unix business, Novell did not try to collect fees until 2003, SCO contends.

"Until 2003, Novell never asked or suggested to SCO that it should remit any of the fees or royalties that SCO received," SCO's attorneys argued.

Even if Novell wins a monetary judgment it cannot collect without approval of the federal court in Delaware where the SCO bankruptcy case is being heard.

tharvey@sltrib.com

Open source software

Linux is open source, meaning that - unlike Microsoft's Windows or the Unix system - its source code, or "recipe" for creating an operating system, is free and open to the public and available for use or alteration by individuals and companies, which can then market resulting products.