June 4, 2003 3:01 PM PDT

Contract illuminates Novell-SCO spat

Learn more about SCO's claims

A 1995 contract sheds light on the conflicting Unix ownership claims by Novell and SCO Group, with SCO receiving broad rights to the operating system but Novell retaining copyrights and patents.

According to a copy of the contract obtained by CNET News.com, Novell sold "all rights and ownership of Unix and UnixWare" to the SCO Group's predecessor, the Santa Cruz Operation. However, the asset purchase agreement, filed with the Securities and Exchange Commission, specifically excludes "all copyrights" and "all patents" from the purchase.

"This agreement is kind of murky," said Mark Radcliffe, an intellectual property attorney with law firm Gray Cary. "You end up with a lot of questions, to put it mildly."

The agreement lies at the heart of a high-profile dispute that has pitted SCO against Novell and all Linux users. SCO claims the agreement gives it the intellectual property rights to Unix, which it then claims were illegally copied into Linux. Novell maintains that the agreement specifically exempts Unix copyrights and patents.

If the debate ends up in court, as SCO Chief Executive Darl McBride predicted last week, the agreement would likely be exhibit A, with both sides able to present passages that support their position.

For example, while the contract leaves the copyrights with Novell, a section that gives to SCO "all claims...against any parties relating to any right, property or asset included in the (Unix) business" could be interpreted to give SCO the right to enforce the copyright, Radcliffe said. "The question is, even though (Novell) didn't assign the intellectual property (to SCO), did (Novell) assign the rights to enforce the patents and copyrights?"

The Unix ownership issue is central to a debate about whether companies can be taken to court for using Linux. On May 14, SCO claimed in letters sent to 1,500 of the world's largest companies that using Linux could open them to legal liability because Unix source code has been copied into Linux.

That copying, if proven and illegal, could violate Unix copyrights and the independent spirit of the open-source movement that creates Linux, but the contract indicates that SCO won't have a simple time relying on Unix copyrights in such a case.

A week after SCO's letter, Novell said it never sold SCO the Unix copyrights and patents and that SCO's actions could bring legal action on itself. "We believe it unlikely that SCO can demonstrate that it has any ownership interest whatsoever in those copyrights," Novell Chief Executive Jack Messman said in a letter to SCO.

The Unix ownership debate grew from SCO's $1 billion lawsuit against IBM, alleging Big Blue breached its contract with SCO and misappropriated SCO's trade secrets by moving Unix intellectual property into Linux. IBM denies the claims.

SCO didn't immediately respond to questions about how the contract supports its claims to rights of copyright enforcement, but McBride last week said the contract had "conflicting statements."


This is a key portion of the 1995 "asset purchase agreement" between the Santa Cruz Operation and Novell that lies at the heart of the current dispute between Novell and the SCO Group, which bought Santa Cruz Operation's Unix assets in 2001.

An excerpt from Schedule 1.1(a) describes the included assets as:

"All rights and ownership of UNIX and UnixWare, including but not limited to all versions of UNIX and UnixWare and all copies of UNIX and UnixWare (including revisions and updates in process), and all technical, design development, installation, operation and maintenance information concerning UNIX and UnixWare, including source code, source documentation, source listings and annotations, appropriate engineering notebooks, test data and test results, as well as all reference manuals and support materials normally distributed by Seller to end-users and potential end-users in connection with the distribution of UNIX and UnixWare."

But as excerpt from Schedule 1.1(b) describes the excluded assets as:

"Intellectual property:
A. All copyrights and trademarks, except for the trademarks UNIX and UnixWare. B. All Patents"

"It doesn't make sense. How would you transfer the product but not have the copyright attached? That would be like transferring a book but only getting the cover," McBride said.

Novell continues to disagree with SCO. "It's pretty clear that patents and copyrights were excluded and not included in the business as it's described (in the contract), so we don't believe SCO would have copyright and patent enforcement rights," Hal Thayer, vice president of communications for Novell, said Wednesday.

Novell is basing future operating system products on Linux, and open-source advocates say they are reassured by Messman's words that the company won't press its own copyright claims. "Novell is an ardent supporter of Linux and the open-source development community," Messman has said.

"It's difficult to imagine any scenario," Thayer said, "in which we'd bring Unix copyright infringement action against Linux users. We certainly don't have any plans to do any such thing...and we wouldn't have undertaken this whole call to SCO to prove their claims if that was the road we wanted to pursue."

Looking for an edge
The 1995 contract appears to give Novell the edge in the copyright debate, said John Ferrell, an intellectual property attorney with Carr and Ferrell, who reviewed the contract.

"This would support Novell's contention that SCO does not own the copyrights and does not have the right to litigate" a copyright infringement case, Ferrell said. However, he said, the contract does indicate SCO could pursue a case that a Unix licensee breached its contract.

But the contract is odd, Ferrell said. "It's very unusual to have the transfer of a software program and not have the rights of copyright transferred as well," he said.

SCO vehemently argues that it has copyright enforcement rights, but in any case, it doesn't need the Unix copyright to go after Linux users.

"I think it's perfectly clear we have the rights to enforce copyright claims," McBride said in an interview after Novell challenged SCO's Linux actions. But more likely than a copyright case, would be one based on breach of contract, he said.

"The letter went to 1,500 large companies around the world, the majority of which all have (Unix) System V licenses with us...We do have sublicense rights," McBride said. "They sign up for the fact that they will not misappropriate the code." The sublicenses come through Unix purchases made with direct Unix licensees such as Silicon Graphics, Hewlett-Packard and IBM, he said.

But the absence of copyright and patent claims in SCO's lawsuit against IBM is telling, Gray Cary's Radcliffe said. Copyright and patent claims can make a strong case.

"If they had the rights to enforce the copyrights, how come that didn't show up in the IBM suit?" Radcliffe asked. "It's very weird they would bring a lawsuit on trade secret (misappropriation) and unfair competition and not put in copyrights and patents. Those are the strongest rights. Particularly with IBM, you don't go out and say, 'I'm not going to take the elephant-hunting rifle with me, I'm just going to take my .22-caliber.'"

SCO has said it has the option to include copyright claims later. But while it's said Unix code was copied into Linux, it hasn't yet said who it believes is responsible. SCO says it will show proof of the copying later this month to some neutral parties.

SCO's suit mentions concepts and methods, but not copyrights: "It is not possible for Linux to rapidly reach Unix performance standards for complete enterprise functionality without the misappropriation of Unix code, methods or concepts to achieve such performance and coordination by a larger developer such as IBM."

Radcliffe said copying methods and concepts are much weaker evidence than copying code. "If they did enough due diligence to figure out there were concepts there, how the heck did they miss that there was actual code copying?" he asked.

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So, Novell has the copyright and patents, and SCO has the right to enforce them. If Novell decided to charge every Linux user 50 cents to install Linux, then SCO could enforce this if it wanted to. If Novell decided that anyone can use its copyright and patents for free, then SCO could decide to enforce this or not if it wanted to. Obviously "owning" means you can do whatever you want with something, within social norms (can't store nuclear waste in your garage, for example). "Enforcing" means if someone doesn't agree with what the owner (Novell) chooses to do with its property, SCO can protect Novell's choice.

What's the question?
Posted by fokkwp (168 comments )
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