| Outsiders Look in on the SCO/Novell Decision |
Aug. 13, 2007
The SCO Group's defeat at the hands of Novell in its attempt to claim Unix's IP (intellectual property) surprised no one outside of SCO's Lindon, Utah headquarters, but informed outsiders aren't 100 percent sure what will happen next with SCO and its lawsuits.
According to Dan Kusnetzky, principal analyst of the Kusnetzky Group, "There are some profound ramifications of Novell being told that it owns Unix and the SCO Group being told that did not. I would expect that the SCO Group will appeal this case to a higher court. So, it's not over yet."
Kusnetzky also thinks that companies taking SCO's failed IP path to dealing with the competition should take warning from SCO's fate. In particular, "Since it is clear to me that Microsoft devised its strategy of demanding license payments for use of patents that the company asserts infringe on its intellectual property based upon the SCO Group's tactics, Microsoft will be well advised to reconsider their approach," said Kusnetzky.
This in turn means that, "Some suppliers who were considering a deal with Microsoft will have a new complication to add to their decision-making process."
"As I've said before," Kusnetzky added, "Microsoft has yet to come forward and tell anyone what patents are being infringed by a broad portfolio of open source, which is the basis of Microsoft demanding payments or licensing agreements."
Ransom Love, former CEO of Caldera, parent company to what today is SCO, observed that he didn't expect Novell to win this case, but in the long run, "I always expected SCO to lose."
Love, who certainly would know, has long said that SCO's claims that Unix code was being smuggled into Linux were false. In November 2006, Love testified to the U.S. District Court that whatever Unix code might be in Linux had gotten there from SCO's own efforts or with the company's support.
Thomas Carey, a partner at Boston law firm Bromberg & Sunstein and chairman of its business department also had a bit of trouble understanding how the judge came to his decision. "The judge dealt with the most difficult problem by ignoring it. He never asked the question, 'How can someone sell a work of authorship and retain the copyright in it? What does it mean to do that?'"
It is an interesting question. SCO tried to deal with that very issue when it bought the right to sale Unix from Novell in the APA (Asset Purchase Agreement) and its amendments. Unfortunately, for SCO, it was never able to pony up enough cash for Unix's IP, and in the end Novell insisted on retaining the IP and SCO signed the deal anyway.
So, U.S. District Court Judge Dale Kimball, in Carey's opinion, "simply applied the contract literally, without examining whether to do so involved trying to split inseparable items—ownership of the work, and ownership of the copyright. Perhaps he was right to do so, because he painstakingly attempted to understand the business deal, and looked with care at the history of the drafting of the contract to see what the parties were trying to accomplish. And he got that part right."
This is all bad news for SCO. "Judge Dale's application of the contract is pretty devastating to SCO," Carey said. "Most of the bad news stems from the simple fact that Novell retained the copyright. But there is more bad news for SCO: Since SCO was acting as Novell's agent in the licensing of older versions of Unix (the SVRX licenses), it controlled SCO's actions as the nominal licensor. In that capacity, the judge ruled, Novell had the power to require SCO to waive its infringement claims against IBM."
Now, Carey has "long felt that IBM had a very strong defense to SCO's claim because IBM's contract with AT&T permitted it to create and sell derivative works based upon Unix, and thus its contributions to Linux are expressly permitted. More problematic, however, was the Sequent branch of the case, because Sequent did not have those contractual rights. Thus, IBM might have inherited a problem with its Sequent acquisition. The judge's ruling eliminates this problem, however, by saying that Novell can require SCO to waive its infringement claims, which it has done."
So, "If this ruling is upheld on appeal, IBM will have an easy and clear path out of the SCO jungle, even with respect to Sequent."
As for the open-source and free software groups, they, universally, see this as nothing but good news for Linux and open-source. Richard Fontana, an attorney for the SFLC (Software Freedom Law Center),said, "For the past several years SCO has tried to use the legal system to undermine the legal rights of developers, distributors and users of GPL-licensed Linux code—to challenge the idea that Linux belongs to the community. Therefore, yesterday's court defeat for SCO is deeply fitting. The legal system ruled instead that SCO never had any of the ownership rights in Unix code that formed the basis of its claims against Linux. I congratulate Novell's lawyers on a job well done."
Amanda McPherson, the marketing director of the Linux Foundation put aside discussions of the case itself and focused on the practical aspects of the court's decision.
"Friday's ruling in the SCO/Novell case was a great day for open source, adding yet another nail in a coffin already bursting with nails. The bigger implication here is the lesson all companies can take from SCO's misguided business and legal strategy over the last few years: baseless and endless litigation doesn't translate into share-holder value. Just look at SCO's stock price and compare it to those companies who have built their businesses around Linux."
Indeed, SCO's stock, which had only a 52-week high of $3.11, collapsed on NASDAQ's first full day of trading after the news of the court's decision broke. As of the late afternoon, SCO was trading for 43 cents a share: A drop of over 72% since Friday.
—Steven J. Vaughan Nichols
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