Decision in SCO-Novell case ripples beyond Utah
Technology » Verdict has implications for software industry, other disputes.
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A jury's verdict Tuesday that Utah-based The SCO Group does not own the copyrights to the Unix software code is sure to reverberate beyond the downtown Salt Lake City courtroom where the decision was delivered.

After six years of legal wrangling, a federal jury stunned SCO in finding for Novell Inc. after a three-week trial that pitted the two companies over the question of which owned the copyrights to Unix, a computer operating system widely used by businesses.

The unanimous decision:

» Removed a question about Novell's multimillion-dollar liabilities in the case at a time when it faces an unsolicited takeover bid from a hedge fund. The company employs 1,000 people in Provo, making it one of Utah's larger high-tech operations.

» Again raises red flags about the survival of SCO, which is already in bankruptcy proceedings.

» Presents a serious question about the future of an SCO lawsuit against IBM in which SCO claims the computing giant improperly used its Unix code as the basis for changes that made the Linux operating system into a strong competitor and drove down sales of Unix.

» Is a clear victory for the open source community that was offended by SCO's assault on Linux, an open source system whose codes are available for free to the public and around which companies such as Novell build products for sale to other businesses.

The verdict was a setback for SCO, which had presented an array of evidence and witnesses regarding the intent of a disputed 1995 sales agreement in which Novell sold Unix to the Santa Cruz Operations, which sold it a few years later to the Lindon-based company.

At issue was a poorly worded portion of the contract that could be read to say that Novell retained the Unix copyrights in the sale. SCO presented top-level negotiators and executives from Santa Cruz and Novell -- including former Novell CEO and Chairman Robert Frankenberg -- who all said the deal's intent was to transfer every bit of the Unix system, including the copyrights.

Former U.S. District Judge Edward Cahn, the trustee who is running SCO as part of its bankruptcy filed in Delaware, said he thought SCO had a strong case, adding its team was "deeply disappointed" by the outcome.

"Juries are unpredictable and that's why cases get settled," said Cahn, who attended several days of the trial. "I was quite confident we were going to prevail."

The case might have turned on the question of an amendment intended to clear up the confusing language of the original 1995 sales agreement. SCO argued it showed the parties' intention to transfer the copyrights in the sale. But Novell's attorneys presented a witness who had drawn up the amendment and said it was not intended to transfer copyrights, though she appeared to contradict that line under cross examination.

"We're very pleased for Novell, and I think this also is a big day for the open source community," said Sterling Brennan, a Salt Lake City attorney who represented Novell, along with the San Francisco firm of Morrison & Foerster.

Cahn praised Novell's legal team: "Morrison and Foerster are the best lawyers west of the Mississippi and they proved that today."

The case had its roots in 2003 when SCO sued IBM for allegedly using Unix code to make improvements to Linux. Novell then said it, not SCO, owned the copyrights to Unix. Novell retracted that statement after SCO showed it an amendment to the sales agreement but then restated its ownership claims a few months later and said SCO had no right to pursue IBM.

SCO attorney Stuart Singer of Boies, Schiller & Flexner in Fort Lauderdale, Fla., said during the trial IBM collaborated with Novell to try to derail SCO's claims on Linux, around which both Novell and IBM were building businesses. IBM invested $50 million with SCO to buy a Linux business, Singer said.

SCO had claimed that Novell's actions cost it up to $215 million, but the jury's decision means the question of damages is moot. That's good news for any company that might make a bid for Novell. Novell's board recently rejected a $2 billion takeover bid from Elliott Associates as too low but signaled it remains open to a sale at the right price.

As for SCO, Cahn said the company would discuss what the ruling means for its Unix business. He pointed out that presiding U.S. District Judge Ted Stewart still has parts of a verdict to render that will affect the case's final outcome. For example, Stewart is being asked to rule whether Novell still needs to transfer the copyrights to SCO as part of the sales contract and whether Novell had the right to waive SCO's claims against IBM.

"We still have claims against IBM irrespective of this verdict," Cahn said.

A representative said Novell is not in the Unix business, despite the verdict. "We are very much in the Linux business," Ian Bruce said from company headquarters in Waltham, Mass. The jury's decision is good for Novell but also very good for Linux and the open source community."

Jason Hall, a founder and board member of the Utah Open Source Foundation, praised the decision and Novell's role in defending Linux.

"It proves that companies that try to create these lawsuits to try to hunt money from other sources aren't just fighting loose groups of people," said Hall of Eagle Mountain. "There's actually large enterprises now that have a strong stance in the matter and are willing to stand up for the rights of the enterprises themselves but also for the community as a whole."

tharvey@sltrib.com