SCO Group, Inc. v. Novell, Inc.
| Industry | Software |
|---|---|
| Predecessor | Santa Cruz Operation |
| Fate | Legal disputes and loss of copyright claims |
| Successor | Caldera Systems (for Server Software and Services divisions) |
| Products | UnixWare, OpenServer technologies |
| Parent | Caldera Systems (from 2000, renamed Caldera International in 2001, then The SCO Group in 2002) |
SCO v. Novell was a legal battle in the United States where software firm The SCO Group (SCO) asserted ownership over the source code of the Unix operating system. SCO sought judicial confirmation of its Unix copyright claims and accused Novell of slander of title for challenging those claims. At the same time, Novell was actively investing in Linux and contesting SCO's attempts to collect license fees from Linux users through their SCOsource division.
The core of the conflict involved asset transfer agreements made when Novell sold its Unix business to SCO’s predecessor, the Santa Cruz Operation. The initial APA explicitly excluded copyrights from the sale. A subsequent amendment further clarified that all copyrights were excluded except those necessary for Santa Cruz Operation to exercise its rights under the APA. However, the asset list was never revised accordingly, leading to uncertainty. During the trial, Novell maintained that it retained ownership of the copyrights to safeguard its 95% share of Unix SVRX royalties, and that the amendment only granted Santa Cruz Operation a license to use the Unix code.
Novell filed counterclaims including slander of title, accusing SCO of violating the APA by issuing Unix licenses to Sun Microsystems and Microsoft without compensating Novell with agreed royalties. Furthermore, Novell claimed it had the authority to instruct SCO to waive claims under existing Unix licenses at "Novell's sole discretion," a right it had exercised previously by waiving SCO’s claims against IBM and others before litigation commenced. The dispute involved multiple additional claims and counterclaims before reaching a conclusion.
The court ultimately decided that Novell held ownership of the Unix copyrights and possessed the power to direct SCO to waive claims against licensees—acting on SCO’s behalf if SCO refused. The court also found that SCO breached contractual agreements and committed conversion of Novell’s property. Consequently, all of SCO’s claims against Novell were dismissed.
Background
Novell, known for its proprietary network operating systems, acquired rights to the original Unix source code by purchasing Unix System Laboratories from AT&T Corporation on June 14, 1993. These rights were further affirmed as part of the settlement in USL v. BSDi.
On September 19, 1995, Novell entered into an Asset Purchase Agreement (APA) with Santa Cruz Operation (SCO), transferring selected Unix rights along with Novell's UnixWare product line to SCO. These rights permitted SCO to develop and market new versions of UnixWare and license SVRX UNIX with Novell’s approval. Additionally, SCO served as Novell’s agent responsible for collecting royalties under these licenses.
In 2000, Caldera Systems purchased SCO’s Server Software and Services divisions, which included UnixWare and OpenServer technologies, thereby becoming the legal successor under the APA. Caldera changed its name to Caldera International in 2001 and then adopted The SCO Group (SCO) as its name in 2002. Despite sharing a name, The SCO Group is legally separate from the original Santa Cruz Operation.
SCO goes on the offensive
In 2003, SCO initiated a campaign demanding that Linux users pay licensing fees, alleging that Linux incorporated SCO's intellectual property without authorization. SCO asserted that it held the copyrights to Unix, suggesting control over the original AT&T source code and its derivatives. After SCO filed a copyright infringement lawsuit against IBM, Novell publicly disputed these claims.
Novell declares ownership of the copyrights
On May 28, 2003, Novell issued a press statement rejecting SCO’s assertions regarding the inclusion of Unix code in Linux and contesting SCO’s claimed ownership of Unix copyrights.
On June 6, 2003, SCO disclosed a second amendment to the Asset Purchase Agreement (APA) with Santa Cruz Operation, asserting it reinforced their claim to the copyrights. This amendment altered the list of excluded assets but did not broadly transfer copyright ownership. Novell responded by stating that this amendment was absent from their records and emphasized that patent rights remained with them.
Behind closed doors, Novell and SCO exchanged intense correspondence. Novell upheld its legal ownership of Unix copyrights and exercised its APA rights by auditing SCO’s royalty collections, demanding access to Unix code held by SCO, issuing waivers for certain claims, and sending cease-and-desist letters concerning SCO’s actions. The relationship quickly deteriorated.
On October 14, 2003, Novell registered significant Unix copyrights with the U.S. Copyright Office and submitted declarations challenging SCO’s registrations. These declarations argued that SCO had not established the necessary proof of ownership over Unix copyrights and that Novell retained substantial rights.
Subsequently, on December 22, 2003, Novell publicly reaffirmed its copyright ownership of Unix and documented this position in communications with SCO, noting that SCO was aware of this stance.
On January 13, 2004, Novell announced it would indemnify Linux users against third-party litigation such as lawsuits from SCO alleging copyright infringement. Additionally, Novell released over thirty letters exchanged with SCO outlining their dispute. In response, SCO reiterated its claims and prepared to file a lawsuit against Novell.
Utah state court
On January 20, 2004, SCO filed a slander of title suit against Novell in Utah state court. The complaint sought both preliminary and permanent injunctions to transfer all Novell Unix copyright registrations to SCO and to compel Novell to withdraw its claims regarding Unix code.
United States District Court for the District of Utah
Novell removed the case to federal court on February 6, 2004; this removal was affirmed by the court on June 9, 2004.
On February 10, 2004, Novell submitted a motion to dismiss for failure to state a claim, contending that SCO had not demonstrated a valid transfer of copyright ownership under the Asset Purchase Agreement nor specified the special damages required.
SCO opposed the dismissal motion and requested remand back to state court; however, Novell maintained federal jurisdiction due to the federal copyright issues involved. On June 9, 2004, Judge Dale A. Kimball denied SCO’s remand request and partially granted Novell’s dismissal motion on procedural grounds while permitting SCO to amend their complaint with properly pleaded damages.
Novell's countersuit
On July 29, 2005, Novell initiated a countersuit against SCO, alleging slander of title, breach of contract, failure to pay royalties, and neglect in conducting audits. Novell sought damages surpassing SCO’s net assets and petitioned the court to freeze SCO’s holdings until the case was resolved. The company accused SCO of licensing Unix System V Release 4 to Microsoft and Sun Microsystems without forwarding the required 95% of licensing fees as stipulated in the Asset Purchase Agreement.
Additionally, Novell claimed that SCO requested its involvement in SCO's licensing strategy addressing Linux intellectual property infringements; after Novell declined, SCO demanded the transfer of Unix copyrights from Novell, which was also refused.
SuSE arbitration
On February 6, 2006, SCO submitted a second amended complaint introducing new allegations such as unfair competition, copyright infringement related to Novell’s distribution of SUSE Linux, and violation of a non-compete agreement concerning SUSE Linux.
Subsequently, on April 10, 2006, Novell’s European Linux division, SuSE, initiated arbitration against SCO through the International Court of Arbitration under the International Chamber of Commerce in Paris. SCO (previously Caldera International) had previously entered into agreements with SuSE and other United Linux partners that granted expansive licenses to distribute products incorporating United Linux technology. These contracts included clauses mandating arbitration for dispute resolution.
SuSE’s arbitration filing was a direct response to SCO’s amended complaint. In parallel, Novell submitted a Motion to Stay Claims Raising Issues Subject to Arbitration in U.S. courts, arguing that four out of five claims by SCO—including copyright infringement—were subject to arbitration and should be paused pending the tribunal’s verdict. Novell also filed an Answer to SCO's 2nd Amended Complaint and Counterclaims, presenting various affirmative defenses, notably accusing SCO of committing fraud against the U.S. copyright office.
Licensing agreements and Novell's motion for summary judgment
Following discovery revealing SCO’s Unix licensing deals with Microsoft and Sun, on September 22, 2006, Novell moved to amend its counterclaims. It alleged these agreements violated the APA and introduced charges of conversion and breach of fiduciary duty. SCO consented to this amendment, which Judge Kimball approved.
On September 29, 2006, Novell pursued summary judgment or alternatively a preliminary injunction, contending that SCO licensed Novell-owned property without paying royalties owed under the APA from its contracts with Sun and Microsoft. Novell requested the court mandate SCO to remit due royalties or place them into a trust until the dispute was settled.
Judge Kimball ruled on August 10, 2007, affirming that "Novell is the owner of the Unix and UnixWare Copyrights," granting summary judgment favoring several of Novell’s claims while dismissing many brought by SCO. The court ordered SCO to provide accounting and transfer appropriate revenues from Sun and Microsoft licenses to Novell.
The decision also compelled SCO to acknowledge Novell’s waiver of SCO’s claims against IBM and Sequent in related litigation. After this ruling, Novell declared it had no intention to continue pursuing legal action over Unix copyrights, stating "We don't believe there is Unix in Linux."
SCO's Bankruptcy Proceedings
On September 14, 2007, The SCO Group initiated bankruptcy protection under Chapter 11, mere days prior to a scheduled trial intended to establish the amount owed to Novell. As a corporation incorporated in Delaware, SCO submitted its filing to the United States Bankruptcy Court for the District of Delaware, which automatically imposed a stay on all ongoing legal actions.
Subsequently, on November 27, 2007, Bankruptcy Judge Kevin Gross lifted this stay specifically to permit the Utah court to evaluate SCO’s financial obligations toward Novell, while maintaining federal court oversight over any constructive trust arrangements.
Damages Trial
During the trial held on April 30, 2008, SCO stood as the defendant with Novell as the plaintiff, demanding $19,979,561 related to licensing agreements involving Microsoft, Sun Microsystems, and others. On July 16, 2008, the Utah court granted Novell $2,547,817 on grounds of unjust enrichment, breach of fiduciary duty, and conversion. The court determined that SCO possessed the authority to enter into the 2003 Microsoft and other license agreements but lacked such authority concerning the 2003 Sun Agreement due to changes affecting confidentiality clauses connected with OpenSolaris.
Judge Kimball’s final judgment on November 20, 2008, upheld this award along with $918,122 in accrued interest plus additional daily interest if unpaid beyond August 29, 2008. The ruling also established a constructive trust amounting to $625,486.90 and dismissed the case without permitting SCO to submit an amended complaint, restricting further legal action solely to appeals.
Appeal at the Circuit Court Level
On August 24, 2009, the U.S. Court of Appeals for the Tenth Circuit partially overturned Judge Kimball’s August 10, 2007 summary judgment that had affirmed Novell’s ownership of the Unix copyright. The appellate court sustained the ruling related to the 2003 Sun agreement and allowed SCO to continue pursuing claims of Unix copyright ownership at trial while affirming its liability for the $2,547,817 royalty payment.
Novell filed a petition for a writ of certiorari on March 4, 2010, requesting Supreme Court review due to conflicting interpretations among circuits regarding Copyright Act transfer provisions. The Supreme Court declined to hear the case.
Remanded Trial Addressing Copyright Matters
The jury trial on remand commenced on March 8, 2010 before Judge Ted Stewart and extended over three weeks. On March 30, the jury delivered a unanimous verdict favoring Novell. On June 10, Judge Stewart issued a comprehensive ruling supporting Novell’s position and concluding the litigation. The court found no evidence of slander of title by Novell; it held that Novell was not obligated under the Asset Purchase Agreement (APA) to transfer copyrights and confirmed that copyright waivers granted to IBM were authorized and conducted in good faith.
SCO appealed this decision to the U.S. Court of Appeals for the Tenth Circuit on July 7, 2010. On August 30, 2011, the appellate court affirmed the lower court’s ruling in full.
See also
External links
- Novell's Unique Legal Rights – Official Novell webpage detailing lawsuit information
- SCO v. Novell at SCO.com – SCO’s official litigation page
- Novell-SCO Timeline at Groklaw
- Groklaw's Archive of Legal Documents for SCO vs Novell
- Novell Files Arbitration Request in Paris – The Jacobs Declaration
- Novell Files Motion to Stay and Answer with Counterclaims