September 3, 2009

SCO Group Gets Key Ruling in Appeals Court

The long six-year legal saga of The SCO Group Inc. was recharged a bit last week when an appeals court overturned four critical August 2007 rulings that had seemingly put the brakes on the company's legal case against Novell Inc.

Back then, a U.S. District Court in Utah ruled that Novell actually owned the rights to UNIX code, damaging one of SCO's major legal arguments. Now that ruling has been overturned, again throwing the issue up into the air. The other three previous rulings involved related legal issues including the scope of Novell's rights in the case.

SCO has insisted throughout its legal fight that it owns the rights to UNIX as it took on a host of other companies in court, challenging their use or alleged ownership of the computer operating system's copyrights.

Then, almost a year after those August 2007 rulings were issued, another court ruling hit the fan for SCO – in July 2008 the company was ordered to pay $2.55 million to Novell for collecting UNIX licensing revenues without having proper Unix ownership, according to a story in Computerworld.

That $2.55 million damage award was also under appeal by SCO, but it was allowed to stand under last week's actions by the United States Court of Appeals for the Tenth District.

For SCO, the legal battle, which began in March 2003 when the company originally filed

a $1 billion lawsuit against IBM alleging that IBM improperly contributed SCO's UNIX code to its then-fledgling work with Linux, according to Computerworld. The lawsuit was later increased to $5 billion, and then led to other related lawsuits by SCO against Novell and others. The original IBM case is on hold until the SCO-Novell case is resolved.

SCO executives have insisted for years that the lawsuits were only the result of the company's properly defending it's products, copyrights and business, while critics have interpreted the lawsuits as SCO's moves to find new revenue streams for a dying company that had few future prospects.

In September of 2007, SCO filed for bankruptcy protection from the courts. That process still continues, with the most recent activity being the appointment last month of a Chapter 11 Trustee for the bankruptcy proceedings. The Lindon, Utah-based company is still offering its SCO OpenServer operating system for small- to medium-sized businesses, as well as UnixWare and SCO Mobile Server. The company has been transitioning into products and services for mobile applications over the last several years.

Where the Case and the Parties are Today

Ian Bruce, a spokesman for Waltham, Mass.-based Novell, said in a prepared statement that the company is "studying the decision of the 10th Circuit Court of Appeals. We're pleased that the decision affirmed the district court’s award of about $3 million from SCO to Novell."

"On other issues such as ownership of the UNIX copyrights, on which SCO’s claims against Novell, IBM, and Linux users depend, the Court remanded the case for trial.

Precisely what will happen next in the lawsuit remains to be seen, especially in light of the pending SCO bankruptcy and the recent court decision to appoint a Chapter 11 Trustee to completely take over the business affairs of the company. Novell intends to vigorously defend the case and the interests of its Linux customers and the greater open source community. We remain confident in the ultimate outcome of the dispute."

A spokesman for SCO could not immediately be reached for comment.

Jeffrey Neuburger, an attorney with Proskauer Rose LLP in New York, wrote a blog entry last week on the most recent court rulings, arguing that it "it remains to be seen whether SCO will survive to press forward with the Novell and other litigations."

In an interview, Neuburger said that "[six] years later, we still don’t know who owns the rights to UNIX."

"In this case, nothing surprises anyone anymore," Neuburger said. "This is an exceptional case, partly because of the tenacity of SCO. Their [poor] financial situation exacerbates it. Then the fact that it involves open source adds a focus or attention that might not have been there, plus whenever you involve a company like IBM or Novell that also adds interest."

Conspiracy theorists have also been watching the case, often questioning how Microsoft Corp. would have been involved behind the scenes, backing SCO against rivals, Neuburger said. "It all adds a lot of attention."

"The cases have taken on a life of their own, and they're so extended that it's hard to say with certainty that they're valid or invalid."

At first, when the original legal claims were filed, Neuburger said he thought SCO's legal arguments "were a little creative."

Today he said he thinks that "there's probably merit on both sides."

"But at the end of the day, I think SCO has been more aggressive [in its legal fight] than other companies, let's put it that way," Neuburger said. "There's also some political issues and some face-saving issues, and bad blood. It could almost be a television docu-drama with some other stuff that's not in the pleadings, related to what's going on."

Yet despite the six years getting to this point, part of the original case seems to have been lost in the shuffle, he said. "When these cases were first brought, it was looked at as a huge development in the open source world … and that point has been diluted and lost as it's gone on. This case is a little disappointing because it's not going to be what everyone thought it would be in the first place" – a landmark legal case involving open source software.

"The case does remind everybody that open source is here and is a powerful tool, but it has to be used properly," Neuburger said. "People have to make sure that their software licenses are there and used as they should be. Open source can be a powerful tool for companies."

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