Out-Law / Your Daily Need-To-Know

SCO loses long-running UNIX case

Out-Law News | 14 Aug 2007 | 4:06 pm | 2 min. read

Novell owns the copyrights in the UNIX operating system contested by SCO a judge has ruled in one of the tech world's longest running and most complicated legal cases. SCO shares lost over 70% of their value on the news.

Advert: Pinsent Masons is recruiting. Find out more.SCO first made claims in 2003 to intellectual property rights in the UNIX operating system. AT&T owned the system and sold it to Novell in 1992. The Santa Cruz Operation purchased rights to the system from Novell in 1995 in a contract that specifically excluded copyright ownership from the sale.

In 2003 and in subsequent suits SCO, a successor company to The Santa Cruz Operation, has claimed intellectual property rights in the UNIX system. Novell said that it retained the copyright in the system.

A US judge, Dale Kimball of the US District Court for the District of Utah, has said that Novell does own the UNIX copyrights. He said that SCO now owes Novell millions of dollars in licencing income it received from its UNIX customers, such as Microsoft and Sun Microsystems.

SCO had claimed that Novell was wrong to claim ownership of the system, but Kimball said in his ruling that "there is no basis in the evidence before this court for finding that Novell's public claims of ownership were a misappropriation or seizure of SCO's property".

The agreement between the two companies was to allow SCO's predecessor company the right to sell UNIX licences to third parties. Under that deal it kept a 5% fee, meaning that 95% of its fees should have been paid by it to Novell.

Now that the Court has found that Novell, and not SCO, owned the copyrights to the software, SCO could owe millions in royalty payments. Kimball said that Microsoft and Sun alone paid combined royalties to SCO of $26 million.

"As a matter of law, the court concludes that SCO breached its fiduciary duties to Novell by failing to account for and remit the appropriate royalty payments to Novell for the SVRX portions of the 2003 Sun and Microsoft Agreements," said Kimball in his ruling. "Because of the decrease in SCO's revenues and assets, Novell fears that it will be unable to collect on its claim for royalties."

"The company is obviously disappointed with the ruling issued last Friday," said a SCO statement. "Although the district judge ruled in Novell's favor on important issues, the case has not yet been fully vetted by the legal system and we will continue to explore our options with respect to how we move forward from here."

There is a related case against IBM that has also been undermined by the ruling. IBM licensed UNIX from AT&T in the 1980s and SCO claimed that it had let some of the UNIX programming code 'leak' into the now-popular Linux open source operating system.

The verdict in the IBM case was put on hold while the Novell case was decided. If SCO does not own UNIX, though, then it cannot take an action against IBM for alleged infringement of UNIX copyrights.

"SCO is obligated to recognize Novell's waiver of SCO's claims against IBM," said Kimball.

There is likely to still be some kind of trial over the issues in autumn. Novell had issued counter-claims against SCO which could proceed to trial following the ruling, and SCO still claims that it owns the copyright in modifications to the software made after the date of the original licensing agreement.

It is also thought possible that IBM will take its counterclaims to court.