Sliding into oblivion
In the aftermath of federal district judge Dale A. Kimball's recent ruling, which determined that Novell, not SCO, is the rightful owner of the UNIX copyrights, the once-mighty proprietary UNIX vendor is on the verge of annihilation. As SCO's grasp on survival weakens and the company braces itself for descent into financial oblivion, much can be learned by reflecting on the circumstances of the case. A close reading of the ruling provides fascinating insight into the details of SCO's battle and sheds light on the peculiar events through which SCO has branded itself with the bitter taint of infamy.
A brief summary of the case
In 2003, proprietary UNIX vendor SCO filed a $1 billion lawsuit against IBM. SCO accused IBM of surreptitiously incorporating proprietary UNIX source code into the open-source Linux kernel, thus infringing upon UNIX copyrights allegedly held by SCO. Although SCO initially declined to provide evidence of infringement, the company attempted to justify its suit by claiming that it would be technologically impossible for IBM to make Linux a suitable platform for businesses without misappropriating some UNIX intellectual property in the process.
After IBM refused to hand over the money, SCO upped the ante by insisting that all companies that use Linux should also pay licensing fees. SCO then proceeded to expand its litigation campaign and threatened to file suits against 1,500 companies. Novell eventually stepped in and argued that SCO wasn't actually the owner of the UNIX copyrights and that the UNIX intellectual property, in fact, belonged to Novell. SCO retaliated by accusing Novell of "slander of title" over the disputed UNIX ownership rights.
Who owns UNIX?
The ownership of the UNIX copyrights has been the focal point of SCO's courtroom battle, since the validity of the infringement claims would only be relevant if SCO actually owns the rights to UNIX. Novell had originally bought all of the UNIX copyrights from AT&T subsidiary Unix Systems Labs in 1993. SCO claims that Novell handed over the UNIX copyrights to SCO's predecessor, the Santa Cruz Operation, in a 1995 deal between the two companies—a claim that Novell denies.
The point of contention is whether or not the UNIX copyrights were included in an Asset Purchase Agreement (APA). Schedule 1.1(a) of the APA, which enumerates assets conveyed to SCO as part of the deal, lists only the UNIX and UnixWare trademarks as the intellectual property included in the transaction. Schedule 1.1(b) of the APA, which enumerates assets excluded from from the agreement, specifically states that copyrights and patents are not conveyed as part of the transaction. "As in all contract disputes, the court must begin its analysis of whether the UNIX and UnixWare copyrights were transferred to SCO with the language of the contract," says Judge Kimball in his ruling. "Both parties argue that the plain language of the APA supports their respective positions."
SCO's basic argument is that the transfer of copyright ownership is implied in Schedule 1.1(a) of the APA which conveys to SCO "all rights and ownership of UNIX and UnixWare, including but not limited to all versions of UNIX and UnixWare and all copies of UNIX and UnixWare." In essence, SCO ignores Schedule 1.1(b) and the list of excluded assets.
As Judge Kimball points out in his ruling, "Section 1.1(a) specifically states that the Assets to be so purchased shall not include those assets set forth on Schedule 1.1(b) Because Section 1.1(a) of the APA transfers the Assets on Schedule 1.1(a) and excludes the assets on Schedule 1.1(b), the proper course of analysis is to examine both schedules." Judge Kimball is saying that the broad grant of all UNIX and UnixWare ownership rights in Schedule 1.1(a) is still subject to the exclusions specified in Schedule 1.1(b), thereby denying SCO's arguments that the APA itself grants SCO the UNIX copyrights.
The second leg of SCO's argument relates to Amendment 2 of the APA, which was written a year later and grants SCO "all copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the Agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."
One of the facets of the case that makes it particularly confusing is that SCO frequently changed its argument about exactly when the UNIX copyrights were allegedly transferred. Kimball has observed this too, and notes that "throughout this litigation, SCO has vacillated between arguing that the transfer of copyrights was effectuated by the APA and contending that the transfer was effectuated instead by Amendment No. 2."
There are several holes in SCO's argument that the UNIX copyrights were transferred as part of amendment 2. The amendment itself is extremely vague and doesn't clearly define the word "required" within the context of the agreement. Kimball points out that amendment 2 could easily be interpreted as conveying a perpetual license to use the copyrighted UNIX code and not ownership of the UNIX copyrights themselves, because that is all that would be required for SCO to be able to leverage the UNIX and UnixWare properties that were acquired from Novell. This interpretation is supported by the fact that the amendment itself doesn't alter the actual set of assets conveyed in the original APA and doesn't actually have a "Bill of Sale" or "instrument of conveyance" like the original APA does.
"Amendment No. 2 does not include any provision that purports to transfer ownership of copyrights," writes Kimball. "It merely revised the definition of the intellectual property category of the Excluded Assets schedule. Unlike the APA, Amendment No. 2 was not accompanied by a separate 'Bill of Sale' transferring any assets. Nor did Amendment No. 2 purport to retroactively change the scope of the assets transferred by the Bill of Sale that was executed in connection with the APA in December 1995."
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