Analysis: The Beginning of the End for SCO?

In addition to recognizing Novell’s ownership of Unix and Unixware, the court’s ruling could also let IBM off the hook

The SCO Group Inc.’s litigation against IBM Corp. continues to wend its way through U.S. District Court, but judge Dale Kimball dealt the embattled Unix vendor a decisive blow last week when he ruled in favor of Novell Inc. in a related case.

Kimball ruled in favor of Novell’s ownership of the UNIX and UnixWare copyrights. He did, however, uphold several of SCO’s claims concerning the copyrights to the technology developed or derived by SCO after Novell transferred the assets to SCO in 1995.

ESJ’s efforts to reach the company were unsuccessful. However, in a statement on the company’s Web site, SCO maintained that "the company is obviously disappointed with the ruling issued last Friday."

SCO officials remained upbeat: "[T]he court did not dismiss our claims against Novell regarding the non-compete provisions of the 1995 Technology License Agreement relating to Novell's distribution of Linux to the extent implicated by the technology developed by SCO after 1995. Those issues remain to be litigated."

SCO also indicated that it intends to pursue litigation against Novell on other fronts, too. "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," the company’s statement said.

In a letter to SCO partners and customers posted on paralegal (and open- source advocate) Pamela Jones’ Groklaw blog, SCO CEO Darl McBride declined to concede defeat. "We continue to believe that when SCO paid more than $100 million dollars for the UNIX technology to Novell in 1995, we purchased everything," said McBride.

Nevertheless, industry watchers believe Kimball’s ruling amounts to the beginning of the end for SCO’s quixotic pursuit.

"Judge Kimball’s ruling, which firmly supported Novell’s ownership of the UNIX and UnixWare copyrights, quite simply eviscerated SCO’s hopes and dreams" in the view of industry veteran Charles King, a principal with consultancy Pund-IT.

Putting on a Brave Face

King isn’t buying SCO’s brave face routine, either. "The company posted a brave statement claiming that the court determined or did not dismiss a number of technical points in its favor," he points out. "SCO’s plans to ‘continue to explore our options’ sounded as hollowly optimistic as a conventioneer in Las Vegas who, upon [squandering] his life savings, declares how lucky he is that the pit boss let him keep his Fruit of the Looms and Rotary pin."

What is the upshot of Kimball’s ruling? In addition to recognizing Novell’s ownership of the Unix and Unixware copyrights, Kimball also ruled that "SCO is obligated to recognize Novell's waiver of SCO's claims against IBM and Sequent." That deals something of a blow to SCO’s multi-billion dollar lawsuit against Big Blue, King observes. What’s more, he says, the court ruled that SCO must pay Novell royalties from the licensing deals it inked with both Microsoft Corp. and Sun Microsystems Inc.

"As much as 95 percent of those fees, which total some $18.3 million, could be due to Novell," he points out. "However, since SCO has only a fraction of that amount on hand, it remains to be seen how much Novell will ever collect."

King doubts we’ve heard the last from SCO: after all, SCO and Novell are still scheduled to go to trial in late September—although at this point, it looks as if it will be SCO that’s on the defensive. (While Kimball rejected SCO’s "Slander of Title claim," he nevertheless allowed Novell’s Slander of Title counterclaim to go to trial.) King questions the degree to which SCO can afford to continue its litigiousness and still remain viable.

"Without the possibility of a legal pay day, how long will SCO be able to function as a commercial company? If it is headed for destruction, is a partnership or acquisition in SCO’s future, and if so, by who? How will SCO cope with owing potentially millions in licenses fees to Novell, and how far will Novell go in pursuing payment?" he asks. "As the SCO melodrama winds toward its sad if predictable dénouement, these are points we will be watching carefully."

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