The lawyer who wrote the agreement by which Novell sold its Unix software business to Santa Cruz Operation in 1995 has blown a hole in the claims of SCO Group that it, and not Novell, is the rightful owner of the Unix copyrights.
According to a declaration by Tor Braham, who managed Novell’s external legal team at the time the deal was drawn up, the agreement did not transfer copyright ownership to SCO, and nor, from Novell’s perspective, was it ever intended to.
The declaration is potentially damaging to the legal claims of Lindon, Utah-based SCO Group, which acquired the UnixWare and System V business from Santa Cruz Operation in May 2000 before changing its name from Caldera.
It is not only central to SCO’s slander of title dispute with Novell for ownership of the copyrights, but also to SCO’s breach of contract and copyright case against IBM. Based on its belief that it owns the Unix copyrights, Novell has moved to absolve IBM of any wrongdoing.
Braham’s declaration also helps to explain how the companies have come to have such differing viewpoints about what the 1995 Asset Purchase Agreement was designed to achieve, and why the deal had such a complex structure.
While the deal saw Novell sell SCO its UnixWare product and Unix System V licensing businesses, Novell retained the right to receive royalty payments related to Unix System V licenses, approval rights over new and amended System V licenses, the right to instruct Santa Cruz to take certain actions related to System V licenses, and the right to audit license arrangements.
According to Braham, it was constructed that way because Santa Cruz did not have the cash to buy both the Unix assets that Novell had purchased from USL [Unix Systems Laboratories] in 1993 plus Novell’s UnixWare business and also because Santa Cruz’s financial health also raised serious concerns about Santa Cruz’s viability as a company.
Instead the deal enabled Santa Cruz to buy the UnixWare product business and also become an agent to administer the Unix System licensing arrangements on Novell’s behalf, with Novell retaining the right to direct Santa Cruz to take certain actions to protect its ongoing interests in SVRX.
Under the terms of the deal, all System V license royalties were to be passed on to Novell, with Santa Cruz taking a 5% administration fee. Those terms could also scupper SCO’s legal claims as Novell maintains that revenue from the Unix intellectual property licensing deals SCO has used to finance its legal claims should actually have been passed to Novell.
So why is SCO so convinced that it gained control of the Unix copyrights?
In a November 2004 declaration Steve Sabbath, who was Santa Cruz’s VP of law and corporate affairs at the time the deal was done, claimed that the parties intent and purpose in executing the APA was to transfer to Santa Cruz Novell’s entire Unix-related business, including all rights to Unix and UnixWare and the Unix copyrights.
While that might have been Santa Cruz’s intent, it was not Novell’s, according to Braham. During the negotiations, David Bradford [Novell’s then-SVP and general counsel] indicated to me that Novell was unwilling to transfer intellectual property rights in Unix and UnixWare, including patents and copyrights, he stated in his declaration.
According to Braham, while an early draft of a schedule of assets to be transferred to Santa Cruz had included patents, copyrights and trademarks, the final draft saw patents and copyrights specifically excluded from the list of assets to be transferred.
It will be for the court to decide whose assessment of the APA is correct, but Braham also provided copies of those early drafts to help the judge and/or jury make up its mind despite the agreement being almost 12 years old.
The complications do not end there, however, and the court also has the 1996 Amendment No 2 to the APA to contend with. SCO has also claimed that it is that amendment that transferred the copyrights to Santa Cruz.
Amendment No 2 was intended to confirm, among other things, the parties’ intent that SCO would obtain ownership of the Unix copyrights under the APA and that Novell had received no rights with respect to Unix source code under the APA, wrote Sabbath in his November 2004 declaration.
According to a recent declaration by Allison Amadia, Novell’s in-house corporate counsel who negotiated the amendment, however, Novell rejected Santa Cruz’s attempt to obtain ownership of the copyrights.
During the summer of 1996, Mr Sabbath telephoned me and raised an issues relating to the Unix and UnixWare copyrights, she stated. He wanted Novell to amend the original APA to explicitly give Santa Cruz rights to copyrights in Unix and UnixWare.
Novell rejected that request, according to Amadia, but did agree to affirm that Santa Cruz had a license under the original APA to use Novell’s Unix and UnixWare copyrighted works in its business.
The result of the negotiations was a somewhat vague and confusing statement that the original APA excluded 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…
Given the language involved it is perhaps understandable that there is confusion over what agreement did or did not cover. Judge Dale Kimball, who is hearing the case, has previously stated that: there is enough ambiguity in the language of Amendment 2 that… it is questionable whether [it] was meant to convey the required copyrights [to SCO].
But he has also twice rejected Novell’s request for a summary judgment that it retained the copyrights to Unix and UnixWare. The company is currently having another crack at getting SCO’s claims of slander of title tossed out, and using both Braham and Amadia’s declarations to support its case.
Quite how much confusion remains over the ownership of the Unix copyrights is evident from the declarations of Steve Sabbath. While he stated in November 2004 that the intent of the APA and Amendment No 2 was to transfer the copyrights to SCO, in another declaration from November 2003 he came to a different conclusion.
It is my understanding… that Plaintiff [SCO] claims to have acquired all right, title and interest in and to Unix System V operating systems source code, software and sublicensing agreements, together with copyrights, additional licensing rights in and to Unix System V, and claims against all parties breaching such agreements, he wrote.
I believe these claims are incorrect, he added. …in relation to the related agreements and amendment No 2, Novell retained certain rights under the Unix System V licensing agreements, as well as certain Unix System V intellectual property.