SCO v. Novell was a United States lawsuit in which the software company The SCO Group (SCO), claimed ownership of the source code for the Unix operating system. SCO sought to have the court declare that SCO owned the rights to the Unix code, including the copyrights, and that Novell had committed slander of title by asserting a rival claim to ownership of the Unix copyrights. Separately, SCO was attempting to collect license fees from Linux end-users for Unix code (that they alleged was copied into Linux) through their SCOsource division, and Novell's rival ownership claim was a direct challenge to this initiative. Novell had been increasing their investments in and support of Linux at this time, and was opposed to SCO's attempts to collect license fees from Novell's potential customers.

The case hinged upon the interpretation of asset-transfer agreements governing Novell's sale of their Unix business to one of SCO's predecessor companies, the Santa Cruz Operation. The original APA explicitly excluded all copyrights from the assets transferred from Novell to the Santa Cruz Operation. The second amendment to the APA amended the agreement to exclude all copyrights, "except for the copyrights required for the Santa Cruz Operation to exercise its rights" under the APA. The list of included assets was never amended, which caused ambiguity years after the deal was signed. At trial, Novell successfully argued that they had retained copyrights to protect their 95% ownership of Unix SVRX royalties, and that the amendment to the exclusion clause was merely affirming that the Santa Cruz Operation had a license to the Unix code.

Novell counter-sued with their own duelling slander of title claim and several additional claims against SCO related to the APA and asked the Court to find that SCO had breached the agreements by signing Unix license agreements with Sun Microsystems and Microsoft without paying Novell the agreed percentage of those agreements. Novell further asked the court to find that Novell retained the right to direct SCO to waive rights under existing Unix licenses at "Novell's sole discretion", and that they had the right to take the action on SCO's behalf if SCO refused (a purported right that Novell had used repeatedly in the months leading up to the lawsuit to waive SCO's claims against IBM and others). Additional claims and counterclaims were added by the parties before resolution of the case.

Novell was found to be the owner of the Unix copyrights, to have the right to direct SCO to waive its claims against IBM and other Unix licensees (and to do so on behalf of SCO if they refused), and SCO was found to have breached the asset-transfer agreements and to have committed conversion of Novell's property. SCO prevailed on none of their claims against Novell.

Background

Novell, a vendor of proprietary network operating systems, acquired the rights to the original Unix source code when it purchased Unix System Laboratories from Unix's creator, AT&T Corporation, on June 14, 1993. Novell's rights to parts of the Unix source code were established as part of the settlement in USL v. BSDi.

On September 19, 1995, Novell entered into an Asset Purchase Agreement (APA) with the Santa Cruz Operation, a Unix vendor. The APA transferred certain rights regarding Unix, and Novell's UnixWare version of Unix, from Novell to the Santa Cruz Operation. These rights included the right to develop and market new versions of UnixWare, and the right to license SVRX (System V Release X) UNIX incidentally or with Novell's permission. It also required the Santa Cruz Operation to act as Novell's agent for the collection for certain royalties due under such licenses.

In 2000, Caldera Systems acquired the Server Software and Services divisions of the Santa Cruz Operation, as well as the UnixWare and OpenServer Unix technologies. Caldera Systems thus became the legal successor to the Santa Cruz Operation for the purposes of the APA. A year later Caldera Systems changed its name to Caldera International in 2001 and to The SCO Group (SCO) in 2002. Although the Santa Cruz Operation was colloquially known as "SCO", legally The SCO Group is a different company from the Santa Cruz Operation.

SCO goes on the offensive In 2003, SCO initiated a campaign to compel Linux users to pay them software license fees, claiming that unspecified SCO intellectual property had been improperly included in Linux. As part of this campaign, SCO made several statements that they were the owners of Unix, implying that they held the copyright for the original AT&T source code of Unix, and derivatives of that code. After SCO filed suit against IBM, claiming that IBM had violated SCO's copyrights to Unix, Novell publicly responded to these allegations.

Novell asserts it owns the copyrights On May 28, 2003, Novell issued a press release titled "Novell Challenges SCO Position, Reiterates Support for Linux" where they publicly challenged SCO's assertions that Unix code had been copied into Linux, or that SCO owned the Unix copyrights.

On June 6, 2003, SCO held a press conference in which it revealed a second amendment to the "asset purchase agreement between Novell and Santa Cruz Operation". SCO claimed this amendment supported its claim to the Unix copyrights. This amendment did not change the included assets list (which still did not list copyrights), but instead amended the excluded assets list to continue to exclude copyrights, except those "required" by SCO. In response, Novell issued a press release in which it stated:

While SCO publicly claimed victory, behind the scenes SCO and Novell traded a series of heated letters. In a flurry of private letters, Novell continued its claim that they still were the legal owner of the Unix copyrights, and exercised a series of rights under the APA over the following months (including issuing waivers of SCO's claims against certain parties, auditing SCO's collection of Unix SVRX royalties, demanding access to all versions of Unix code under SCO's control per the APA's related Technology License Agreement and issuing a cease and desist against SCO for seeking information from former Novell executives). The relationship between the companies quickly deteriorated.

On October 14, 2003, Novell registered several key Unix copyrights with the United States Copyright Office and submitted declarations for recordation against SCO's own Unix copyright registrations. These declarations stated: "The SCO Group, Inc. ... has failed ... to demonstrate that any of the Unix copyrights owned by Novell are required for SCO to exercise its rights..." and that "Novell hereby declares that it retains all or substantially all of the ownership of the copyrights in Unix, including [SCO's] U.S. Copyright Registration referenced above".

After the registrations became public knowledge, Novell issued a press release on December 22, 2003, stating:

On January 13, 2004, Novell announced that it was indemnifying Linux users, agreeing to protect them from lawsuits by third parties, like SCO, on the basis of violating the copyrights claimed by Novell. The same day, Novell released over 30 letters that SCO and Novell had exchanged in the previous months. SCO immediately responded with a press release reiterating its earlier claim, and announcing that it was preparing to file a lawsuit against Novell.

The lawsuit

Utah state court SCO filed a slander of title lawsuit against Novell on January 20, 2004. Filed in Utah state court, the lawsuit requested both preliminary and permanent injunctions assigning all of Novell's Unix copyright registrations to SCO and forcing Novell to retract all of their claims to the Unix code.

United States District Court for the District of Utah Novell removed the lawsuit to the Federal court system on February 6, 2004. This removal was upheld in the court's June 9 ruling.

On February 10, 2004, Novell filed a motion to dismiss the case. Novell requested dismissal for failure to state a claim upon which relief could be granted. Novell argued that:

SCO did not show a valid transfer of copyright ownership, because the Asset Purchase Agreement was merely a promise to assign under specific circumstances (SCO's demonstration that copyrights were "required" to exercise other rights under the contract), and that the Agreement is therefore—by law—not sufficient to transfer the copyrights to SCO; and SCO did not specify specific special damages required for such a claim.

In response, SCO filed several memoranda opposing Novell's motion to dismiss the case. Additionally, SCO filed a motion to remand the case back to State court. Novell countered that, because the case would hinge upon interpretation of federal copyright law, it should be tried in federal court.

On May 9, 2004, federal Judge Dale A. Kimball heard both parties' arguments and took both motions under advisement. Judge Kimball denied SCO's motion to remand and partially granted Novell's motion to dismiss on June 9, 2004, on a pleading technicality. The case was dismissed without prejudice, which allowed SCO to amend their complaint to include properly pleaded special damages.

Novell's countersuit On July 29, 2005, Novell filed a countersuit against SCO claiming slander of title, breach of contract, failure to remit royalties, and failure to conduct audit obligations. Novell sought damages in excess of SCO's net worth, and, as SCO was quickly burning through its assets and cash on hand, Novell asked the court to sequester this money from SCO so that it would not be spent before the resolution of the case. Novell also asked the court to attach SCO's assets pending adjudication of their claims. Novell accused SCO of licensing Unix System V Release 4 to Microsoft and Sun Microsystems without then sending Novell the 95% of the license fees as required by the APA.

In the counter-claim, Novell stated that SCO had asked Novell to participate in the SCO's Linux IP infringement licensing plan. When Novell refused, SCO asked Novell to turn the Unix copyrights over to SCO, a request Novell also refused.

SuSE arbitration SCO filed a second amended complaint on February 6, 2006, containing the original slander of title claim as well as several new claims, including unfair competition, copyright infringement (for Novell's distribution of SUSE Linux), and breaching a purported non-compete agreement (again, related to SUSE Linux).

On April 10, 2006, Novell's SuSE division (a European vendor of Linux operating systems) filed a request for arbitration against SCO with the Secretariat of the International Chamber of Commerce's International Court of Arbitration in Paris, France. Years earlier, while still known as Caldera International, SCO had signed contracts with then-independent SuSE, among others, involving the United Linux product. The United Linux members agreed that each member would have broad licenses to exploit and distribute Linux products that included United Linux technology. These agreements included clauses requiring the members to use an arbitration process to resolve disputes.

SuSE's arbitration request was a response to SCO's amended complaint against Novell. The arbitration process has relatively strict timelines, unlike the U.S. courts' procedures. Novell filed a Motion to Stay Claims Raising Issues Subject to Arbitration in the U.S. courts, saying that four of SCO's five claims had been brought to arbitration, including the claim of copyright infringement, and thus should be stayed until the arbitration tribunal rendered its decision. Novell also filed an Answer to SCO's 2nd Amended Complaint and Counterclaims, claiming a large number of affirmative defenses, including a claim that SCO committed fraud upon the U.S. copyright office.

Licensing agreements and Novell's motion for summary judgement