Judge to rule on SCO-Novell trial

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A four-day federal trial between The SCO Group and Novell Inc. over a long-standing dispute over Unix licensing fees came to a close on Friday in Salt Lake City.

Both parties are now awaiting a decision from U.S. District Judge Dale Kimball on how much is owed to Novell by Lindon-based SCO in royalty payments on Unix licenses collected from Sun Microsystems, Microsoft and 12 other Linux customers.

That verdict is a pivotal one for SCO because its bailout by Stephen Norris Capital Partners hinges on the outcome of the trial.

"The ruling does have an impact on the deal," said Darl McBride, SCO's CEO, on Friday. "Investors don't like uncertainty. They are excited about the substantial asset value of Unix, but they are also nervous about the outcome of the trial."

Norris and a group of Middle Eastern investors, who initially proposed a $100 million cash infusion to fund SCO's comeback, have since backed off that offer, and are now watching for the verdict to determine how to proceed. Instead of lending SCO $95 million to fund its ongoing litigation with Novell, IBM and others, Stephen Norris is now looking to buy SCO's assets outright as part of the new deal.

At the close of trial proceedings Friday, Kimball said he will get a decision out "without undue delay" because he is aware there are "critical" decisions pending.

In closing arguments presented Friday, Novell attorney Eric Acker argued that the Waltham, Mass.-based software developer is entitled to collect $19.9 million in restitution for what he calls "unjust enrichment" by SCO because it made those agreements with Sun, Microsoft and others without getting Novell's approval and allegedly refused to account for them.

SCO launched its so-called SCOsource program in 2003 as part of an effort to obtain license fees from Linux users of Unix software code -- an effort that has angered many in the Linux community who see it as SCO's attempts to misappropriate the contributions of the open-source movement. Novell also sees Sun and Microsoft's efforts to opensource their own version of Unix products, including OpenSolaris, as a violation of Novell's SVRX Unix intellectual property.

Novell argued that SVRX code, or the earlier versions of Unix, which Kimball ruled on Aug. 10 that Novell owns the copyrights to, are found in the license agreements SCO struck with Sun, Microsoft and the other Linux users. That, Novell alleges, constitutes a breach of a 1995 sale of the UnixWare business to SCO's predecessor, The Santa Cruz Operation. SCO acquired UnixWare from Santa Cruz in 2001.

But SCO attorney Stuart Singer disagreed.

In closing arguments on Friday, Singer argued SCO can enter into new SVRX licenses with Sun, Microsoft and the other 12 Linux customers if those agreements were "incidentally" licensed with the latest versions of Unix, or UnixWare, which he says belongs to SCO. UnixWare refers to a combination of Unix System V code and some components of Novell's NetWare code.

"Novell is confusing the value of the older SVRX copyrights with the value of the older SVRX products. We're not disputing that the older SVRX copyrights do belong to Novell and weren't transferred to SCO," he said. "We're saying the older SVRX products have virtually no value because they don't offer the improvements or hardware enhancements made to new processing systems."

SCO attorneys, during Friday's proceedings, argue they don't believe Novell is entitled to much, but they concede that if Judge Kimball rules in Novell's favor, then at most, Novell is only entitled to collect $700,000 in royalty payments on the Sun license and $1.25 million on the Microsoft license.

"Those figures are based on what the code sold for back in the '90s. That is a way to allocate fair value," Singer said.

Singer said Novell, which earlier this week gave up on collecting $7 million in royalties on the Microsoft license because it "represented SCO UnixWare royalties," said the company should do the same with the Sun license.

"There's undisputed testimony that Sun UnixWare rights are at least as valuable as those procured by Microsoft," Singer said.

But Novell's Acker challenged SCO's claims, describing SCOsource as a "licensing scheme of which litigation is a focal point."

"If this is about selling a licensing system, why do you need lawyers?" he asked. "There's no question that this is not a routine software license. This is a licensing campaign to get money from Linux users. Get a license or get sued -- that's the focus of SCOsource. It was in this context that the SCO and Sun agreement was struck."

"SVRX was not merely 'incidental' to some UnixWare license -- it was at the heart of the SCOsource licenses," Novell said in court documents. "SCO has, in the past, contended that because the emphasis of the other SCOsource licenses is 'the avoidance of litigation with SCO,' these agreements are not SVRX licenses. Furthermore, the court has held that licenses granting SVRX rights are SVRX licenses."

For the past five years, SCO waged a legal battle against IBM, Novell and other advocates of the freely distributed Linux operating system, claiming that it owned the copyrights to Unix. SCO also claimed IBM violated the confidentiality of its copyrights when it took code from Unix and put it into the freely distributed Linux operating system.

SCO was dealt a massive legal setback after federal Judge Kimball last August found that Novell, not SCO, owns the intellectual property rights to the Unix code.

That August ruling, which SCO says it intends to appeal regardless of the outcome of the trial, undermined SCO's claims that IBM stole code from Unix and put it into Linux, as well as SCO's attempts to force hundreds of Linux users to pay licensing fees.

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