Here's Novell's Answer and Counterclaims [PDF], as text, those ninjas. Our thanks to AJ, Jordan, Steve Martin, and feldegast for the text and HTML. You'll find a lengthy discussion of this filing here. One thing I'll add, some quick first impressions from Marbux:
In counterclaim paragraph 27, the word "conceded" signals that Novell will argue that the copyright ownership must be resolved as a matter of law. If they viewed it as turning on an issue of fact, they would have used the word, "admitted." See also paragraph 39, where Novell used the word "acknowledged."
Beginning at para. 50: The counterclaim portions of the answer raise major questions as to the validity of the rights Sun and Microsoft acquired from SCO. So is OpenSolaris free from Novell claims? And what of Microsoft's plans to develop a Unix emulation layer for Longhorn using the rights it obtained from SCO? See also para. 67-73, 93, 116. These paragraphs obviously create a SCO right to raise an affirmative defense of failure to name indispensable parties. But also a right of Novell to implead Sun and Microsoft as third party defendants. But would either of them do that? Might the judge, sua sponte?
Para. 54 is kind of comical to me. Novell very carefully avoids using the word "false," substituting instead the word "unsupported." That makes an enormous difference in what Novell is required to prove.
The last sentence of para. 56 will be stricken before trial. It's just there to remind Kimball of his prior ruling and to get in a little dig at the SCO lawyers. I doubt a judge would let a jury hear that sentence.
Constructive trust, paras. 108-110, again in 126. Attachment of assets pendente lite. That means in effect a motion to put SCO in bankruptcy, coming very soon. Or the threat of one.
Over all: Very strong complaint. Probably more than SCO lawyers anticipated. The biggest news in the answer? The attachment of assets pending judgment is the big sword now dangling over SCO's head. As you can see, anyone who tells you it will be years before anything happens is incorrect. Asking for a preliminary injunction means we'll see some action soon. It's the first preliminary injunction anyone has asked for in this SCO litigation. You have to feel very confident of your position to ask for a preliminary injunction, because the standard required to grant one is much than that required at trial.
So, at last, a straight-up, flat-out copyright ownership claim that SCO can no longer avoid. They will live or die on how they respond. Novell's contract claims are very powerful. There may be an issue over who owns the copyrights, but there is no issue that I know of over SCO's obligations under the contract, obligations Novell is accusing them of failing to fulfill. That is a nice way to put it. The strong way to put it, as I understand it, would be to say Novell is accusing SCO of a crime, the crime of embezzlement, by pocketing the revenues and not sending them along to Novell, as per the contract. SCO could argue that the Microsoft and Sun deals were not the type the contract was talking about, I suppose, but Chris Sontag already characterized the Microsoft license, back in 2003, as "a standard, straight-up Unix licensing agreement, like many we've done in the past." I am eagerly looking forward to seeing SCO's response. I also can't help noticing in paragraph 41 that Novell accuses SCO of filing misleading information with the SEC. I believe we learned that securities matters are a speciality of Novell's new litigator, Kenneth Brakebill. I don't think it's an exaggeration to say that all those millions SCO pays its lawyers have to be earned right now, and just when SCO is running out of money, too.
*****************************
MORRISON & FOERSTER LLP
Michael A. Jacobs (pro hac vice)
Kenneth W. Brakebill (pro hac vice)
[Address]
[Phone]
[Fax]
ANDERSON & KARRENBERG
Thomas R. Karrenberg, #3726
John P. Mullen, #4097
Heather M. Sneddon, #9520
[Address]
[Phone]
[Fax]
Attorneys for Defendant Novell, Inc.
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
THE SCO GROUP, INC., a Delaware corporation,
Plaintiff,
vs.
NOVELL, INC., a Delaware corporation,
Defendant.
|
NOVELL, INC.'S ANSWER AND COUNTERCLAIMS
(Jury Trial Demanded)
Case No. 2:04CV00139
Judge Dale A. Kimball
|
1
ANSWER
In response to Plaintiff The SCO Group, Inc.'s
("SCO") Amended Complaint filed July 9, 2004, Defendant Novell,
Inc. ("Novell") pleads as follows:
1. Novell admits that it entered into an Asset Purchase
Agreement with SCO's alleged predecessor in interest dated
September 19, 1995. Each and every other allegation in paragraph 1
is denied.
2. Novell admits that Attachment E to the Asset Purchase
Agreement provided a list of approximately 106 copyright
registrations. Novell denies that Attachment E, alone or in
connection with the Asset Purchase Agreement, transferred any UNIX
or UnixWare copyrights to SCO. Each and every other allegation in
paragraph 2 is denied.
3. Novell admits that SCO has registered a claim to UNIX and
UnixWare copyrights with the United States Copyright Office. Each
and every other allegation in paragraph 3 is denied.
4. Novell admits that Novell has registered its claim to UNIX
and UnixWare copyrights with the United States Copyright Office.
Each and every other allegation in paragraph 4 is denied.
5. Novell admits that it has, in good faith, publicly stated its
belief that it owns UNIX and UnixWare copyrights. Each and every
other allegation in paragraph 5 is denied.
6. Denied.
7. Denied.
8. Novell denies that SCO is entitled to any relief under its
Amended Complaint, and in each and every allegation in paragraph 8
is therefore denied.
9. Admitted.
2
10. Admitted.
11. Admitted.
12. Admitted.
13. Admitted.
14. Novell admits that Schedule 1.1(a) to the Asset Purchase
Agreement contains substantially the text quoted by the Amended
Complaint. (SCO's Amended Complaint contains a typographical error,
however: the first sentence of the quoted text actually reads "all
versions of UNIX and UnixWare and all copies of UNIX and UnixWare.)
Novell denies that this text acted to transfer UNIX or UnixWare
copyrights to SCO. Each and every other allegation in paragraph 14
is denied.
15. Denied.
16. Denied
17. Denied.
18. Denied.
19. Novell denies that it has made any false oath, misleading
public representation, or wrongful assertion of ownership rights,
and on that basis denies each and every allegation in paragraph 19,
except as set forth below:
a) Novell admits that on May 28, 2003 Jack Messman sent a letter
to Darl McBride of SCO in order to assert Novell's claim to the
UNIX and UnixWare copyrights and to protect Novell's interests and
the interests of its customers. This letter contained the following
text:
Importantly, and contrary to SCO's assertions, SCO is not the
owner of the UNIX copyrights. Not only would a quick check of U.S.
Copyright Office records reveal this fact, but
3
a review of the asset transfer agreement between Novell and SCO
confirms it. To Novell's knowledge, the 1995 agreement governing
SCO's purchase of UNIX from Novell does not convey to SCO the
associated copyrights. We believe it unlikely that SCO can
demonstrate that it has any ownership interest whatsoever in those
copyrights. Apparently, you share this view, since over the last
few months you have repeatedly asked Novell to transfer the
copyrights to SCO, requests that Novell has rejected. Finally, we
find it telling that SCO failed to assert a claim for copyright or
patent infringement against IBM.
. . .
[We] demand that SCO retract its false and unsupported
assertions of ownership in UNIX patents and copyrights or provide
us with conclusive information regarding SCO' s ownership
claims.
On January 13, 2004, Novell made a copy of this letter available on
its website at http://www.novell.com/licensing/indemnity/legal.html.
Novell is without further knowledge as to details of other
publication and therefore denies each and every allegation related
thereto. Each and every other allegation in paragraph 19(a) is
denied.
b) Novell admits that on June 6, 2003, SCO sent Novell a letter
pertaining to Amendment 2 and the Asset Purchase Agreement. Each
and every other allegation in paragraph 19(b) is denied.
c) Novell admits that on June 6, 2003, it issued a press release
containing the following text:
In a May 28th letter to SCO, Novell challenged SCO's claims to
UNIX patent and copyright ownership and demanded that SCO
substantiate its allegations that Linux infringes SCO's
intellectual property rights. Amendment #2 to the 1995 SCO-Novell
Asset Purchase Agreement was sent to Novell last night by SCO. To
Novell's knowledge,
4
this amendment is not present in Novell's files. The amendment
appears to support SCO's claim that ownership of certain copyrights
for UNIX did transfer to SCO in 1996. The amendment does not
address ownership of patents, however, which clearly remain with
Novell.
Each and every other allegation in paragraph 19(c) is denied.
d) Responding to a threat by SCO to sue Novell for federal
securities fraud conveyed in SCO's June 6, 2003 letter, Novell
admits that Joseph LaSala sent a letter to Darl McBride on June 6,
2003, containing the following text:
Your letter contains absurd and unfounded accusations against
Novell and others, coupled with a veiled threat to publicly state
those allegations in a SCO press call to be held today at 11 :00 am
EST. Novell continues to demand that SCO cease and desist its
practice of making unsubstantiated allegations, including the
allegations . contained in your letter of June 6, 2003.
Each and every other allegation in paragraph 19(d) is denied.
e) Responding to a subsequent press release issued by SCO,
Novell admits that Joseph LaSala sent a letter to Darl McBride on
June 26, 2003, containing the following text:
SCO's statements [claiming to own "the patents, copyrights, and
core technology associated with the UNIX system"] are simply wrong.
We acknowledge, as noted in our June 6 public statement, that
Amendment No. 2 to the Asset Purchase Agreement appears to support
a claim that Santa Cruz Operation had the right to acquire some
copyrights from Novell. Upon closer scrutiny, however, Amendment
No. 2 raises as many questions as it answers. Indeed, what is most
certainly not the case is that "any question of whether UNIX
copyrights were transferred to SCO as part of the Asset Purchase
Agreement was clarified in Amendment No. 2" (as SCO stated in its
June 6 press release). And there is no indication whatsoever that
SCO owns all the patents associated with UNIX or UnixWare.
5
We are still reviewing the Asset Purchase Agreement and other
materials to determine the actual scope of rights transferred to
SCO. In the meantime, we wish to make clear that we do not agree
with SCO's public statement on this matter.
Each and every other allegation in paragraph 19(e) is denied.
f) SCO subsequently registered claims to the UNIX and UnixWare
copyrights with the United States Copyright Office. Responding to
that registration, Novell admits that Joseph LaSala sent a letter
to Darl McBride on August 4, 2003, containing the following
text:
We dispute SCO's claim to ownership of these copyrights. The
Asset Purchase Agreement, in Schedule 1.1 (b), contains a general
exclusion of copyrights from the assets transferred to Santa Cruz
Operation. Amendment No. 2 provides an exception to that exclusion,
but only for "copyrights.. .required for [Santa Cruz Operation] to
exercise its rights with respect to the acquisition of UNIX and
UnixWare technologies."
In other words, under the Asset Purchase Agreement and Amendment
No. 2, copyrights were not transferred to Santa Cruz Operation
unless SCO could demonstrate that such a right was "required for
[Santa Cruz Operation]" to exercise the rights granted to it in the
APA. Santa Cruz Operation has never made such a demonstration, and
we certainly see no reason why Santa Cruz Operation would have
needed ownership of copyrights in UNIX System V in order to
exercise the limited rights granted SCO under the APA. Nor is there
any reason to think that a transfer of the copyrights required for
SCO to exercise its APA rights necessarily entails transfer of the
entire set of exclusive rights associated with a particular
copyrighted computer program.
Unless and until SCO is able to establish that some particular
copyright right is "required" for SCO to exercise its rights under
the APA, SCO's claim to ownership of any copyrights in UNIX
technologies must be rejected, and ownership of such rights instead
remains with Novell.
6
Each and every other allegation in paragraph 19(f) is
denied.
g) Responding to SCO's copyright registrations, Novell admits
that it has registered its claim to the UNIX and UnixWare
copyrights enumerated in paragraph 19(g). Each and every other
allegation in paragraph 19(g) is denied.
h) Admitted.
i) In response to a public claim by SCO that Novell had conceded
the superiority of SCO's claim to the UNIX and UnixWare copyrights,
Novell admits it issued a press release on December 22, 2003,
containing the following text:
Novell believes it owns the copyrights in UNIX, and has applied
for and received copyright registrations pertaining to UNIX
consistent with that position. Novell detailed the basis for its
ownership position in correspondence with SCO. Copies of our
correspondence, and SCO's reply, are available here. Contrary to
SCO's public statements, as demonstrated by this correspondence,
SCO has been well aware that Novell continues to assert ownership
of the UNIX copyrights.
Each and every other allegation in paragraph 19(i) is denied.
j) On January 13, 2004 Novell announced a Linux Indemnification
Program. In connection with this offer, Novell issued a press
release clarifying its beliefs as to its legal rights concerning
the UNIX and UnixWare copyrights. The press release contained the
following:
Novell also made available today additional information on the
unique contractual and intellectual property rights it holds
because of its position in the historical ownership chain of UNIX
and UnixWare. These rights include:
-
Novell's rights to license UNIX technology pursuant to a
Technology License Agreement between SCO and Novell, including
Novell's right
7
to authorize its customers to use that UNIX technology in their
internal business operations.
-
Novell's rights to take action on behalf of SCO under legacy
UNIX SVRX licenses pursuant to the Asset Purchase Agreement between
SCO and Novell.
-
As previously confirmed by Novell, copyright registrations on
UNIX SVRX releases, consistent with Novell's position that it
retained ownership of these copyrights.
Copies of relevant correspondence between Novell and SCO are
available at http://www.novell.com/licensing/indemnity/legal.html.
The rights reflected in these documents are part of the foundation
for the indemnification program Novell is announcing
today.
Each and every other allegation in paragraph 19(i) is denied.
k) Admitted.
20. Denied.
21. Novell denies that it has made any wrongful claims of
copyrights and ownership in UNIX and UnixWare and that SCO is
entitled to any relief under its Amended Complaint, and each and
every allegation in paragraph 21 is therefore denied.
22. Novell incorporates by reference the answers contained in
paragraphs 1 - 21 as if they were set forth here in full.
23. Denied.
24. Denied.
25. Denied.
26. Denied.
27. Denied.
8
28. Denied.
AFFIRMATIVE DEFENSES
29. Novell also hereby asserts the following separate defenses
to the Amended Complaint, and each of its purported causes of
action, without assuming any burden of proof on such defenses that
would otherwise rest with SCO:
FIRST AFFIRMATIVE DEFENSE
(Privilege)
30. The Amended Complaint, and each of its purported causes of
action, is barred due to absolute and conditional privileges
enjoyed by Novell.
SECOND AFFIRMATIVE DEFENSE
(Estoppel)
31. The Amended Complaint, and each of its purported causes of
action, is barred, in whole or in part, by the equitable doctrine
of estoppel.
THIRD AFFIRMATIVE DEFENSE
(Unclean Hands)
32. The Amended Complaint, and each of its purported causes of
action, is barred, in whole or in part, by the doctrine of unclean
hands.
FOURTH AFFIRMATIVE DEFENSE
(Laches)
33. The Amended Complaint, and each of its purported causes of
action, is barred, in whole or in part, by the doctrine of
laches.
FIFTH AFFIRMATIVE DEFENSE
(Comparative Fault)
34. To the extent that SCO did sustain any damages, which Novell
denies, such damages were caused, in whole or in part, by the
comparative fault of SCO and/or third parties,
9
which thus bars SCO's recovery for said damages or diminishes
such recovery by the amount of fault attributable to SCO and/or
those third parties.
SIXTH AFFIRMATIVE DEFENSE
(Failure to Mitigate)
35. To the extent that SCO did sustain any damages, which Novell
denies, such damages were caused, in whole or in part, by SCO's
failure to mitigate any damages it may have suffered, which failure
to mitigate bars and/or diminishes SCO's right to any relief
against Novell.
SEVENTH AFFIRMATIVE DEFENSE
(No Causation)
36. To the extent SCO has suffered any injury or damage, which
Novell denies, such injury or damage was not proximately caused by
any conduct or inaction of Novell, or was not foreseeable, or
both.
EIGHTH AFFIRMATIVE DEFENSE
(U.S. Const. Amend. I)
37. The Amended Complaint, and each of the purported causes of
action, is barred, in whole or in part, by the First Amendment to
the United States Constitution.
WHEREFORE, Novell prays for judgment as follows:
38. That SCO take nothing by the Amended Complaint;
39. That the Court enter judgment in favor of Novell and against
SCO, dismissing with prejudice the Amended Complaint and each of
its causes of action;
40. That the Court award Novell its reasonable expenses and
costs incurred, including without limitation attorneys' fees, in
defending against the Amended Complaint; and
10
41. That the Court grant Novell such other and further relief to
which Novell may be entitled as a matter of law or which the Court
deems just and proper.
COUNTERCLAIMS
Novell counterclaims against SCO as follows:
PARTIES
1. Counterclaim-plaintiff Novell, Inc. ("Novell") is a Delaware
corporation that was incorporated in 1983. Its headquarters and
principal executive offices are located in Waltham, Massachusetts.
Novell's principal product development facility is located in
Provo, Utah. Novell also has offices in numerous cities
worldwide.
2. Counterclaim-defendant The SCO Group, Inc. ("SCO) is a
Delaware corporation with its principal place of business in Utah
County, State of Utah.
JURISDICTION
3. This Court has original jurisdiction over SCO's Amended
Complaint pursuant to 28 U.S.C. §§ 1331 and 1338(a).
4. This Court has jurisdiction over Novell's counterclaims
pursuant to 28 U.S.C. § 1331 (federal question), 28 U.S.C.
§ 1338(a) (arising under the Federal Copyright Act), 28 U.S.C.
§ 1367(a) (supplemental jurisdiction) and 28 U.S.C.
§§ 2201(a) and 2202 (declaratory judgment). Novell's
slander of title claim involves questions of, and arises under,
federal law. This Court has supplemental jurisdiction over Novell's
state law claims of breach of contract, accounting, restitution and
slander of title.
11
VENUE
5. Venue is proper in this judicial district pursuant to 28
U.S.C. §§ 1391(b), 1391(c) and 1400(a), in that SCO
resides or may be found in this district and is subject to personal
jurisdiction in this district.
FACTS
A. UNIX
6. UNIX is the name of a computer operating system originally
developed beginning in the late 1960s by a group of software
engineers at AT&T's Bell Laboratories. Over time, AT&T
licensed its UNIX family of operating systems to universities,
corporations, other entities and individuals.
7. In 1993 AT&T sold its UNIX assets, held by its subsidiary
UNIX System Laboratories ("USL"), to Novell. This transfer of
assets to Novell included UNIX copyrights, trademarks and all
active UNIX licensing agreements, including contracts relating to
the most recent version of the UNIX operating system called UNIX
System V. At the time there had been several major releases of
System V, including Releases 1, 2, 3 and 4, also referred to as
SVR1, SVR2, SVR3 and SVR4, or generically as SVRX.
B. Linux
8. Linux is the name of a computer operating system, originally
developed beginning in the early 1990s when Linus Torvalds, an
undergraduate student at the University of Helsinki, began writing
the Linux kernel, or the core of the Linux operating system. He
released the first version of the Linux kernel on the Internet in
1991. Since then, thousands of software programmers around the
world have engaged in a collaborative effort to further develop
Linux.
12
9. Linux was developed as open-source software and has become a
popular alternative to proprietary operating systems. Unlike with
other major operating systems, the underlying source code of Linux
is available to the public.
C. The Asset Purchase Agreement Between Novell and The Santa
Cruz Operation, Inc.
10. In 1995, Novell and a company called The Santa Cruz
Operation, Inc. ("Santa Cruz") entered into negotiations over the
sale of certain business assets of Novell relating to its UNIX and
UnixWare software products.
11. Santa Cruz was a California corporation that was
incorporated in 1979. It was founded as a UNIX system porting and
consulting company and began to ship its first product, a packaged
version of the UNIX operating system, in 1983. In 1993 Santa Cruz
completed an initial public offering and became a publicly-listed
company on the NASDAQ Stock Exchange.
12. On September 19, 1995, Novell and Santa Cruz executed an
Asset Purchase Agreement ("APA"). The APA provided each party with
certain rights and obligations.
13. The parties entered into two Amendments to the APA. On
December 6, 1995, Novell and Santa Cruz executed "Amendment No. 1
." Novell and Santa Cruz subsequently executed "Amendment No. 2" on.
October 16, 1996.
14. Under the APA and its Amendments, and subject to various
conditions and exclusions set forth therein, Santa Cruz obtained a
variety of assets, including assignment of tens of thousands of
contracts and licenses, various trademarks, source code and
binaries to UNIX and UnixWare products, and physical assets such as
furniture and personal computers. The obtained assets also included
the right for Santa Cruz to develop a "Merged Product."
15. Santa Cruz did not have the financial capacity to pay the
purchase price contemplated by Novell for these acquired assets and
rights. In order to bridge the price gap and
13
consummate the transaction, Novell and Santa Cruz agreed that
Novell would receive Santa Cruz stock and retain certain rights as
protection. For example (and as discussed further below), Novell
retained the right to receive royalty payments under SVRX licenses,
prior approval rights relating to new SVRX licenses and amended
SVRX licenses, the right to direct Santa Cruz to take certain
actions relating to SVRX licenses and the right to conduct audits
of the SVRX license program. Santa Cruz assumed several related
obligations.
16. One such obligation that Santa Cruz assumed under the APA
was responsibility for administering the collection of royalty
payments from SVRX licenses. The APA provided that Santa Cruz shall
collect and pass through to Novell 100% of the SVRX royalties. In
return, Novell agreed to pay Santa Cruz an administrative fee of 5%
of those royalty amounts. Santa Cruz also agreed to pay additional
royalties relating to other products.
17. Novell retained certain assets under the APA. Schedule 1.1
(b), which lists "Excluded Assets" under the agreement, specifies
that Novell retained "all copyrights and trademarks, except for the
trademarks UNIX and UnixWare," "all patents," and "all right, title
and interest to the SVRX Royalties, less the 5% fee for
administering the collection thereof."
18. Novell also retained rights to supervise Santa Cruz's
administration of SVRX licenses. Novell retained the "sole
discretion" to direct Santa Cruz to amend, supplement, modify,
waive or assign any rights under or to the SVRX licenses; if Santa
Cruz fails to take any such action, the APA specifically granted
Novell the right to take these actions on behalf of Santa Cruz.
Novell retained the right to veto Santa Cruz's attempts to amend
SVRX licenses, subject to two exceptions, as noted below. Novell
also retained the right to veto Santa Cruz's' attempts to enter
into new SVRX licenses, subject to one exception, as noted
below.
14
19. The APA gave Novell the right to confirm Santa Cruz's
compliance with its contractual obligations under the SVRX
licensing program. The APA explicitly provided that Novell "shall
be entitled to conduct periodic audits" of Santa Cruz "concerning
all royalties and payments due to Seller hereunder or under the
SVRX Licenses." The APA required Santa Cruz to "diligently seek to
collect all such royalties, funds and other amounts when due" and
to "investigate and perform appropriate auditing and enforcement."
The APA also required Santa Cruz to provide Novell monthly reports
detailing the SVRX royalties it received.
20. Novell and Santa Cruz were the only parties to the APA and
its Amendments. SCO was not a party to the APA or its Amendments.
SCO was originally incorporated on August 21, 1998 as a company
called Caldera Systems, a developer and provider of Linux-based
business solutions. SCO purports to be the successor in interest to
Santa Cruz under the APA and its Amendments. This dispute is about
Novell's rights under the APA and whether SCO breached its
obligations as the alleged successor of Santa Cruz.
D. Novell's Ownership of the UNIX Copyrights
21. The APA transferred certain assets from Novell to Santa
Cruz. However, as specified by Section V.A of Schedule 1.1 (b) to
the APA, certain assets were excluded from the transfer. Among the
"Excluded Assets" from the APA asset transfer were "[a]ll
copyrights and trademarks, except for the trademarks UNIX and
UnixWare."
22. The APA as executed on September 19, 1995 therefore does not
transfer any copyrights.
23. Novell and Santa Cruz later executed Amendment No. 2 to the
APA. Amendment No, 2 modifies Section V.A of Schedule 1.1 (b) to
provide that Excluded Assets include:
15
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.
24. Neither Amendment No. 2 nor the APA as modified by Amendment
No. 2 were intended to, nor do they actually, transfer ownership of
the UNIX or UnixWare copyrights owned by Novell at the time of the
APA and its Amendments ("UNIX Copyrights").
25. Neither Amendment No. 2 nor the APA as modified by Amendment
No. 2 qualify as "an instrument of conveyance, or a note or
memorandum of the transfer" under 17 U.S.C. § 204(a) for at
least the following reasons:
a. Amendment No. 2 merely amends the schedule of excluded assets
and therefore does not, itself, constitute a transfer of any
asset.
b. Neither Amendment No. 2 nor the modified APA identifies "the
copyrights and trademarks owned by Novell] as of the date of the
Agreement required for Santa Cruz to exercise its rights with
respect to the acquisition of UNIX and UnixWare technologies."
c. Neither Amendment No. 2 nor the modified APA contains any
language suggesting a contemporaneous transfer of any copyright. To
the contrary, the APA provides only that certain assets "will" be
transferred.
d. Neither Amendment No. 2 nor the modified APA provides a date
for any purported transfer of copyrights.
26. Title to the UNIX Copyrights therefore remains with
Novell.
16
27. By and during early 2003, SCO repeatedly asked Novell to
transfer the UNIX Copyrights to SCO. In doing so, SCO conceded that
title to the UNIX Copyrights remains exclusively with Novell.
Novell rejected all of SCO's requests.
E. The Sale of Certain Santa Cruz Assets to Caldera
Systems
28. During the second quarter of its fiscal year 2000, Santa
Cruz restructured its business into three divisions: the Server
Software division, the Professional Services division and the
Tarantella division. The Server Software division included Santa
Cruz's UNIX-related business.
29. On August 1, 2000, Santa Cruz entered into an agreement with
Caldera Systems, under which Caldera Systems acquired Santa Cruz's
Server Software and Professional Services divisions. With the
acquisition, Caldera Systems planned to add Santa Cruz's UNIX
server solutions and services to its Linux business.
30. On May 7, 2001, pursuant to an amendment to the agreement
between Santa Cruz and Caldera Systems, Caldera International
("Caldera") was formed as a holding company to own Caldera Systems,
including the assets, liabilities and operations of Santa Cruz's
Server Software and Professional Services divisions.
F. Caldera's Financial Woes and Its Shift in Business
Strategy Under New Leadership
31. Prior to Caldera's acquisition of Santa Cruz's Server
Software and Professional Services divisions, substantially all of
Caldera's revenue was derived from sales of Linux products and
services. However, Caldera had been unsuccessful in creating a
profitable Linux business.
32. After the acquisition of Santa Cruz's Server Software and
Professional Services divisions, most of Caldera's revenue came
from UNIX products and services, including 90% of
17
Caldera's total revenue at the end of fiscal year 2001 and 95%
of Caldera's total revenue at the end of fiscal year 2002. But
Caldera's revenue from the sale of UNIX-based products declined in
the fiscal quarters following the acquisition. Caldera experienced
significant decreases in actual and forecasted revenue of the
acquired Santa Cruz operations.
33. Caldera incurred significant financial losses during its
fiscal years 2000, 2001 and 2002. Caldera suffered losses from
operations totaling $32 million in 2000, $133 million in 2001 and
$24 million in 2002.
34. In June 2002, Caldera hired Darl McBride as its President
and Chief Executive Officer. Mr. McBride was responsible for the
company's strategic direction and planning.
35. On our about the time of Mr. McBride's arrival at Caldera,
Caldera began to pursue a new business strategy for the company,
launching a rebranding effort of its products and services as well
as its corporate image.
36. On August 26, 2002, Caldera announced that it would change
its name to The SCO Group, Inc. ("SCO"), pending shareholder
approval. On or about that time, Caldera then began doing business
as SCO. Caldera soon thereafter changed its trading symbol on the
NASDAQ Stock Exchange from "CALD" to "SCOX." Caldera's name change
was formalized on May 16, 2003, when Caldera's shareholders
approved an amendment to Caldera's certificate of incorporation
that changed the company's name to SCO.
37. As part of Caldera's rebranding efforts and shift in
business strategy, Caldera purportedly initiated a review of its
intellectual property rights. This effort culminated in the
launching of a licensing initiative, which it called SCOsource, in
January 2003. SCOsource, as described in further detail below, was
an effort by Caldera to expand the revenue base of a company that
had never before been profitable.
18
G. SCO's Requests to Novell To Assist in a Licensing Scheme
and To Transfer the UNIX Copyrights
38. In late 2002, SCO repeatedly contacted Novell in connection
with SCO's soon-to-be- announced SCOsource campaign. SCO requested
copies of certain documentation concerning rights to UNIX,
including the agreement between Novell and Santa Cruz. SCO also
expressed its interest in a campaign to assert UNIX infringement
claims against users of Linux. SCO asked Novell to assist SCO in a
Linux licensing program, under which SCO contemplated extracting a
license fee from Linux end users to use the UNIX intellectual
property purportedly contained in Linux. Novell refused to
participate.
39. In aid of its scheme, SCO requested that Novell transfer its
UNIX Copyrights to SCO and thereby acknowledged that it did not own
the UNIX Copyrights. SCO contacted Novell on multiple occasions by
and during early 2003. For example, SCO's CEO, Darl McBride,
repeatedly contacted Novell and asked Novell to amend the
Novell-Santa Cruz agreement to give SCO the UNIX Copyrights. Novell
rejected all of these requests.
H. SCO's Scheme To Claim Ownership of the UNIX
Copyrights
40. Notwithstanding Novell's rejections, SCO embarked on an
aggressive campaign in which it falsely asserted ownership over
these same copyrights via public statements, a series of letters to
Linux end users, several lawsuits against Linux distributors and
end users, and a licensing program purporting to offer SCO's
Intellectual Property Licenses for Linux.
41. SCO's misleading and wrongful public assertions of ownership
include the following:
a. On March 7, 2003, SCO stated in a press release, "In 1995,
SCO purchased the rights and ownership of UNIX and UnixWare that
had been
19
originally owned by AT&T. This included source code, source
documentation, software development contracts, licenses and other
intellectual property that pertained to UNIX-related business. . .
. 'SCO is in the enviable position of owning the UNIX operating.
system,' said Darl McBride, president and CEO, SCO."
b. On May 14, 2003, SCO stated in a press release, "[SCO], the
owner of the UNIX operating system, today warned that Linux is an
unauthorized derivative of UNIX and that legal liability for the
use of Linux may extend to commercial users."
c. On June 6, 2003, SCO stated in a press release, "[SCO], the
owner of the UNIX© operating system, today confirmed its
previously stated ownership of UNIX copyrights. As SCO has
consistently maintained, all rights to the UNIX and Unix-Ware
technology, including the copyrights, were transferred to SCO as
part of the Asset Purchase Agreement between Novell and SCO dated
September 19, 1995. Any question of whether the UNIX copyrights
were transferred to SCO under the Asset Purchase Agreement was
clarified in Amendment No. 2 to the Asset Purchase Agreement dated
October 16, 1996.
'This amendment simply confirms SCO's long stated position that
it owns all copyrights associated with the UNIX and UnixWare
businesses,' said Chris Sontag, senior vice president and general
manager, SCOsource intellectual property division, SCO.
. . .
20
'SCO is the owner of the UNIX operating system, as well as all
of the UNIX contracts, claims and copyrights necessary to conduct
that business,' said Sontag. 'None of the litigation we are
currently involved with asserts claims based on copyrights. Because
others have called into question SCO's ownership of the UNIX and
UnixWare copyrights, we are satisfied that we have now proven
without a doubt that SCO owns those copyrights. "'
d. During at least June and July, 2003, SCO wrongfully
registered copyrights in UNIX and UnixWare releases owned by
Novell. These registrations related to UNIX System V release 3.0,
UNIX System V release 3.1, UNIX System V release 3.2, UNIX System V
release 3.21386, UNIX System V release 4.0, UNIX System V release
4.1, UNIX System V release 4.lES, UNIX System V release 4.2, UNIX
System V release 4.2MP, and UnixWare 7.1.3.
e. On January 13, 2004, SCO stated, "[SCO] today reiterated its
ownership of UNIX intellectual property, source code, claims and
copyrights and has made all of the documents surrounding the
companies' ownership of UNIX and UnixWare available for public
viewing at www.sco.com/novell."
f. On January 28, 2004, in its Form 10-K filed with the United
States Securities and Exchange Commission, SCO stated, "We own the
UNIX operating system and are a provider of UNIX-based products and
services.
. . .
21
We acquired our rights to the UNIX source code and derivative
works and other intellectual property rights when we purchased
substantially all of the assets and operations of the server and
professional services groups of The Santa Cruz Operation, Inc., in
May 2001. The Santa Cruz Operation (now known as Tarantella, Inc.)
had previously acquired such UNIX source code and other
intellectual property rights from Novell in September 1995, which
were initially developed by AT&T Bell Labs. Through this
process, we acquired all UNIX source code, source code license
agreements with thousands of UNIX vendors, all UNIX copyrights, all
claims for violation of the above mentioned UNIX licenses and
copyrights and other claims, and the control over UNIX derivative
works . . . ."
42. As part of SCO's scheme to claim ownership of the UNIX
copyrights, SCO has falsely claimed that Novell acquiesced to SCO's
claims. For example, on July 21, 2003, Darl McBride stated in a
public interview:
Interviewer: |
Well, Novell would say that you actually
don't own those copyrights fully. |
McBride: |
Yeah, well, the Novell thing, they, they
came out and made a claim that held up for
about four days and then we put that one to
bed. If you go talk to Novell today, I'll
guarantee you what they'll say, which is
they don't have a claim on those copyrights. |
43. Novell has not acquiesced to SCO's claims, as recited in
SCO's own Amended Complaint. (Amended Complaint ¶ 19(d)-(e).)
To the contrary, Novell was vigorously
22
contesting those claims in private correspondence with SCO at
the very same time SCO was publicly claiming otherwise. For
example:
a. On May 12, 2003, SCO's CEO Darl McBride sent Novell a letter
asserting that it owned the UNIX copyrights and that Linux end
users were infringing those copyrights.
b. On May 28, 2003, Novell's CEO, Jack Messman, responded by
letter, asserting in no uncertain terms that "SCO is not the owner
of the UNIX copyrights."
c. After SCO registered its claim to the UNIX copyrights with
the U.S. Copyright Office, Novell's General Counsel, Joseph LaSala
wrote to SCO, again disputing its claim to ownership of the
copyrights. In his August 4, 2003, letter, LaSala stated, "We
dispute SCO's claim to ownership of these copyrights."
44. In September and October 2003, Novell attempted to protect
its rightful ownership of the UNIX Copyrights, and to correct SCO's
erroneous registrations claiming ownership, by filing its own
copyright registrations.
I. SCO's Scheme To Extract Licensing Fees from Novell, the
Linux Community and UNIX Vendors
45. A significant aspect of SCO's rebranding efforts and new
business strategy was its adoption of a scheme to extract
"licenses" from the UNIX and Linux communities based on claims to
own intellectual property specifically reserved to Novell, i.e.,
the UNIX Copyrights. SCO proceeded on its own in this scheme after
Novell rebuffed SCO's overtures to participate.
23
46. On January 22, 2003, SCO publicly announced its licensing
scheme as part of its "SCOsource" program. In connection with this
announcement, SCO's CEO, Darl McBride, commented that "SCO owns
much of the core UNIX intellectual property, and has full rights to
license this technology and enforce the associated patents and
copyrights."
47. Under the SCOsource licensing program, SCO seeks to enter
into license agreements with UNIX vendors and offers Intellectual
Property Licenses to Linux end users ("Intellectual Property
Licenses"). The purported purpose of these licenses is to allow
UNIX vendors to use SCO's UNIX intellectual property and to permit
Linux end users to "properly compensate us for our UNIX
intellectual property as currently found in Linux." One term of
SCO's Intellectual Property Licenses for Linux is that licensees
"will be held harmless against past and future copyright violations
based on their use of SCO's intellectual property . . . in Linux
distributions . . . ."
48. SCO charges a sizeable licensing fee for SCO's Intellectual
Property Licenses for Linux. For example, for a server with 8 CPUs,
the initial licensing fee is $4,999, with $1,079 payable every year
after that.
49. As part of its SCOsource initiative, SCO filed a lawsuit
against IBM on March 7, 2003, asserting, among other things, UNIX
Copyrights that SCO does not own. SCO has alleged that it owns the
UNIX Copyrights and that IBM's contributions to Linux and use of
Linux infringe these copyrights.
50. As part of the SCOsource program, SCO entered into at least
two license agreements. These licenses related to the use of UNIX
technology by the licensees. The first of these licenses was with
Sun Microsystems, Inc. ("Sun"). The second license was with
Microsoft Corporation ("Microsoft") and purportedly covers
Microsoft's UNIX compatibility products. On
24
information and belief, through these licenses SCO broadened the
rights of Sun and Microsoft to use SVRX code.
51. The Sun and Microsoft licenses resulted in significant
revenue for SCO and produced the first profitable quarter in SCO's
history. During the fiscal quarter ended April 30, 2003, SCO
recognized $8,250,000 in revenue from these two new licenses. In
addition, these licenses accounted for $25,846,000 of SCO's revenue
in fiscal year 2003.
52. As part of the SCOsource program, in May 2003, SCO sent
letters to 1,500 of the world's largest corporations threatening
suit based on its alleged ownership of the UNIX Copyrights ("End
User Letters"). On May 12, 2003, SCO sent one of these letters to
IBM, and sent another letter to Novell. On information and belief,
all of the End User Letters were nearly identical in content to the
IBM and Novell letters.
53. In the End User Letters, SCO made the false and misleading
statement that "SCO holds the rights to the UNIX operating system
software originally licensed by AT&T to approximately 6,000
companies and institutions worldwide (the 'UNIX Licenses')."
54. In the End User Letters, SCO also made the unsupported
assertion that "We [SCO] have evidence that portions of UNIX System
V software code have been copied into Linux and that additional
other portions of UNIX System V software code have been modified
and copied into Linux, seemingly for the purposes of obfuscating
their original source."
55. After setting forth these alleged facts in the End User
Letters, SCO erroneously concluded that "Linux infringes on our
UNIX intellectual property and other rights." According to SCO, end
users of Linux were liable for this alleged infringement whether-or
not they participated in any contribution of UNIX System V software
code into Linux.
25
56. As set forth in detail above, besides sending the End User
Letters, SCO has made numerous public statements that it owns the
UNIX Copyrights and that end users of Linux are liable for
infringement of those copyrights. For instance, contrary to the
express terms of the APA, SCO has stated on its website that "only
SCO is in a position to license the use of this infringing
intellectual property." The Court itself has noted SCO's "barrage
of public statements about pursuing alleged infringers of its
alleged intellectual property." The SCO Group Inc. v. Int'l Bus.
Machs., Case No. 2:03CV294 DAK, Memorandum Decision and Order
at 5 (Feb. 9, 2004).
57. Shortly after the inception of its letter writing campaign,
SCO brought suit against Autozone and Daimler Chrysler, both Linux
end users. In these lawsuits, SCO has made substantially the same
allegations as set forth in its letters. In the Autozone lawsuit,
SCO has alleged that [Autozone] uses one or more versions of the
Linux operating system that infringe on SCO's exclusive rights in
its proprietary UNIX System V operating system technology." In the
Daimler-Chrysler lawsuit, SCO has alleged that Daimler-Chrysler's
use of the Linux operating system violates the UNIX license between
Daimler-Chrysler and SCO.
58. Novell has established a Linux Indemnification Program under
which it offers indemnification for copyright infringement claims
made by third parties against qualifying, registered Novell
customers of the SUSE LINUX Enterprise Server 8, SUSE LINUX
Enterprise Server 9, SUSE LINUX Retail Solution, and Novell Linux
Desktop products.
59. SCO has continued to pursue its SCO source initiative with
other industry participants that it believes will lead to
additional licensing agreements. On information and belief, via
this campaign, SCO has convinced several Linux end users to
participate in its licensing program, obtain purported licenses to
use "SCO's intellectual property contained in
26
Linux," and thereby avoid suit by SCO. In fiscal years 2004 and
2005, SCO generated additional revenue from sales of its SCOsource
Intellectual Property Licenses.
J. SCO's Breaches of the Asset Purchase Agreement
60. SCO's misguided campaign has led SCO, as the alleged
successor of Santa Cruz, to breach its obligations under the APA
and its Amendments.
61. Novell has performed its obligations under the APA and its
Amendments.
62. SCO or Santa Cruz has received adequate consideration for
its duties under the APA and its Amendments.
Breach of Section 1.2(b)'s and 1.2(f)'s Audit
Provisions
63. Section 1.2(b) of the APA gives Novell broad audit rights
relating to the administration of the SVRX licensing program. It
reads in pertinent part:
[Novell] shall be entitled to conduct periodic audits of [SCO]
concerning all royalties and payments due to [Novell] hereunder or
under the SVRX Licenses, provided that [Novell] shall conduct such
audits after reasonable notice to [SCO] and during normal business
hours and shall not be entitled to more than two (2) such audits
per year.
64. Further, section 1.2(f) of the APA obligates SCO to provide
Novell monthly reports detailing the SVRX royalties that SCO
received.
65. On July 11, 2003 Novell notified SCO that it intended to
conduct an audit beginning on August 18, 2003 covering the period
beginning January 1, 1998 through June 30.
66. By reply correspondence dated July 17, 2003, SCO accepted
Novell's right to an audit. Novell's audit began during the week of
August 25, 2003.
27
67. As part of Novell's aforementioned audit rights, on November
21, 2003, Novell sought information and documentation relating
to:
a. Any amendments and modifications to SVRX licenses, and in
particular the amendments to the Sun and Microsoft SVRX licenses.
Novell specifically requested (1) "copies of the Sun and Microsoft
amendments to verify SCO's compliance" with the APA and (2) "a
detailed explanation of SCO's position" if SCO contends that either
of the two exceptions to the prohibition on unilateral amendments
by SCO were applicable.
b. Any buy-out of SVRX licenses, and in particular any
information concerning any buy-out of Sun's and Microsoft's royalty
obligations under their SVRX licenses. Novell specifically
requested that SCO identify any potential buy-out transactions so
that Novell could verify SCO's compliance with the APA.
c. Any new SVRX licenses, and in particular SCO's Intellectual
Property Licenses for Linux. Novell specifically requested (1)
"copies of all SCO Intellectual Property Licenses for Linux, and
any other agreements connected with attempts by SCO to enter into
new SVRX Licenses, so Novell can verify SCO's compliance" with the
APA and (2) "a detailed explanation of SCO's position" if SCO
contends that the exception to the prohibition on new SVRX licenses
by SCO was applicable.
d.Any SVRX to UnixWare Conversions. Novell specifically
requested that SCO (I) identify and provide documentation for any
allegedly valid conversions and (2) "explain in detail" how the
alleged conversion
28
complies with the APA and (3) provide "a detailed explanation of
SCO's position" if SCO contends that any exception to the
prohibition on conversion by SCO was applicable.
68. Novell renewed its November 21, 2003 demand on December 29,
2003 and again on February 4, 2004.
69. On February 5, 2004, SCO conveyed its refusal to provide at
least the information identified in subparagraphs a, b and c of
Paragraph 67, above.
70. On March 1, 2004, Novell again contacted SCO for the above
categories of information: "In order to complete our audit, we need
the Sun, Microsoft and any other Intellectual Property Licenses for
Linux. Stated more categorically, we need all agreements in which
SCO purported to grant rights with respect to Unix System V."
Novell noted that SCO's Intellectual Property Licenses for Linux
appeared to be SVRX Licenses since they purported to grant rights
relating to UNIX System V or UnixWare.
71. Novell again sent a letter to SCO on April 2, 2004 urging a
response.
72. On November 17, 2004, Novell contacted SCO yet again:
We have communicated with SCO several times about our concerns
with SCO's handling of UNIX licenses, including the license with
Sun. In these communications, we have noted that our audit rights
under the Asset Purchase Agreement require SCO to provide Novell
with copies of any UNIX agreements (including amendments) SCO has
reached with Sun. We have sent you letters twice on this issue (in
March and April 2004), and have not received an adequate
response.
. . .
Accordingly, we must once again insist that you provide us with
copies of any agreements with Sun (including
29
amendments) that relate to UNIX. We would appreciate a response
by Friday, December 3, 2004.
73. Despite Novell's repeated requests, SCO has never provided
copies of the Sun and Microsoft licenses, or amendments, or copies
of SCO's Intellectual Property Licenses for Linux or other
agreements connected with attempts by SCO to enter into new or
amended SVRX licenses. SCO also never provided any explanation why
SCO was not obligated under the APA to seek Novell's consent to
amend or otherwise enter into new SVRX agreements. As a result,
Novell has been unable to verify SCO's compliance with the APA, as
Novell is entitled under the APA.
Breach of Obligation To Remit Royalties Under
Sections 1.2(b) and 4.16(a)
74. Sections 1.2(b) and 4.16(a) of the APA obligate SCO to remit
100% of "all royalties, fees and other amounts due under all SVRX
Licenses" to Novell. "SVRX Licenses" are in turn defined to include
"[a]ll contracts relating to" the various UNIX System releases and
auxiliary products enumerated at Schedule 1.1(a)(VI) and Attachment
A to Amendment No. 1. Under the APA, Novell has "all right, title
and interest to the SVRX Royalties, less the 5% fee for
administering the collection thereof."
75. SCO has failed to remit to Novell all royalties owed under
§§ 1.2(b) and 4.16(a) of the APA.
76. As SCO admitted in its February 5, 2004 letter to Novell,
SCO has entered into "new" agreements with Sun and Microsoft.
77. On information and belief, these new agreements are
"contracts relating to" the various UNIX System releases and
auxiliary products enumerated at Schedule 1.1 (a)(VI) and
30
Attachment A to Amendment No. 1. The new agreements are
therefore SVRX Licenses under the APA.
78. SCO has not remitted any royalties from its new SVRX
Licenses with Sun or Microsoft.
79. In addition, SCO has entered into Intellectual Property
Licenses with a variety of parties. For example, on March 1, 2004,
SCO announced an intellectual property licensing agreement with
"EV1Servers.Net" that purportedly grants that company a site
license to use SCO's intellectual property on all Linux servers
managed by EV1Servers.Net in its hosting facilities.
80. On information and belief, SCO's Intellectual Property
Licenses are "contracts relating to" the various UNIX System
releases and auxiliary products enumerated at Schedule 1.1 (a)(VI)
and Attachment A to Amendment No. 1. The Intellectual Property
Licenses are therefore SVRX Licenses under the APA. SCO has not
remitted any royalties from these SVRX Licenses.
81. Among other changes to the APA, Amendment No. 1 added 9
1.2(e), which provides that SCO has a right to retain all "source
code right to use fees attributable to new SVRX Licenses approved
by [Novell] pursuant to Section 4.16(b)."
82. SCO has neither sought nor obtained Novell's approval to
enter into any new SVRX license. Therefore, none of SCO's new SVRX
Licenses fall within 9 1.2(e)'s exception to SCO's general duty to
remit 100% of SVRX royalties to Novell
Breach of Section 4.16(b)'s
Obligations
83. Section 4.16(b) of the APA reads in pertinent part:
31
In addition, at [Novell's] sole discretion and direction, [SCO]
shall amend, supplement, modify or waive any rights under, or shall
assign any rights to, any SVRX License to the extent so directed in
any manner or respect by [Novell].
84. SCO has threatened to cancel or terminate various parties'
SVRX licenses and has purported to cancel or terminate certain
parties' SVRX licenses. For example, on March 6, 2003, SCO sent a
letter to IBM threatening to cancel or terminate IBM's SVRX
license. On May 29, 2003, SCO sent a similar letter to Sequent
Computer Systems ("Sequent").
85. SCO subsequently purported to cancel or terminate IBM's SVRX
licenses as of June 13, 2003. On August 11, 2003, SCO sent a letter
to Sequent similarly purporting to terminate Sequent's SVRX
licenses.
86. SCO did not obtain Novell's prior written consent to cancel
or terminate either SVRX license. Accordingly, on June 9, 2003, and
again on October 7, 2003, Novell directed SCO to waive any
purported right SCO claimed to have to terminate IBM's SVRX
licenses. On February 6, 2004, Novell similarly directed SCO to
waive certain of its purported rights under the IBM and Sequent
SVRX licenses.
87. Following SCO's failure to take the actions identified in
the preceding paragraphs, Novell elected to take actions on SCO's
behalf, as Novell is empowered to do by § 4.16(b). Section
4.16(b) of the APA provides in pertinent part:
In the event that [SCO] shall fail to take any such action
concerning the SVRX Licenses as required herein, [Novell] shall be
authorized, and hereby is granted, the rights to take any action on
[SCO's] own behalf.
88. After SCO conveyed its refusal on February 11, 2004 to waive
its purported rights against Sequent, Novell on the same day waived
SCO's purported right to revoke any rights
32
under Sequent's SVRX licenses. Similarly, on October 11, 2003,
Novell waived certain of SCO's purported rights under IBM's SVRX
licenses.
89. SCO refuses to acknowledge Novell's right to take such
actions on SCO's behalf.
90. Under Section 4.16(b) of the APA, SCO shall not amend or
modify any SVRX license "without the prior written consent of
[Novell] ." As modified by Amendment 1, Section 4.16(b) of the APA
provides further that:
Notwithstanding the foregoing, [SCO] shall have the right to
enter into amendments of the SVRX Licenses (i) as may be
incidentally involved through its rights to sell and license
UnixWare software or the Merged Product .. or future versions of
the Merged Product, or (ii) to allow a licensee under a particular
SVRX License to use the source code of the relevant SVRX product(s)
on additional CPU's or to receive an additional distribution, from
[SCO], of such source code.
In addition, [SCO] shall not, and shall have no right to, enter
into new SVRX Licenses except in the situation specified in (i) of
the preceding sentence as otherwise approved in writing in advance
by [Novell] on a case by case basis.
91. On information and belief, SCO has entered into new SVRX
Licenses with Sun, Microsoft and others (through, for example,
SCO's Intellectual Property Licenses with Linux end users or UNIX
vendors), or otherwise amended the Sun and Microsoft SVRX
licenses.
92. SCO never sought advance approval from Novell to enter into
these new SVRX Licenses or amendments thereof. SCO also never
explained why under the APA it was not obligated to obtain Novell's
advance approval.
93. Under the APA, SCO also had no authority to enter into the
Sun and Microsoft SVRX Licenses, or the Intellectual Property
Licenses with Linux end users and UNIX vendors.
33
FIRST CLAIM FOR RELIEF
(Slander of Title)
94. Novell incorporates by reference all prior paragraphs as if
they were set forth here in full.
95. SCO made its public statements claiming ownership of the
UNIX Copyrights, and improperly registered its claim to UNIX
Copyrights, with knowledge that title to these copyrights remains
with Novell.
96. SCO made such statements maliciously, in bad faith, and with
intentional disregard for the truth.
97. SCO made such statements with the intent to cause customers
and potential customers of Novell not to do business with Novell,
to slander and impugn the ownership rights of Novell in UNIX and
UnixWare, and to attempt, in bad faith, to block Novell's ability
to exercise its copyrights therein.
98. SCO's slander of Novell's title has resulted in special
damages including, inter alia, Novell's costs and fees in
preparing and filing copyright registrations and declarations
correcting SCO's erroneous registrations claiming ownership of
Novell's intellectual property and in prosecuting this action.
SECOND CLAIM FOR RELIEF
(Breach of Contract: §§ 1.2(b) and 1.2(f) of the Asset
Purchase Agreement)
99. Novell incorporates by reference all prior paragraphs as if
they were set forth here in full.
100. Pursuant to its audit rights under the APA, Novell
requested certain information from SCO to verify SCO's compliance
with the APA, including:
34
a. Any amendments and modifications to SVRX licenses,
and in particular the amendments to the Sun and Microsoft SVRX
licenses, including a copy of these amendments and a detailed
explanation of SCO's position if SCO contends that either of the
two exceptions to the prohibition on unilateral amendments by SCO
was applicable;
b. Any buy-out or potential buy-out of SVRX licenses, and in
particular any information concerning any buy-out of Sun and
Microsoft's royalty obligations under their SVRX licenses;
c. Any new SVRX licenses, and in particular SCO's new SVRX
agreements with Sun and Microsoft and SCO's Intellectual Property
Licenses with Linux end users or UNIX vendors, including copies of
these agreements and a detailed explanation of SCO's position if
SCO contends that the exception to the prohibition on new SVRX
Licenses by SCO was applicable; and
d. Any SVRX to UnixWare Conversions, including documentation for
any allegedly valid conversions, a detailed explanation of how the
alleged conversion complies with the APA and a detailed explanation
of SCO's position if SCO contends that any of the exceptions to the
prohibition on conversion by SCO were triggered.
101. Under the APA, SCO was obligated to provide all this
information to Novell. SCO substantially and materially breached
§§ 1.2(b) and 1.2(f) of the APA by refusing to do so.
102. On information and belief, SCO's breaches of §§
1.2(b) and 1.2(f) of the APA have caused Novell damage in an amount
to be later proven. In addition, these breaches have
35
caused Novell special damages, including, inter alia, the
costs associated with making repeated requests for information
necessary to confirm SCO's compliance with its contractual
obligations to administer SVRX licensing program, conducting
further reviews of the limited information provided by SCO,
attempting to estimate royalties owing based upon incomplete
information provided, and prosecuting this action.
103. The legal remedies available to Novell for future failures
by SCO to comply with its audit obligations under §§
1.2(b) and 1.2(f) of the APA may be inadequate. Therefore, Novell
seeks an order from this Court compelling SCO's specific
performance of its aforementioned audit obligations under
§§ 1.2(b) and 1.2(f).
THIRD CLAIM FOR RELIEF
(Breach of Contract: §§ 1.2(b) & 4.16(a) of the Asset
Purchase Agreement)
104. Novell incorporates by reference all prior paragraphs as if
they were set forth here in full.
105. SCO has substantially and materially breached §§
1.2(b) and 4.16(a) of the APA by failing to remit all royalties
owed to Novell, including any royalties SCO obtained from its new
SVRX Licenses with Sun or Microsoft or from its Intellectual
Property Licenses with Linux end users or UNIX vendors.
106. On information and belief, SCO's breaches of §§
1.2(b) & 4.16(a) of the APA have caused Novell damage in an
amount to be later proven. These breaches have caused Novell
special damages, including, inter alia, the costs
associated with attempting to ascertain from SCO the royalty
amounts due to Novell, and with prosecuting this action.
107. The legal remedies available to Novell for future failures
by SCO to comply with its royalty obligations under §§
1.2(b) & 4.16(a) of the APA may be inadequate. Therefore,
36
Novell seeks an order from this Court compelling SCO's specific
performance of its remittance obligations under §§ 1.2(b)
& 4.16(a) of the APA.
108. In addition, Novell seeks an order from the Court imposing
a constructive trust on revenues received by SCO from its new SVRX
Licenses with Sun and Microsoft and from its Intellectual Property
Licenses with Linux end users and UNIX vendors. Creation of this
trust is necessary to protect Novell from SCO's wrongful retention
of monies owing Novell due to SCO's failure to perform its
remittance obligations under §§ 1.2(b) & 4.16(a) of
the APA. As set forth above, Novell owns "all right, title and
interest" to these royalties, less SCO's 5% administrative fee.
109. This constructive trust should be imposed for the
additional reason that SCO is quickly dissipating its assets. On
information and belief, SCO's revenues are declining, its
operational losses are increasing and its cash is dwindling
quickly. SCO expects to have only $11 million in cash remaining for
its business operations as of October 31, 2005, just a fraction of
the revenue it purportedly generated as a result of its new SVRX
Licenses with Sun and Microsoft.
110. Novell also seeks an order from the Court attaching SCO's
assets pending adjudication of this claim because SCO is quickly
dissipating its assets.
FOURTH CLAIM FOR RELIEF
(Declaratory Relief: Rights and Duties under § 4.16(b) of the
Asset Purchase Agreement)
111. Novell incorporates by reference all prior paragraphs as if
they were set forth here in full.
112. Under § 4.16(b) of the APA, Novell has the right, at
its sole discretion, to direct SCO to waive any rights under any
SVRX Licenses. In the event that SCO fails to take any such
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action at Novell's direction, § 4.16(b) gives Novell the
right to take any action on SCO's own behalf. SCO refused to
perform its corresponding duties under 54.16(b) and substantially
and materially breached § 4.16(b) by:
a. Purporting to cancel or terminate SVRX licenses, including
the IBM and Sequent SVRX licenses, and then refusing to waive these
purported rights as directed by Novell; and
b. Refusing to recognize actions taken by Novell on SCO's behalf
pursuant to § 4.16(b), including Novell's waiver of SCO's
purported claims against IBM and Sequent.
113. Novell seeks a declaration pursuant to 28 U.S.C. §
2201 that:
a. Under § 4.16(b) of the APA, Novell is entitled, at its
sole discretion, to direct SCO to waive its purported claims
against IBM, Sequent and other SVRX licensees;
b. Under § 4.16(b) of the APA, Novell is entitled to waive
on SCO's behalf SCO's purported claims against IBM, Sequent and
other SVRX licensees, when SCO refuses to act as directed by
Novell; and
c. SCO is obligated to recognize Novell's waiver of SCO's
purported claims against IBM and Sequent.
114. Under § 4.16(b) of the APA, SCO is obligated to seek
Novell's prior approval to enter into new SVRX Licenses or
amendments of SVRX Licenses, subject to limited exception. SCO did
not perform its corresponding duties under § 4.16(b) and
substantially and materially breached § 4.16(b) by:
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a. Purporting to enter into new SVRX licenses without Novell's
prior approval, including agreements with Sun, Microsoft and other
licensees of SCO's Intellectual Property Licenses, without
demonstrating that a limited exception to the prohibition against
new licenses by SCO was applicable; and
b. Purporting to enter into amendments of SVRX Licenses without
Novell's prior approval, including agreements with Sun, Microsoft
and other licensees of SCO's Intellectual Property Licenses,
without demonstrating that a limited exception to the prohibition
against amendments by SCO was applicable.
115. Novell seeks a declaration pursuant to 28 U.S.C. §
2201 that:
a. Under § 4.16(b) of the APA, SCO was obligated to seek
Novell's prior approval to enter into new SVRX licenses or
amendments to SVRX licenses, including SCO's agreements with Sun,
Microsoft and other licensees of SCO's Intellectual Property
Licenses; and
b. Under § 4.16(b) of the APA, SCO is obligated to seek
Novell's prior approval to enter into new SVRX licenses or
amendments to SVRX licenses, unless SCO can demonstrate to Novell
that an exception to the prohibitions against new licenses and
amendments by SCO is applicable.
116. Novell pleads in the alternative for a declaration pursuant
to 28 U.S.C. § 2201 that SCO had no authority to enter into
the Sun and Microsoft SVRX Licenses, as well as the Intellectual
Property Licenses with Linux end users and UNIX vendors.
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FIFTH CLAIM FOR RELIEF
(Declaratory Relief: Rights and Obligations Under APA's Covenant of
Good Faith and Fair Dealing)
117. Novell incorporates by reference all prior paragraphs as if
they were set forth here in full.
118. The APA incorporates a covenant of good faith and fair
dealing whereby each party agrees to work with the other to fulfill
the purposes of the contract.
119. The APA granted Novell broad audit rights to verify SCO's
compliance with the APA, as well as rights to approve (subject to
limited exception) new SVRX licenses and amendments to SVRX
licenses. The APA also granted Novell the right to direct SCO to
amend, supplement, modify or waive any rights under any SVRX
license, and to act on SCO's behalf if SCO fails to take such
direction.
120. Under the APA, SCO was obligated to administer the SVRX
License Program, subject to the additional duties provided in
§§ 1.2(b), 1.2(f) and 4.16. SCO failed to abide by these
obligations under the APA and therefore substantially and
materially breached the APA's covenant of good faith and fair
dealing.
121. Novell seeks a declaration pursuant to 28 U.S.C. §
2201 that SCO is obligated under the APA to:
a. Comply with Novell's exercise of its audit rights under
§§ 1.2(b) and 1.2(f) by providing information requested
concerning new SVRX licenses and amendments to SVRX licenses;
b. Seek Novell's prior approval before entering into new SVRX
licenses or amendments to SVRX licenses, or otherwise demonstrate
to Novell that an
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exception to the prohibition against new licenses or amendments
by SCO is applicable;
c. Amend, supplement, modify or waive any rights under any SVRX
License to the extent so directed in any manner or respect by
Novell in its sole discretion; and
d. Accept actions taken by Novell on SCO's behalf when SCO fails
to take such action in subparagraph c, above, as directed by
Novell.
SIXTH CLAIM FOR RELIEF
(Restitution/Unjust Enrichment)
122. Novell incorporates by reference all prior paragraphs as if
they were set forth here in full.
123. SCO has been unjustly enriched by retaining in part or in
full portions of all SVRX Royalties to which Novell was entitled
under the APA.
124. In addition, SCO has been unjustly enriched by retaining a
5% administrative fee for administering the SVRX License Program
but having failed to fulfill its administrative auditing duties
under the APA.
125. Novell seeks restitution of all monies constituting SCO's
unjust enrichment.
126. Novell also seeks an order from the Court imposing a
constructive trust on revenues SCO unjustly received by failing to
perform its administrative auditing and remittance obligations
under the APA.
SEVENTH CLAIM FOR RELIEF
(Accounting)
127. Novell incorporates by reference all prior paragraphs as if
they were set forth here in full.
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128. Under the APA, Novell and SCO shared the stream of revenues
from the SVRX licenses. In particular, SCO agreed to collect and
pass through to Novell 100% of the SVRX royalties as defined and
described in Section 4.16 hereof, while Novell agreed to pay an
administrative fee of 5% of the SVRX Royalties. SCO was also
responsible for making additional royalties and payments to
Novell.
129. Under section 1.2(b) of the APA, Novell was entitled to
"periodic audits" of SCO concerning "all royalties and payments due
to [Novell] . . . ." Under section 4.16(a), SCO was required to
"diligently seek to collect all [SVRX] royalties . . . and [to]
investigate and perform appropriate auditing and enforcement under
[the SVRX] licenses." SCO was also required to provide regular
audit reports to Novell regarding the SVRX royalties and the other
royalties under section 1.2(f) of the APA.
130. Under the APA, the amounts due Novell were determined and
verified on the basis of the audits required under the APA. The
right to an accounting of the royalties and payments due to Novell
under the SVRX licenses and other provisions of the APA was
inherent in the APA.
131. SCO has failed to fulfill its duties under the audit
provisions of the APA, and substantially and materially breached
those provisions.
132. Between the time the APA was concluded and the present,
there have been hundreds of customers responsible for making
royalty payments to SCO under the SVRX Licenses or under other
agreements relating to royalty bearing products. SCO was obligated
under the APA to receive and administer these royalty payments and
share them with Novell.
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133. Under the APA, royalty payments under the SVRX licenses or
other agreements relating to royalty bearing products were to be
paid to Novell through SCO. The amount of royalties was calculated
through a specified formula.
134. On information and belief, SCO has entered into new and/or
amendments of the SVRX licenses with Sun and Microsoft, as well as
with Linux end users under SCO's Intellectual Property Licenses.
SCO failed to seek approval to enter into these licenses, and
failed to explain why it was not obligated to obtain Novell's
advance approval. Despite repeated requests by Novell to SCO to
obtain the underlying information and documentation to verify SCO's
APA compliance as part of the audit, SCO failed to report these
licenses. This failure to report constitutes a substantial and
material breach of the APA.
135. On information and belief, SCO has received royalties under
the SVRX licenses which it consummated with Sun and Microsoft, as
well as from Linux end users under SCO's Intellectual Property
Licenses. SCO has not passed on to Novell the required 100% of the
royalties it has received under these licenses. This failure to pay
royalties also constitutes a substantial and material breach of the
APA.
136. Because SCO has refused to provide Novell with a copy of
these licenses, Novell is unable to allege with particularity the
precise payment terms of the licenses or the corresponding amounts
payable to Novell under these licenses pursuant to the APA. Without
an accounting, it is therefore impracticable for Novell to name a
fixed sum that is owing with respect to these licenses.
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137. Given the large number of customers currently responsible
for making royalty payments to SCO under the SVRX licenses or under
other agreements relating to royalty bearing products, the
complexity of the formulas by which these royalty payments are
calculated, and the fact that SCO receives directly all these
royalty payments without immediate notice to Novell, it is
impracticable for Novell to name a fixed sum that is owing with
respect to these royalty payments without an accounting.
138. Novell therefore seeks an accounting for monies owed to
Novell under the APA.
PRAYER FOR RELIEF
WHEREFORE, Novell prays for judgment as
follows:
139. For actual and special damages, in an amount to be proven
at trial, caused by SCO's slander of Novell's title to the UNIX
Copyrights;
140. For punitive damages in an amount to be proven at trial for
SCO's malicious and willful conduct in slandering Novell's title to
the UNIX Copyrights as alleged herein;
141. For preliminary and permanent injunctive relief requiring
SCO to withdraw its improperly registered claims to UNIX Copyrights
and to withdraw all other representations it has made regarding its
purported ownership of the UNIX Copyrights;
142. For actual and special damages, in an amount to be proven
at trial, caused by SCO's breaches of §§ 1.2(b), 1.2(f)
and 4.16 of the APA;
143. For specific performance of future compliance with SCO's
audit obligations under §§ 1.2(b) and 1.2(f) of the
APA;
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144. For specific performance of future compliance with SCO's
royalty obligations under §§ 1.2(b) and 4.16(a) of the
APA;
145. For an order imposing a constructive trust on the revenues
remitted to SCO under new or amended SVRX Licenses;
146. For an order attaching SCO's assets pending adjudication of
Novell's contract claims;
147. For declaratory relief pursuant to 28 U.S.C. § 2201
establishing Novell's rights and SCO's obligations under §
4.16(b), as well as SCO's authority to undertake certain actions
under § 4.16(b);
148. For preliminary and permanent injunctive relief enforcing
Novell's contractual rights under the APA, including injunctive
relief barring SCO from taking actions inconsistent with or in
violation of §§ 1.2(b), 1.2(f), 4.16(a) and 4.16(b);
149. For declaratory relief pursuant to 28 U.S.C. § 2001
establishing Novell's rights and SCO's obligations under the
covenant of good faith and fair dealing in the APA;
150. For an order of restitution of all monies constituting
SCO's unjust enrichment;
151. For an accounting of the royalties remitted to SCO under
the SVRX licenses and the monies owing to Novell under the APA;
152. For pre-judgment interest on any monetary recovery;
153. For Novell's reasonable expenses and costs incurred,
including without limitation attorneys' fees, in defending against
the Amended Complaint; and
154. For such other and further relief as the Court deems just
and proper.
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JURY TRIAL DEMAND
Counterclaim-plaintiff Novell here by demands a trial by jury of
any and all issues triable by a jury.
DATED: July 29, 2005.
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ANDERSON & KARRENBERG
[signature]
Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon
MORRISON & FOERSTER LLP
[signature]
Michael A. Jacobs
Kenneth W. Brakebill
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I HEREBY CERTIFY that on July 29, 2005, I caused a true and
correct copy of the foregoing NOVELL, INC.'S ANSWER AND
COUNTERCLAIMS, to be served via firstclass U.S. Mail, postage
prepaid, to the following:
Brent O. Hatch
Mark R. Clements
HATCH JAMES & DODGE, P.C.
[Address]
Kevin P. McBride
[Address]
Stephen N. Zack
Mark J. Heise
BOIES, SCHILLER & FLEXNER LLP
[Address]
Robert Silver BOIES, SCHILLER & FLEXNER LLP
[Address]
DATED: July 29, 2005.
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ANDERSON & KARRENBERG
[signature]
Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon
Attorneys for Defendant Novell, Inc.
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