SCO loses another round in Unix fight, must pay $2.55M to Novell

Court rules SCO must pay back Novell for licensing revenue it wasn't entitled to

At the beginning of its massive legal fight against Linux in 2003, The SCO Group Inc. imagined a day when companies like IBM, Novell Inc. and others would pay it large amounts of cash for alleged infringements on SCO-owned Unix code.

Instead, even as those legal fights meander through U.S. courts, the tables were turned and SCO yesterday was ordered to pay $2.55 million to Novell for collecting Unix licensing revenue from Sun Microsystems Inc. that it wasn't entitled to collect.

In a 43-page decision, which was posted on the Web site, U.S. District Court Judge Dale A. Kimball in Salt Lake City ruled that the money was owed to Novell under an arrangement made by SCO's predecessor, the former Santa Cruz Operation, which later was bought by Caldera International Inc. and became The SCO Group.

Novell acquired the Unix systems business of AT&T Corp. in the 1980s. Later, Novell broke up and sold its Unix properties in 1994 and 1995, including a deal with the former Santa Cruz Operation.

In Kimball's ruling, the court said that SCO owes the $2.55 million to Novell today through a 1995 Unix purchase agreement. At that time, the Santa Cruz Operation didn't have enough cash to buy all of Novell's Unix business. As part of the deal, Novell allowed the sale to go through with a limitation: It required that Novell would receive 100% of the royalties for Unix System V Release X (SVRX, all versions) licenses. Those revenues, under the agreement, were to be collected and passed on to Novell, minus a 5% administrative fee that was to be returned by Novell, according to the court ruling.

The $2.55 million award to Novell was for revenue brought in through a subsequent Unix licensing deal that SCO made with Sun Microsystems, which the court ruled was made without proper authorization.

In an unattributed statement following Kimball's ruling, SCO said it continues to believe that it does not owe money to Novell.

"We are reviewing today's ruling by Judge Dale Kimball with our counsel and will be assessing the next steps over the coming days and weeks," the statement said.

"This ruling is an important step in our ability to pursue the appeals to try to get all of our claims heard by a jury as soon as possible. We are pleased, however, that the court agreed that Novell is not entitled to anywhere near the more than $20 million it was seeking. Importantly, the court ruled that Novell has no right to any royalties from UnixWare or OpenServer sales by SCO, which is where the bulk of SCO's revenue is earned," the statement said.

"We continue to disagree with the premise of this trial and believe that Novell is not owed anything, but that they have interfered with SCO's UNIX rights," the statement said.

A Novell spokesman could not be reached for comment at deadline.

This part of the five-year legal case began in September but was interrupted when SCO filed for bankruptcy protection while the company reorganized.

Last August, Kimball undercut much of SCO's case in a ruling that declared Novell the owner of the Unix and UnixWare copyrights. That decision led to the current ruling, when the court went on to determine how much SCO had to pay Novell for Unix licensing revenue it incorrectly received from Sun Microsystems. The court found that SCO didn't have to repay Novell for any licensing revenue from Microsoft Corp.

In February, months after its bankruptcy application, SCO unveiled plans to take the company private, amid its ongoing legal battles.

SCO has been on the defensive since its 2003 lawsuit against IBM, when it alleged that IBM improperly contributed some of SCO's Unix intellectual property for use in Linux. SCO then also sued Novell, charging that the company had falsely claimed to own the legal rights to Unix.

Copyright © 2008 IDG Communications, Inc.

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