Novell issues strong answer, counterclaims to SCO suit

Novell rejects SCO's claims tht it holds the copyright on Unix and demands a jury trial

Novell fired back strongly against an amended complaint filed by The SCO Group in its slander of title lawsuit against Novell, rejecting SCO's claims that it holds the copyright on Unix and demanding a jury trial. Novell also noted in a filing late Friday that SCO may be rapidly exhausting its funds.

Novell has twice sought to dismiss SCO's lawsuit and has failed on both occasions. In its suit filed in January 2004, SCO argued that it owns the rights to the Unix and UnixWare copyrights and sought damages from what it claims are Novell's false representations about owning the operating systems' source code. SCO purchased Unix Systems Laboratories' (USL) assets from Novell. Novell acquired USL, the owner of the Unix trademark and the Unix System V source code, in 1993.

Novell maintains that it did not transfer copyright during the SCO purchase and that it, and not SCO, is the owner of the Unix copyright, a position the company reiterated in its Friday filing with the court. The latest Novell court filing was in response to the amended complaint filed by SCO July 9, 2004.

Within the counterclaims portion of the filing, Novell notes, "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."

Lying at the heart of the lawsuit is the wording of the Sept. 19, 1995, asset purchase agreement (APA) between Novell and SCO's previous incarnation, The Santa Cruz Operation, and whether Unix and UnixWare copyrights were transferred to SCO, as well as the wording of two amendments to the APA on Dec. 9, 1995 and on Oct. 16, 1996.

"Santa Cruz did not have the financial capacity to pay the purchase price contemplated by Novell for these acquired assets and rights," Novell wrote in Friday's counterclaims filing. "In order to bridge the price gap and consummate the transaction, Novell and Santa Cruz agreed that Novell would receive Santa Cruz stock and retain certain rights as protection." These rights included receiving "royalty payments under SVRX (System V Release x) 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," according to the filing.

As part of the auditing process, Novell has continually sought information and documentation from SCO relating to "any amendments and modifications to the SVRX licenses, and in particular the amendments to the Sun and Microsoft SVRX licenses," the Novell filing said. "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 hasn't remitted all the royalties stipulated under the APA to Novell and has entered into new SVRX licenses without seeking or obtaining Novell's approval, again as stipulated under the APA, according to Novell's filing. Additionally, SCO has threatened to cancel or terminate some companies' SVRX licenses, including those of IBM Corp. and Sequent Computer Systems, again without Novell's consent, the filing alleges.

In its claims for relief in its filing, Novell is asking the court to compel SCO to carry out a full audit under the terms laid out in the APA and to impose "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," according to the filing. "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 the terms of the APA, the filing states.

Novell goes on to note,"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 US$11 million in cash remaining for its business operations as of Oct. 31, 2005, just a fraction of the revenue it purportedly generated as a result of its new SVRX Licenses with Sun and Microsoft."

The filing continues, "Novell also seeks an order from the Court attaching SCO's assets pending adjudication of this claim because SCO is quickly dissipating its assets." Attaching a company's assets is a legal action often taken prior to an organization filing for bankruptcy.

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