To understand where SCO is coming from (so as to counterpunch, not so as to have empathy), and the upside down way they are trying to use preemption, it's important to understand the whole issue of copyright preemption. When does federal law preempt state law claims and when doesn't it? Here are some resources.

First, what is copyright preemption and when does it come into play?:

Most court's today follow Professor Nimmer's "extra element" test for equivalent rights, described by the Second Circuit as follows:

When a right defined by state law may be abridged by an act which, in and of itself, would infringe one of the exclusive rights [of a copyright owner under Section 106], the state law in question must be deemed preempted. . . .

Conversely, when a state law violation is predicated upon an act incorporating elements beyond mere reproduction or the like, the rights involved are not equivalent and preemption will not occur.

Harper & Row, Publishers v. Nation Enterprises, 723 F.2d 195, 200, 220 U.S.P.Q. (BNA) 321 (2d Cir. 1983), rev'd on other grounds 471 U.S. 539, 105 S.Ct. 2218, , 85 L.Ed.2d 588 (1985). As the Altai court notes the "extra element" must be more than just an intent or state-of-mind requirement: it must be an extra substantive element that has independent analytical content, beyond mere violation of one of more of the rights of a copyright holder specified in Section 106.

There are two schools of thought and two lines of cases. One holds that parties are free to contract almost anything they wish. The other holds that the public interest must be preserved. SCO is cynically arguing for the latter, while simultaneously trying to destroy software distributed under a license specifically designed to promote a public good. Here's a description of the two competing schools:

A. Two Competing Views of Copyright-Freedom of Contract v. Public Domain

The particular ProCD issue-defining the allowable range of contract with respect to noncopyrightable data-brings two extreme competing views of the purpose of copyright into focus. One view (for simplicity, referred to as the "freedom of contract" view) contends that copyright merely provides a bundle of rights to copyright owners to help them avoid the transaction costs of contracting with each purchaser of the copyrighted material. In this model, copyright functions much like Article 2 of the UCC-as a boilerplate contract to govern the parties' relationship in the absence of a contrary agreement. Nothing prevents the parties from contracting around the rights granted by copyright or, in the case of data not protected by copyright, from creating their own property rights through private contract. In the freedom of contract model, any distinction between the contract and preemption inquiries collapses. As long as the contract passes muster under traditional common law contract and the UCC, its provisions-even those affecting copyright-type rights-are not subject to preemption.

Another view (for simplicity, referred to as the "public domain" view) argues that copyright represents a legislative scheme carefully balanced to advance the public interest by providing an incentive to authors to create while safeguarding the free flow of the information on which such creativity is based. In this model, there are immutable rules around which the parties cannot contract because the public interest cannot be sacrificed on the altar of two-party agreements. The problem is in defining exactly which provisions of the copyright law are immutable and which are not, in a manner more definitive than simply stating "We know immutable rules when we see them." The public domain model thus distinguishes between the contract and preemption inquiries. Merely because a contract is enforceable under traditional contract law does not mean that it is not preempted by copyright law. The difficulty lies in identifying under what circumstances provisions of an otherwise enforceable contract are preempted.

The specific statutory basis for preemption is section 301(a), which provides as follows:

On or after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any work under the common law or statutes of any State.

In summary, the Copyright Act provides that no state may provide protections (statutory or common law) for Tangible Works that are equivalent to the Exclusive Rights. Several important observations:

" As discussed above, not all Tangible Works qualify for copyright protection, but the statute preempts state laws even when the Tangible Work does not qualify for copyright protection.

The statute does not preempt all state laws that relate to Tangible Works; it only preempts state laws that provide "equivalent rights" to any of the Exclusive Rights.

The statute applies to all state laws, whether common law or statutory.

There is also a broader concept of copyright preemption that applies merely by virtue of the existence of the Copyright Act itself. That is, it is clear that Congress intended to "occupy the field" of copyright protection by enacting the Copyright Act, even apart from the specific provisions of section 301(a). However, the case law analysis of preemption has been substantially identical whether the courts view the issue under the specific provisions of section 301(a) or under the broader Copyright Act implied preemption approach.

If copyright preemption does not apply, the plaintiff can bring a state law claim. The plaintiff may also be able to bring a copyright claim as well. In other words, while a finding of copyright preemption means a claim must be brought under the Copyright Act or not at all, a finding of no copyright preemption permits any manner of claim to be brought, including a Copyright Act claim (if one exists).

.... The treatise Nimmer on Copyright. . . states that a state law relating to protection of a Tangible Work is preempted by the Copyright Act unless liability under the state law requires some "extra element" that goes beyond the Exclusive Rights. . . .

The finding that preemption does or does not apply does not stop the inquiry. If preemption limits a plaintiff to claims under the Copyright Act, the plaintiff may or may not win for a variety of factors that depend on the actual claim and the provisions of the Copyright Act. Similarly, the fact that the plaintiff is permitted to bring a state law claim does not mean that the plaintiff will win the state law claim. Again, winning or losing depends on the facts and the particular state law right in question.

{22} A reliance on contracts for protection, the declining cost of contracting, and the incentive to price at a fine-grained level that varies for each buyer, bring us to the issue of the enforceability of contracts for the use of digital works. Contract law itself, of course, provides some limits to the enforceability of contracts: fraud, duress, and the like are always concerns whether for digital works or anything else. But works of authorship have their own special contractual problems arising from the possibility that copyright law might preempt the terms of a contract.

{23} The Copyright Act expressly provides that in some situations, a state law or right will be preempted, leaving copyright law itself as the only applicable rule. [11] Section 301 of the Copyright Act preempts any attempt under state law to protect something when two conditions are met. First, the "something" must fall under the subject matter of copyright as an original work of authorship fixed in a tangible medium of expression. Second, the state law at issue must provide rights that are "equivalent" to those provided by copyright. In addition to this "statutory" preemption of state law, preemption may also be available under a general analysis relying on the Constitution's Supremacy Clause. [12] This latter approach asks whether a state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress"; [13] if so, the state law may be preempted even though the preemption prerequisites of section 301 are not satisfied. [14]

{24} Though obviously grounded in the need to avoid conflicts between federal and state law, the preemption doctrine has experienced at best an inconsistent interpretation by the courts, as other commentators have noted. [15] Preemption questions under copyright law can arise with regard to nearly any state law that might apply to informational works. For example, cases have dealt with trade secret law, [16] unfair competition law, [17] invasion of privacy, [18] conversion [19] and the right of publicity, [20] as well as the law of contract.

{25} The preemption issue arises when authors' or users' copyright rights appear to be either enlarged or reduced by contract. To the general question whether contracts may deal with copyrighted material, the answer is obviously yes. After all, the Act gives copyright holders the exclusive right to reproduce their works. Nevertheless, authors sell or assign that right to publishers by means of contractual agreements all the time. Indeed, even the Act's legislative history reveals that "nothing in the bill derogates from the rights of parties to contract with each other and to sue for breaches of contract. [21]

{26} A simple transfer of rights is therefore unlikely to be challenged on preemption grounds because such transfers are the revenue-generating means of authors' creative efforts. The preemption challenges are more likely to relate to the attempted contractual extension of copyright rights beyond those granted by the Copyright Act, or the reduction of the rights that users have traditionally enjoyed apart from contract.

{27} The following contrasting cases illustrate the problem, and show that courts have yet to reconcile the notion of contracts and copyrights. [22] In Warner Bros., Inc. v. Wilkinson,[23] the district court held that states may impose restraints on what would otherwise be valid contracts relating to copyright rights. However, in Vault Corp. v. Quaid Software Ltd.,[24] the Fifth Circuit held that states may not authorize contracts that restrain otherwise valid copyright rights.

{28} Warner Bros. involved "blind bidding," a common practice in the motion picture industry. With "blind bidding," motion picture distributors require that theater owners agree to certain conditions before offering a movie to the viewing public. Such conditions are not themselves surprising, but with blind bidding, the theaters must agree to the conditions before they are allowed to view the entire movie. For example, the conditions may include guaranteeing certain minimum royalty fees. This practice has been considered so odious to theater owners that in many states, the theater owners persuaded the state legislatures to enact statutes forbidding or curtailing the practice. Motion picture owners and distributors then challenged the statutes on federal preemption grounds, claiming that they so impermissibly interfered with the copyright rights of distribution and public performance that they conflicted with federal copyright policy.

{29} The challenges, brought in several states, by and large failed. The essential judicial response was that copyright interests are not affected when states govern the terms of commercial transactions, including the terms of contracts. [25]

{30} Vault v. Quaid involved the opposite situation. Instead of a state statute prohibiting certain contractual terms, as in Warner Bros., Vault featured a state statute that expressly validated a particular type of contract: the 'shrink wrap' license. A "shrink wrap" license is simply a set of terms printed inside the heat-shrunk wrapping of the commercial software. These terms constitute an "offer" that the buyer is said to accept by the act of tearing open the plastic wrapping. Evidently concerned that such license agreements could be challenged as adhesion contracts or invalidated on grounds of unequal bargaining strength, the Louisiana legislature expressly validated them. [26]

{31} The dispute in Vault arose when a software developer, Vault, Inc., produced a computer program called "Prolok" that rendered other commercial software impossible to copy (a feature desired by software companies to reduce the "piracy" of their programs). Relying on the validity of such licenses, Vault sold Prolok with a shrink-wrap notice that expressly forbade "reverse engineering" or similar analyses of its copy-protection scheme.

{32} Another software company, Quaid, Inc., nonetheless made copies of the Prolok program precisely to reverse engineer its anti-copying scheme. Quaid then sold its software that disabled the Prolok anti-copy mechanism and permitted copying. Vault sued Quaid for copyright infringement and lost. The court held that section 117 of the Copyright Act specifically allows the copying of computer software when such copying is (1) an essential step in the use of the software and (2) accomplished as part of the process of running the program. Using this interpretation, the court found Quaid's actions to be permissible, even though they violated the license restrictions. The Louisiana statute that effectively prevented the running of such programs by validating Vault's license restrictions therefore conflicted with the Copyright Act and was preempted. [27]

With respect to alleged copyright preemption, the court first noted that, while the Copyright Act explicitly preempts certain state claims, the Act itself does not apply to extraterritorial acts of infringement. Thus, if the defendant's allegedly infringing acts are viewed as having occurred in Canada, rather than in the United States, then the Copyright Act would not apply, and, hence, plaintiff's state law claims would not be preempted. Pursuant to its recent en banc ruling in Subafilms, Ltd. v. MGM-Pathe Communications Co., the court then observed that, in order for the Copyright Act to apply, the alleged infringement must be "completed entirely in the United States." Here, defendants, at most, initiated or authorized an infringement, which was completed in Canada when the signal was illegally intercepted. Thus, the Copyright Act did not apply and, therefore, cannot preempt the plaintiff's state law claims.

Well, plenty to think about. Here is a page that lists some intellectual property cases. Here are some cases from the list and from the articles referenced above. I haven't read them all myself yet, but we might as well do it together:

Baltimore Orioles, Inc. v. Major League Baseball Players Association, 805 F.2d 663 (7th Cir. 1986), cert. denied, 480 U.S. 941 (1987).

Harper & Row, Publishers v. Nation Enterprises, 723 F.2d 195, 200, 220 U.S.P.Q. (BNA) 321 (2d Cir. 1983), rev'd on other grounds 471 U.S. 539, 105 S.Ct. 2218, , 85 L.Ed.2d 588 (1985)

Wendt v. Host International, Inc., 125 F.3d 805 (9th Cir. 1997).

National Basketball Association v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997).

Wrench LLC v. Taco Bell Corp., 256 F.3d 446 (6th Cir. 2001).

INS v. Associated Press, 248 U.S. 215 (1918) (defined quasi property right in news gathering, equity case), explained here: "Original software (both source and object code), computer programs, and data bases may be protected by the law of unfair competition. Evolving from the landmark case of International News Service (INS) v. Associated Press, the law protects the originator against misappropriation by competitors of his work product and his investment capital risks. The rationale for the doctrine lies in the equity court philosophy of preventing and mitigating unjust enrichment. Until recently, however, the courts tended to limit the application of the unfair competition doctrine to the facts in the INS case. In one recent case, the courts stated that a valid, unfair competition claim had been advanced where, for commercial advantage, a competitor had misappropriated the benefits and property rights of and had exploited his business values.

Similarly, where reproductions of original recordings were pirated and marketed under a different label, another court upheld the plaintiff unfair competition claim.

Suntrust Bank v. Haughton Mifflin Co., Case Number 01-12200 (11th Cir., May 25, 2001)

ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.), rev'g 908 F. Supp. 640 (W.D. Wis. 1996). Shrinkwrap license not preempted by federal copyright law. Rights created by contract viewed by court of appeals as not equivalent to any of the exclusive rights under copyright. protection.

Vault Corp v. Quaid Software Ltd., 847 F.2d 255 (5th Cir. 1988). Reached opposite conclusion: that copyright law preempted state law that forbade reverse engineering and upholding shrinkwrap.

More federal preemption cases here.