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SUSE Motion to Lift Stay Denied. Natch. - Updated

Friday, January 15 2010 @ 08:26 PM EST

Hot off the presses, the bankruptcy court has denied SUSE's motion to lift the stay so as to complete the arbitration. What? This surprises you? This court favors SCO, as it is a bankruptcy court, and it says SCO doesn't have the money to do both; if SCO fails in Utah, the arbitration won't be necessary; and the bankruptcy court has no way to know who is likely to prevail, so SUSE can't meet one necessary prong to get a stay lifted.

: D

He found a way, as some of you speculated he would, to deny the motion. It's hilarious. I can't defend it. One thing is for sure, if SUSE doesn't appeal, as soon as the Utah trial is ended, should SCO prevail in any way, it will immediately be back. So in that sense, it doesn't matter much, but this court is a riot.

Here are the filings, and as you will see, one of Novell's attorneys, David Melaugh, has moved on:

01/15/2010 - 1035 - Notice of Withdrawal of Attorney David E. Melaugh Filed by Novell, Inc.. (Greecher, Sean) (Entered: 01/15/2010)
01/15/2010 - 1036 - Affidavit/Declaration of Service Regarding Notice of Withdrawal of Attorney David E. Melaugh (related document(s) 1035 ) Filed by Novell, Inc.. (Greecher, Sean) (Entered: 01/15/2010) 01/15/2010
1037 - Order Denying Suse's Motion For Relief From The Automatic Stay To Complete International Arbitration. (related document(s) 951 ) Order Signed on 1/15/2010. (GM) (Entered: 01/15/2010)

It's frustrating to see that the judge has absolutely no concept of the GPL and how it matters in terms of calculating the probability of success on the merits, and also to see how he doesn't understand the difference between the UNIX copyrights and the UnitedLinux distribution, but then you can't blame the judge really. Our witnesses at the hearing didn't hear SUSE or Novell mention the GPL even once. They were fighting with a couple of guns in their arsenal, but only one of them was blazing while the other stayed in its holster the entire hearing.

[ Update: Even beyond the GPL arguments and the UnitedLinux contractual arguments, I thought it would be useful to remind you of IBM's copyright misuse arguments in its Memorandum in Support of Summary Judgment on SCO's Copyright Claim:

As stated, SCO has not offered any evidence that it owns the allegedly infringed copyrights, despite the Court's orders. (¶¶ 67-69.) Even if SCO could show that it owns the copyrights, however, it has misused them in at least five independent ways, each of which is sufficient to foreclose SCO from further prosecuting its infringement claim against IBM:
(1) SCO claimed ownership over code for which SCO has no copyright;
(2) SCO effectively asserted that its alleged copyrights extend to all of Linux;
(3) SCO claimed its alleged copyrights give it control of IBM's own copyrighted code (i.e., AIX and Dynix);
(4) SCO claimed its alleged copyrights include material not protectable by copyright; and
(5) SCO is seeking to enforce its alleged copyrights in ways that are unenforceable.
SCO's misuse of its alleged copyrights is described in detail in the memorandum in support of IBM's motion for summary judgment on its Tenth Counterclaim. (DJ Br. at 94-99.) Rather than repeat that discussion here in full, we incorporate it by reference.

See what I mean? Even if SCO could persuade a jury that it owns some header files, are they copyrightable? If so, does owning some header files mean you can claim control of all of Linux and instead of letting folks remove it, insist on licenses to time indefinite, even forever? It's frankly silly. And I do believe Judge Gross is competent to understand such things, if he had wished to figure out SCO's likelihood of prevailing. - End update.]

The judge lists four Rexene factors, from a 1992 case. There are actually 12 factors called the Sonnax factors, and you can review what that is all about from this article from when Novell/SUSE tried to get the stay lifted the first time. But I think the judge erred massively in saying there is "no compelling need for the SUSE Arbitration to go forward at this point", in that the Arbitral Tribunal sent a letter in October saying they needed to see some action or else. Or else what? They didn't say, but if they shut it down, it would mean starting from scratch if and when it is time to get to that part of the litigation. It's not a separate litigation; it is and always was part of the original case, part of the case that is going to trial in March. They were supposed to be pursued simultaneously on parallel tracks. So if SUSE wishes to appeal, it probably has a basis. But let's face it. In Delaware, they take care of debtors. So why would the appeals court do any better than this court has, particularly when Rexene factors are discretionary? The problem is there is no definition of "cause" in the Bankruptcy Code, so judges just look at the facts of the case and decide whatever they want to. So he did. This judge is trying hard to save SCO. And how do you appeal discretion? I guess you could rationally argue that the judge stated as fact something that isn't correct. But I think it's more likely they'll just come back later if they need to. The judge could have sent a message to the Tribunal, I would think, that as soon as the trial is over, it can begin, if the issue is not mooted. At least that might have prevented a complete return to the starting gate and all the expenses associated with it.

Here's the heart of the Order Denying SUSE's Motion for Relief from the Automatic Stay to Complete International Arbitration, starting on page 4:

********************************

The Arbitration

On September 28, 2007, SCO moved this Court to find that the automatic stay applied to the Arbitration. (Dkt. No. 69.) The Court granted that motion on November 14, 2007. (Dkt. No. 204.) At the time of this ruling, the Arbitration had already been pending for 19 months, and both the parties and the Arbitration tribunal had devoted substantial efforts preparing for a merits hearing on liability that was originally scheduled for December 2007. The Arbitration has thus been suspended for the past two years.

The parties received a letter from the Arbitration tribunal, dated October 5, 2009, which stated, in part:

Following each party's update of 4 August 2009, a further two months have now elapsed, and as far as the Arbitration Tribunal is aware, there is still no indication as to whether this arbitration might be permitted to proceed.
As the parties will appreciate, if this situation is to continue indefinitely, it will begin to cause difficulties for the members of the Arbitration Tribunal.
To this end, I attach herewith Procedural Order No 10, which sets a further reporting date of 4 December 2009, by which time the arbitration will have been in abeyance for approximately two years. If there have been no developments by that date, the members of the Arbitral Tribunal may then need to consider their position, as well as the future conduct of these proceedings.

The Lift Stay Motion

The Court directed the appointment of a chapter 11 trustee on July 27, 2009. The Trustee was appointed shortly thereafter. (Dkt. Nos. 898-900.)

SUSE seeks relief from the automatic stay to proceed with the Arbitration to a judgment by the Tribunal. Section 362(d)(1) of the Bankruptcy Code provides that:

(D) On request of a party in interest after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay --
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest....

SUSE argues that "cause" exists, for the following reasons:

1. The Arbitration is nearly complete.
3. Continuing the stay will lead to incomplete litigation, i.e., the Utah Litigation.
4. SCO is using the stay of the Arbitration as a litigation tactic.
5. SUSE satisfies each of the Rexene¹ factors.

RULING

The Court agrees with the Chapter 11 Trustee that the Motion at this time is ill-founded. Accordingly, the Court will deny the Motion. The Court previously addressed this very issue and ruled that the automatic stay applicable to the Arbitration should remain in place. The reason to coninue the stay is now stronger than at the time of SUSE's prior attempt. In November 2007, this Court enforced the automatic stay and ruled that the "Swiss arbitration is subject to the automatic stay and SUSE is enjoined from proceeding in that arbitration during the pendency of the bankruptcy case." 11/6/07 Hrg. Tr., at 71. The decision resulted in the suspension of the Arbitration for over two years.

The District Court in the Utah Litigation has scheduled a three-week jury trial to begin on March 8, 2010 -- less than two months from now -- at which the dispute between SCO and Novell over, among other things, the ownership of the UNIX Copyrights, will be decided. It is the ownership of the Unix Copyrights which is the very issue that the District Court in 2006 determined would be an underlying finding to both the SUSE Arbitration and the Utah Litigation. SUSE can only speculate that if the Court grants stay relief, it expects the merits hearing will take place in three to six months. It is therefore more than likely that the Utah Litigation will be completed before the Tribunal begins its proceedings.

The Court will deny the Motion based upon its findings that SCO would suffer considerable harm were it to permit the Arbitration to proceed.

The Trustee has very limited resources with which to maintain SCO's business and perform other duties. The Trustee will also have to devote substantial time and resources over the coming weeks to prepare for the trial phase of the Utah Litigation. The Arbitration would require fees, costly travel expenses and payment to the Tribunal. In contrast, there is no compelling need for the SUSE Arbitration to go forward at this point. SUSE does not satisfy the first Rexene factor.

In balancing the hardships, the Court is also aware that in addition to the Utah litigation moving forward on a tight timetable, the Trustee is continuing his efforts to restructure SCO's business, or sell its assets, or a combination of both.

The preliminary issue is who owns the UNIX copyrights. SUSE seeks a ruling in the Arbitration that SCO is barred from asserting copyright infringement claims against SUSE. The ownership issue is soon to be tried before the District Court. The issue in the Arbitration is what, if anything, SCO did with the UNIX Copyrights it allegedly had acquired. It is a matter of judicial and estate economy that a factfinder first determine whether SCO acquired the UNIX Copyrights. If the jury in the Utah Litigation determines that SCO did not acquire the UNIX Copyrights, the Arbitration would be unnecessary as moot. SUSE does not satisfy the second Rexene factor.

Applying the third Rexene factor, the probability of success on the merits, the Court is not in a position to determine who would prevail and the probability. The Court therefore can not find that SUSE would likely prevail in the Arbitration.

Accordingly, SUSE's motion to lift the automatic stay to proceed with the Arbitration is denied.

Dated: January 15, 2010

[signature]
KEVIN GROSS, U.S.B.J. _____

¹ In re Rexene Prods. Co., 141 BR. 574, 575 (Bankr. D. Del. 1992).

SUSE Motion to Lift Stay Denied. Natch. - Updated | 216 comments | Create New Account

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corrections here in the title

Authored by: webster on Friday, January 15 2010 @ 08:41 PM EST