decoration decoration
Stories

GROKLAW
When you want to know more...
decoration
For layout only
Home
Archives
Site Map
Search
About Groklaw
Awards
Legal Research
Timelines
ApplevSamsung
ApplevSamsung p.2
ArchiveExplorer
Autozone
Bilski
Cases
Cast: Lawyers
Comes v. MS
Contracts/Documents
Courts
DRM
Gordon v MS
GPL
Grokdoc
HTML How To
IPI v RH
IV v. Google
Legal Docs
Lodsys
MS Litigations
MSvB&N
News Picks
Novell v. MS
Novell-MS Deal
ODF/OOXML
OOXML Appeals
OraclevGoogle
Patents
ProjectMonterey
Psystar
Quote Database
Red Hat v SCO
Salus Book
SCEA v Hotz
SCO Appeals
SCO Bankruptcy
SCO Financials
SCO Overview
SCO v IBM
SCO v Novell
SCO:Soup2Nuts
SCOsource
Sean Daly
Software Patents
Switch to Linux
Transcripts
Unix Books
Your contributions keep Groklaw going.
To donate to Groklaw 2.0:

Groklaw Gear

Click here to send an email to the editor of this weblog.


To read comments to this article, go here
The Novell-SCO Correspondence - as text
Thursday, January 15 2004 @ 09:11 PM EST

Here is the Novell-SCO correspondence in plain text. The PDFs are available on Novell's web site.

They are available by date individually or as a combined zip file. I would like to thank the group that volunteered to transcribe these so quickly for us: m0nkyman, eric76, Sunny Penguin, Phong, Robert Hutton, nik, Thomas Frayne for coordinating, Kevin, Electric Dragon, eggplant37, bruzie, and sa. Groklaw is Groklaw because of you.

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

May 12, 2003

FAXED

Mr. Jack L. Messman
Chairman & CEO
Novell, Inc.
[address]

Dear Jack:

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"). The vast majority of UNIX software used in enterprise applications today is a derivative work of the software originally distributed under our UNIX Licenses. Like you, we have an obligation to our shareholders to protect our intellectual property and other valuable rights.

In recent years, a UNIX-like operating system has emerged and has been distributed in the enterprise marketplace by various software vendors. This system is called Linux. We believe that Linux is, in material part, an unauthorized derivative of UNIX.

As you may know, the development process for Linux has differed substantially from the development process for other enterprise operating systems. Commercial software is built by carefully selected and screened teams of programmers working to build proprietary, secure software. This process is designed to monitor the security and ownership of intellectual property rights associated with the code.

By contrast, much of Linux has been built from contributions by numerous unrelated and unknown software developers, each contributing a small section of code. There is no mechanism inherent in the Linux development process to assure that intellectual property rights, confidentiality or security are protected. The Linux process does not prevent inclusion of code that has been stolen outright, or developed by improper use of proprietary methods and concepts.

Many Linux contributors were originally UNIX developers who had access to UNIX source code distributed by AT&T and were subject to confidentiality agreements, including confidentiality of the methods and concepts involved in software design. We 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.

As a consequence of Linux's unrestricted authoring process, it is not surprising that Linux distributors do not warrant the legal integrity of the Linux code provided to customers. Therefore legal liability that may arise from the Linux development process may also rest with the end user.

We believe that Linux infringes on our UNIX intellectual property and other rights. We intend to aggressively protect and enforce these rights. Consistent with this effort, on March 7, we initiated legal action against IBM for alleged unfair competition and breach of contract with respect to our UNIX rights. This case is pending in Utah Federal District Court. As you are aware, this case has been widely reported and commented upon in the press. If you would like additional information, a copy of the complaint and response may be viewed at our web site at www.sco.com/scosource.

For the reasons explained above, we have also announced the suspension of our own Linux-related activities until the issues surrounding Linux intellectual property and the attendant risks are better understood and properly resolved.

Similar to analogous efforts underway in the music industry, we are prepared to take all actions necessary to stop the ongoing violation of our intellectual property or other rights.

SCO's actions may prove unpopular with those who wish to advance or otherwise benefit from Linux as a free software system for use in enterprise applications. However, our property and contract rights are important and valuable; not only to us, but to every individual and every company whose livelihood depends on the continued viability of intellectual and intangible property rights in a digital age.

Yours truly,

THE SCO GROUP

By:
Darl McBride
President and CEO


VIA FAX AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

May 28, 2003

Mr. Darl McBride
President and CEO
The SCO Group
[address]

Re: SCO's "Letter to Linux Customers"

Dear Darl:

As you know, Novell recently announced some important Linux initiatives. These include an upcoming NetWare version based on the Linux kernel, as well as collaboration and resource management solutions for Linux.

Put simply, Novell is an ardent supporter of Linux and the open source development community. This support will increase over time.

It was in this context that we recently received your "Letter to Linux Customers." Many Novell business partners and customers apparently received the same letter. Your letter compels a response from Novell.

As we understand the letter, SCO alleges that unnamed entities incorporated SCO's intellectual property into Linux without its authorization. You apparently base this allegation on a belief that these unnamed entities copied some UNIX System V code into Linux. Beyond this limited understanding, we have been unable to glean any further information about your allegation because of your letter's vagueness.

In particular, the letter leaves certain critical questions unanswered. What specific code was copied from UNIX System V? Where can we find this code in Linux? Who copied this code? Why does this alleged copying infringe SCO's intellectual property? By failing to address these important questions, SCO has failed to put us on meaningful notice of any allegedly infringing Linux code, and thus has withheld from us the ability - and removed any corresponding obligation - to address your allegation.

As best we can determine, the vagueness about your allegation is intentional. In response to industry demands that you be more specific, you attempt to justify your vagueness by stating, "That's like saying, 'show us the fingerprints on the gun so you can rub them off.'" (Wall Street Journal, May 19, 2003) Your analogy is weak and inappropriate. Linux has existed for over a decade, and there are plenty of copies in the marketplace with which SCO could attempt to prove its allegation.

We are aware that you recently offered to disclose some of the alleged Linux problems to Novell and others under a nondisclosure agreement. If your offer is sincere, it may be a step in the right direction. But we wonder whether the terms of the nondisclosure agreement will allow Novell and others in the Linux community to replace any offending code. Specifically, how can we maintain the confidentiality of the disclosure if it is to serve as the basis for modifying an open source product such as Linux? And if we cannot use the confidential disclosure to modify Linux, what purpose does it serve?

In your letter, you analogize SCO's campaign against the Linux community to that of the record industry against major corporations whose servers contained downloaded music files. There are crucial differences between the two campaigns. The record industry has provided specific information to back up its allegation, while SCO steadfastly refuses to do so. In its allegation letter, the record industry provides evidence of allegedly infringing activity that is specific to the targeted company. This offers the company real notice of the activity, sufficient information to evaluate the allegation, and an opportunity to stop the activity if it determines the allegation is true. If SCO wants to compare its actions to those of the record industry, it should follow the example set by that industry and present specific evidence of the alleged infringement.

SCO claims it has specific evidence supporting its allegation against the Linux community. It is time to substantiate that claim, or recant the sweeping and unsupported allegation made in your letter. Absent such action, it will be apparent to all that SCO's true intent is to sow fear, uncertainty, and doubt about Linux in order to extort payments from Linux distributors and users.

This true intent becomes clearer when one considers various public statements you and other SCO personnel have made about SCO's intellectual property rights in UNIX. SCO continues to say that it owns the UNIX System V patents, yet it must know that it does not. A simple review of U.S. Patent Office records reveals that Novell owns those patents.

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 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.

SCO's actions are disrupting business relations that might otherwise form at a critical time among partners around Linux technologies, and are depriving these partners of important economic opportunities. We hope you understand the potential significant legal liability SCO faces for the possible harm it is causing to countless customers, developers and other Linux community members. SCO's actions, if carried forward, will lead to the loss of sales and jobs, delayed projects, cancelled financing, and a balkanized Linux community.

We, like others, are concerned about the direction of SCO's campaign. For now, we demand that SCO either promptly state its Linux infringement allegations with specificity or recant the accusation made in your letter. Further, 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. In the future, we hope SCO will adhere to standards of strict accuracy when stating its rights in UNIX.

Sincerely,

Jack L. Messman


VIA FAX AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

June 6, 2003

Mr. Jack Messman
[address]

RE: Novell's May 28, 2003 Press Release

Jack,

In a well-orchestrated press release on May 28, 2003 entitled "Novell Challenges SCO Position, Reiterates Support for Linux," you stated:

"Importantly, and contrary to SCO's assertions, SCO Is not the owner of the UNIX copyright."

As you know, your accusation that SCO does not own the UNIX copyrights was false and was without a good faith basis for belief. The documents clarifying this issue have been In your possession for nearly seven years. Any question of whether the UNIX copyrights transferred to SCO under the Sept. 19, 1995 Asset Purchase Agreement was clarified in Amendment No. 2 to the Asset Purchase Agreement dated October 16, 1996. You either knew or should have known of Amendment No. 2 prior to issuing your press release attack against SCO's ownership rights of the UNIX copyrights on May 28, 2003. Therefore your conduct in this matter was either maliciously or recklessly intended to harm SCO's share value and customer relations.

As to the question of whether your conduct was malicious or reckless, we have a direct statement that Chris Stone, an executive employee working closely with you on this matter, stated that the timing of your May 28, 2003 press release was intended to coincide with our earnings announcement that occurred later that day, I am also concerned that IBM may have possibly been involved in your decision to issue this groundless press release based upon statements you made in our telephone conversation on June 5th.

You should know that your actions may have been serious violations of the United States securities laws. Your press release, coupled with its intended timing to coincide with our May 28 earnings announcement appears to have been deceptive and manipulative conduct intended by you to artificially depress SCO's stock price in violation of the Federal securities laws, including but not limited to SEC Rule 10b-5.

SCO will hold a press call today at 11:00 am EST to clear up this matter so that our shareholders and customers are fully aware of SCO's rights with respect to the UNIX copyrights, You have time before that call to take the following corrective action in order to possibly mitigate any liability on the part of you, Jack Messman, and Novell, to SCO and to your own shareholders for your false and groundless accusations:

1. Affirm publicly that Novell has not retained any rights in and to the UNIX copyrights.

2. Affirm publicly that all UNIX copyrights transferred to SCO pursuant to Amendment No. 2 to the Asset Purchase Agreement.

3. Voluntarily disclose to us in a clear and forthright manner the date and substance of all conversations between Novell, its management and/or counsel, and IBM, its management and/or counsel with respect to the question of SCO's copyright claims to UNIX.

4. Voluntarily disclose to us in a clear and forthright manner the date and substance of all conversations between Novell, its management and/or counsel, and IBM, its management and/or counsel with respect to Novell's decision to issue the May 28, 2003 press release and the timing thereof.

These public statements and information about your communications with IBM regarding the topics identified above need to be presented to our satisfaction today before 10:30 EST.

You are further instructed to retain for future discovery all notes, phone records, emails and other communication by and among Novell management and/or counsel and IBM management and/or counsel since and after March 6, 2003.

Thank you for your immediate attention to these important matters.

Yours truly,

Darl McBride
President and CEO
The SCO Group, Inc.


VIA FAX AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

June 6, 2003

Mr. Darl McBride
President and CEO
The SCO Group
[address]

Re: Letter of June 6

Dear Mr. McBride:

I have received your letter to Jack L. Messman with respect to "Novell's May 28, 2003 Press Release."

For your information, Novell has today issued a press release with respect to Amendment No. 2. A copy is attached for your ease of reference.

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.

Sincerely,

Joseph A. LaSala, Jr.


June 9, 2003

VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

Mr. Darl McBride
President and CEO
The SCO Group
[address]

Re: IBM SVRX Licenses

Dear Mr. McBride:

This letter is further to my letter of May 28, 2003 concerning SCO's campaign directed against the Linux community. SCO's response to that letter reinforces Novell's concerns. SCO continues to advance unsubstantiated charges, and to threaten actions that would potentially injure Novell, Novell's customers, and the industry in general.

Recently, SCO has reiterated its threat to terminate IBM's SVRX license. Pursuant to Amendment No. X, however, Novell and SCO granted IBM the "irrevocable, fully paid-up, perpetual right" to exercise all of the rights under the IBM SVRX Licenses that IBM then held. IBM paid $10,125,000 for the rights under Amendment No. X. Novell believes, therefore, that SCO has no right to terminate IBM's SVRX Licenses, and that it is inappropriate, at best, for SCO to be threatening to do so.

Under Section 4.16(b) of the Asset Purchase Agreement Novell retains the right, at Novell's "sole discretion and direction," to require SCO to "amend, supplement, modify or waive any rights under, or ... assign any rights to, any SVRX License to the extent so directed in any manner or respect by [Novell]." That section further provides that to the extent SCO "shall fail to take any action concerning the SVRX Licenses" as directed by Novell, Novell "shall be authorized, and is hereby granted, the rights to take any action on [SCO's] own behalf."

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM. Novell directs SCO to take this action by noon MDT, June 12, 2003, and to notify Novell that it has done so by that time.

Sincerely,

Jack L Messman

Cc: Mr. Ron Lauderdale
V.P., Assistant General Counsel
IBM


June 11, 2003

CONFIDENTIAL

VIA FACSIMILE AND FEDERAL EXPRESS

Mr. Jack L. Messman
Chairman and CEO
Novell, Inc.
[address]

Dear Jack:

This letter is in response to yours of June 9, 2003. In your June 9 letter, you attempt to assert claims on behalf of IBM with respect to its SVRX License with SCO. Specifically, your June 9 letter states, in pertinent part, as follows:

[P]ursuant to Section 4.16(b) of the [September 19, 1995] Asset Purchase Agreement Novell hereby directs SCO to waive any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendment X or to revoke any right thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM. Novell directs SCO to take this action by noon, MDT, June 12, 2003, and to notify Novell that it has done so by that time.
As with your May 28 false statement that SCO does not own the copyrights to UNIX, your "direction" in the June 9 letter is also without legal or factual basis. SCO received from Novell under the September 19, 1995 Asset Purchase Agreement the following:

[A]ll of Seller's right, title and interest in and to the assets and properties of Seller relating to the Business (collectively the "Assets") identified on Schedule 1.1(a) hereto. (Asset Purchase Agreement, Para. 1.1)

The "Assets" are identified in Schedule 1.1(a) of the Asset Purchase Agreement to include the following:

a. "[A]ll rights and ownership of UNIX and UnixWare, including...source code..." (Schedule 1.1(a), Para. I)

2. "Software and Sublicensing Agreements-this includes the source code and sublicensing agreements that Seller has with its OEM, End User and Educational customers. The total number of these agreements is approximately 30,000." (Schedule 1.1(a), Para. III-L)

3. "[A]ll claims against any parties relating to any right or asset included in the Business." (Schedule 1.1(a), Para. II)

As set out above, SCO acquired all of Novell's right, title and interest: (a) to the AT&T Software and Sublicensing Agreements, including the AT&T/IBM Software Agreement, and (b) to all claims against any parties. SCO therefore acquired all right, title and interest to enforce the Software and Sublicensing Agreements against IBM, without answering to Novell.

Furthermore, the contract provision you rely on in your June 9, 2003 letter (Para. 4.16(b)) is not even arguably applicable in the case of IBM because IBM completed a royalty buyout on October 16, 1996. Amendment No. 2 to the Asset Purchase Agreement specifically eliminates any rights Novell might otherwise have under Para. 4.16(b) with respect to an SVRX licensee who completes a buy-out of its royalty obligation. The pertinent language of Amendment No. 2 is as follows:

Except as provided in Section C below, and notwithstanding the provisions of Article 4.16 Sections (b) and (c) of the Agreement, any potential transaction with an SVRX licensee which concerns a buy-out of any such licensee's royalty obligation shall be managed as follows:

* * * This Amendment does not give Novell the right to increase any SVRX licensee's rights to the SVRX source code, nor does it give Novell the right to grant new SVRX source code licenses. In addition, Novell may not prevent SCO from exercising its rights with respect to SVRX source code in accordance with the Agreement. (Amendment No. 2 Para. B.5)

Amendment No. 2 applies to IBM as a royalty buy-out customer. Novell has no contractual right to either increase IBM's source code rights, or prevent SCO from exercising its rights with respect to SVRX source code. As set forth above, SCO has already acquired all of Novell's right, title and interest in and to the Software and Sublicensing Agreements that are designed to contractually protect the source code.

Novell has no rights whatsoever to "direct" SCO to waive its claims against IBM under the AT&T/IBM Software and Sublicensing Agreements, the very agreements designed to protect the integrity and confidentiality of the UNIX source code.

SCO's claims against IBM for breach of the AT&T/IBM Software and Sublicensing Agreements go to the very core of protecting the UNIX source code and Software and Sublicensing Agreements that SCO acquired from Novell. IBM is transferring the UNIX code, derivative works and methods for use in Linux in violation of the Software Agreement. IBM is making UNIX available for others and for use by others in violation of the Software Agreement. IBM is breaching confidentiality of UNIX protected under the Software Agreement in a concerted effort to destroy the entire economic value of the UNIX source code. SCO will not let IBM's egregious breaches of contract and other misconduct continue any further. Novell is powerless to aid IBM's ongoing breach of the AT&T/IBM Software and Sublicensing Agreements. Neither Novell nor you should even want to engage in further improper activity with IBM. Any further actions by you or Novell will simply be added to the following improper actions taken thus far:

1. You issued the May 28, 2003 press release that contained false and misleading statements regarding ownership of the UNIX copyrights on the very day of SCO's earnings announcement. These statements were later retracted, but only after SCO suffered a 30% decrease in its market capitalization on May 28 and the morning of May 29, notwithstanding record earnings announced by SCO in its earnings announcement.

2. An industry reporter was informed by a senior Novell executive that your May 28 press release was timed to coincide with SCO's May 28 earnings announcement. In fact, 443 investors, media and analysts called into the SCO May 28 earnings announcement. We were forced to deal with the false and misleading press release issued by Novell earlier that morning in an apparent attempt to undermine investor confidence in SCO. As stated above, SCO suffered a 30% decrease in market capitalization as a result of your press release, and the timing thereof.

3. On June 9, 2003 you attempted to "direct" SCO to waive any contract claims it has against IBM. You included Ron Lauderdale, Assistant General Counsel at IBM, as a copied recipient of the June 9 letter. In case there was any question about the concerted actions between you and IBM against SCO, this letter including Mr. Lauderdale as a recipient removed all doubt. But your efforts to "direct" SCO on behalf of IBM are again without factual or legal basis. The Asset Purchase Agreement does not support your assertion, and the paragraph you rely upon was rendered moot with respect to IBM upon its royalty buyout on October 16, 1996. Your efforts are exposed as nothing more than a heavy-handed attempt to interfere with the AT&T/IBM Software and Sublicensing Agreement that SCO holds the sole power to enforce.

4. The fact that Mr. Lauderdale was directly involved in your decision to issue the June 9, 2003 letter further confirms your reluctant admission to me on June 5, 2003 that IBM may have been involved in your press release of May 28, 2003, with the resulting adverse impact on SCO and its shareholders.

For the reasons outlined above and for other reasons, we have no intention of waiving our rights against IBM for destroying the value of UNIX and UnixWare by ignoring the restrictions on use, transfer and confidentiality of source code, derivative works and methods.

Rather than continue to take a hostile stance against SCO in concert with IBM, it seems that you would be better served to extract yourself from this situation and do everything in your power to mitigate further damages by you and Novell. To that end, we suggest that you consult with your Board of Directors to decide how the company wishes to proceed. From SCO's standpoint, Novell and you have two options:

1. Formally retract your baseless demand on IBM's behalf with respect to the AT&T/IBM Software and Sublicensing Agreements, and disavow any legal or factual basis to make such a demand. If you do this by June 12 at 12:00 Noon, MDT, you may advise your Board that SCO will release and forego any and all claims against you, Jack Messman, all other Novell executives and Novell, arising from the violations identified above. We will agree to a release of claims with respect to all such matters that may, at your election, contain appropriate confidentiality and other customary provisions.

2. Fail to retract your demand on IBM's behalf with respect to the AT&T/IBM Software and Sublicensing Agreements and otherwise continue to issue false statements and unsubstantiated demands in concert with IBM. In such event, we will proceed to protect SCO's interests in the ways we deem necessary.

The choice is yours to make, Jack. I urge you to take the appropriate steps to disengage Novell and you from SCO's conflict with IBM. If you and your Board choose the option we have suggested, you can respond to this offer on or before June 12, 2003, by 12:00 Noon, MDT by stating in writing that you accept our offer set forth. Upon receipt of your acceptance of SCO's offer, we will take all necessary steps to maintain the confidentiality of your communication pending the execution of final release documents.

If you and your Board choose to do something other than what I have outlined, the offer will be revoked as of June 12, 2003 at 12:01 PM MDT and will not be renewed.

Sincerely yours,

Darl McBride
President and CEO
The SCO Group, Inc.


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

June 12, 2003

Mr. Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Re: Asset Purchase Agreement between the Santa Cruz Operation, Inc. and Novell, Inc., September 19, 1995

Dear Darl:

This is in response to your letter of June 11, 2003. Your letter repeats many allegations you have made before. You know that we think they are baseless.

As to the direction we gave SCO, I have looked over the contractual provisions you cite, and have concluded that once again you are engaging in implausible readings of the relevant documents. We continue to believe that your actions are without foundation, and remain concerned about the impact your legal strategy is having on Novell, Novell's customers and the computer industry.

To begin with, your letter in no way addresses the fact that IBM obtained "irrevocable" rights when it signed Amendment No. X. As we stated earlier, we believe that "irrevocable" means irrevocable, and that your threatened termination is for that reason alone in bad faith.

Second, your letter effectively reads out of the Asset Purchase Agreement the rights Novell retained under Section 4.16, particularly Secion 4.16(b). All of the assignments of rights referenced in your letter (including the rights to UNIX and UNIXWare, related source code and software agreements, and claims) were made as part of the same document that provided Novell with the rights in Section 4.16. Those rights were and are critical to protecting the interests that Novell retained as part of the Asset Purchase Agreement (including its interests in royalty payments and the contractual commitments Novell made in return for royalty payments). In fact, the agreement provides Novell with the broad right to act in its "sole discretion" in protecting its interests. Yet you act as if Section 4.16(b) does not exist.

Third, you completely misread the effect of Amendment No. 2 on Section 4.16. The introductory language you quoted in your letter makes it clear that the provisions that follow relate only to a "potential transaction with an SVRX licensee which concerns a buyout." None of the provisions that follow has any impact on other SVRX licenses, including (as is pertinent to the IBM transaction) buyout transactions that had already been completed. This is reinforced by the language providing that the terms you cite relate to how such a potential buyout transaction "shall be managed."

Finally, and perhaps most importabtly, as of the date of Amendment No. 2, when the IBM buyout had been completed, the parties were looking at Section 4.16(b) and did nothing to cut back on its general applicability. In fact, I read Amendment No. 2 as reinforcing the ongoing applicability of Section 4.16(b) to SVRX licences (including the post-buyout IBM license), because the parties had a clear and conscious opportunity to, but did not, alter the applicability of Section 4.16(b), including the right of Novell to direct SCO to take action as to those licenses.

Darl, I don't think this is even a close call. You and I both understand the Asset Purchase Agreement deal: SCO acquired certain assets from Novell but acquired those assets subject to certain rights of Novell. You can't have one without the other.

In fact, you refer in your letter to a "choice" that "is [o]urs to make." We believe, however, that this is a matter of responsibility. Novell takes its contractual commitments seriously. When we enter into or amend a license to make it "irrevocable," we mean what we say, and we expect our customers to be able to rely on what we say. We ask you to do the same.

Sincerely,

Jack L. Messman


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

June 12, 2003

Mr. Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Ronald A. Lauderdale, Esq.
Vice-President, Assistant General Counsel
International Business Machines Corporation
[address]

Re: IBM SVRX Licenses

Gentlemen:

Reference is made to the following:

Asset Purchase Agreement by and between The Santa Cruz Operation, Inc. and Novell, Inc. dated as of September 19, 1995, and more particularly to Section 4.16(b) of that agreement;
Amendment No. X to Software Agreement SOFT-00015, et seq., between International Business Machines Corporation, The Santa Cruz Operation, Inc., and Novell, Inc;
Letter dated March 6, 2003 from The SCO Group to International Business Machines Corporation; and
Letter dated June 9, 2003 from Novell to The SCO Group regarding IBM SVRX Licenses.

In its June 9 letter to The SCO Group, Novell directed "SCO to waive any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM." Novell directed SCO "to take this action by noon, MDT, June 12, 2003."

SCO has failed to take the action directed by Novell.

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM.

Sincerely,

Jack L. Messman


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED June 18, 2003

Mr. Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Re: Asset Purchase Agreement between the Santa Cruz Operation, Inc. and Novell, Inc., September 19, 1995

Dear Darl:

I write to address in additional detail SCO's repeated allegation that Novell has acted to injure SCO and, more particularly, that Novell timed its announcement concerning copyright ownership to coincide with SCO's earnings announcement.

As a general matter, I hope you understand that Novell harbors no particular ill-will toward SCO, nor any desire to hurt SCO or its officers and employees. We have, of course, expressed our concerns about SCO's litigation strategy. We intend to protect our interests in view of that strategy, but that is because we have a responsibility to do so, not because we want to harm your business.

On the specific claim regarding the timing of our copyright ownership announcement, the matter was entirely coincidental. We had absolutely no intention of timing the May 28 statement so as to affect the reception of your announcement.

We also have spoken with Chris Stone, who you said had given contrary indications to a reporter. Chris has made absolutely clear that he never suggested such a linkage to the reporter. On this issue, it seems as if the best explanation is that the reporter linked the two events without prompting from Novell.

Sincerely,

Jack L. Messman


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

June 24, 2003

Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Re: Asset Purchase Agreement between The Santa Cruz Operation, Inc. and Novell, Inc., September 19, 1995

Dear Mr. McBride:

I write further to the exchange of correspondence between Novell and SCO concerning the Asset Purchase Agreement.

Section 4.16(b) of the Asset Purchase Agreement reads as follows:

Buyer shall not, and shall not have the authority to, amend, modify or waive any right under or assign any SVRX License without the prior written consent of Seller.

Section 4.16(b) (as amended by Amendment No. 1 to the Asset Purchase Agreement) also states that:

Buyer shall not, and shall have no right to, enter into new SVRX Licenses except in the situation specified in (i) of the preceding sentence [relating to UnixWare or the Merged Product] or as otherwise approved in writing in advance by Seller on a case by case basis.

Amendment No. 2 to the Asset Purchase Agreement reinforces the restrictions on SCO, providing that Novell (as well as SCO) has the right to approve any "transaction with an SVRX licensee which concerns a buy-out of any such licensee's royalty obligations." In fact, each of SCO and Novell is obligated to notify the other party in writing about any such potential buy-out transaction. In addition, Novell (as well as SCO) has the right to attend any meetings or negotiations and to approve any proposals for and drafts of agreements for any such transaction.

It has come to our attention that SCO may have violated these provisions. In particular, SCO reported in a recent securities filing that SCO has established a program to review existing licenses, and enter into new licenses, relating to UNIX and that this effort "resulted in the execution of two license agreements" during the quarter ended April 30, 2003. The securities filing states:

The first of these licenses was with a long-time licensee of the UNIX source code which is a major participant in the UNIX industry and was a "clean-up" license to cover items that were outside the scope of the initial license. The second license was to Microsoft Corporation ("Microsoft"), and covers Microsoft's UNIX compatibility products, subject to certain specified limitations. These license agreements will be typical of those we expect to enter into with developers, manufacturers, and distributors of operating systems in that they are non-exclusive, perpetual, royalty-free, paid up licenses to utilize the UNIX source code, including the right to sublicense that code.

SCO's actions regarding the licenses referenced in the securities filings and SCO's plans for future licenses cannot be reconciled with Novell's rights and SCO's obligations under the Asset Purchase Agreement provisions quoted above.

Therefore, we demand as follows:

1. Immediately provide to Novell copies of the two agreements in question, and any other agreements in which SCO purports to amend, modify or waive rights under any SVRX license (including any transaction that concerns a buy-out of licensee royalties) or to enter into any new SVRX license, together with any explanation you might offer as to why you believe these agreements are permissible under the Asset Purchase Agreement.

2. Effective immediately, do not enter into any further agreement in which SCO purports to amend (except for amendments permissible under the penultimate sentence of Section 4.16(b)), modify or waive rights under any SVRX license (including any transaction that concerns a buy-out of licensee royalties) or to enter into any new SVRX license.

3. Effective immediately, comply with SCO's obligations under Amendment No. 2 for management of any potential transaction with any SVRX licensee that concerns a buy-out of such licensee's royalty obligations, including immediately ceasing all negotiations and other communications with licensees concerning any such transaction without Novell's prior written consent and continued participation.

Once we have the relevant information, we can address the resolution of any violation of the Asset Purchase Agreement, including payment of SVRX royalties and other amounts owed to Novell based on the above-mentioned license agreements.

Sincerely,

Joseph A. LaSala, Jr.


June 26, 2003

Via Telefacsimile and certified mail

Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Re: Asset Purchase Agreement Between The Santa Cruz Operation, Inc. and Novell, Inc., September 19, 1995

Dear Darl:

I write to address SCO's recent statements (to the press, in a securities filing, in your amended complaint in the IBM case, and in other materials) that SCO owns all of the intellectual property rights associated with UNIX and UnixWare. For example, your June 6 press release states that SCO owns "all rights to the UNIX and UnixWare technology," and the description of your "SCOsource" program on your Web site states that SCO owns "the patents, copyrights and core technology associated with the UNIX System."

SCO's statements 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 about copyright transfers 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.

We are still reviewing the Asset Purchase Agreement and other background materials to determine the actual scope of rights transferred to SCO. In the meantime we wish to make it clear that we do not agree with SCO's public statements on this matter.

Sincerely,

Joseph A. LaSala, Jr.
Sr. Vice President
General Counsel and Secretary


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

July 8, 2003

Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Re: Communications with Former Novell Executives

Dear Mr. McBride: It has come to Novell's attention that SCO's attorneys have contacted former Novell executives and interviewed them.

As I'm sure you are aware, Novell employees, present and former are obligated to protect the confidentiality of Novell proprietary information. Moreover, senior executives are often involved in privileged communications with counsel. SCO's actions, therefore, raise serious questions whether SCO has intentionally interfered with the obligations of these executives to Novell.

At a minimum, and regardless of any other relief Novell may seek, Novell hereby demands that SCO cease all communications with former Novell executives on matters arising out of or relating to their employment with Novell.

Sincerely,

Joseph A. LaSala, Jr.


07/11/2003

Via Telefacsimile [number] and Overnight Mail

Robert Bench
Chief Financial Officer
The SCO Group
[address]

Re: Demand for Outstanding Royalty Reports and Payments, and Notice of Audit, under the Asset Purchase Agreement Between The Santa Cruz Operation, Inc. and Novell, Inc., September 19, 1995.

Dear Mr. Bench:

I write to address two issues relating to payments owed by SCO to Novell under the Asset Purchase Agreement, including both SVRX royalties and the royalties payable through June 30, 2003 on Royalty-Bearing Products.

First, it has been more than six months since Novell received any royalty reports or payments from SCO (we last received a royalty payment for October 2002, a royalty report for November 2002, and it appears that we have not received a royalty report or payment since). We have tried to address this issue in the ordinary course through SCO's accounts receivable staff, but we have not received either the reports or payments or an explanation for SCO's failure to provide them.

Accordingly, we demand that SCO provide immediately (and, for the future, provide on a timely basis) the royalty reports and payments required by the Asset Purchase Agreement. Please provide the reports in the format specified in Section 1.2(f) of the Asset Purchase Agreement (as amended by Amendment No. 1), including breakdowns by revenue type, product, customer, quarterly period of distribution, and (if available) country of distribution. Please also provide us with the single point of contact (to give us supplemental information that we deem appropriate) and the monthly reconciliation (of revenues and accounts receivable to cash remittances) that are required by Section 1.2(f).

Second, we notify you that we will conduct an audit of SCO concerning royalties and other payments due under the SVRX licenses and the Asset Purchase Agreement. We will begin the audit at 10:00 a.m. on August 18, 2003, although we would be pleased to begin on another day that same week if another day is more convenient for your accounting personnel. As you may be aware, Novell last conducted an audit in February 1998, covering the period ending December 31, 1997.

Accordingly, the audit will focus on royalties for the period beginning January 1, 1998 and ending June 30, 2003. Please acknowledge receipt of this letter and let us know the SCO contact person with whom we should coordinate the audit.

Please let us know if you have any questions.

Sincerely,

Mike Bready
Director, Contract Management


July 17, 2003

Mr. Mike Bready, Director
Contract Management
Novell, Inc.
[address]

Re: Royalty Payments and Audit Request pursuant to Asset Purchase Agreement dated September 19, 1995

Dear Mr. Bready:

This letter is in response to yours of July 11, 2003.

Attached with this letter please find SVRx royalty payments from November 2002 through and including May 31, 2003. As you know, these payments are typically made to Novell on a quarterly basis. Recent payments were withheld pending our review of Novell's recent announcements regarding Linux. We are currently evaluating the scope of Novell's Linux-related activities for compliance with the terms of the September 19, 1995 Asset Purchase Agreement and its various amendments (collectively, the "Asset Purchase Agreement").

We have provisionally determined that Novell announcements, standing alone, may not have violated the terms of the Asset Purchase Agreement for the royalty period in question. For this reason SCO management has authorized payment of the above-referenced royalty amounts. However, SCO expressly reserves and does not waive its right to withhold royalty payments for future periods if it is determined that Novell violates its obligations under the Asset Purchase Agreement with respect to any Linux-related activity.

With regards to your request to begin an audit on August 18, 2003 at 10:00 am in our offices, we would request Novell begin their royalty audit procedures the following week if possible. SCO's quarter ends July 31 and our auditors are scheduled to be at our offices for their quarterly review procedures during the week of August 18th. Our revenue and royalty finance teams will be fully engaged with our auditors. If you could start your audit the week of August 25th we could then give our full and undivided attention for your audit needs and requirements. Please let me know if this is satisfactory.

Please direct all issues regarding the audit request to me.

Sincerely,

Robert Bench
Chief Financial Officer



VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

August 4, 2003

Mr. Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Dear Mr. McBride,

This is further to my letter of June 26, 2003 concerning ownership of the copyrights in UNIX, and follows your recent announcement that SCO has registered its claim to copyrights in UNIX System V with the U.S. Copyright Office.

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.

Sincerely,

Joseph A. LaSala, Jr.


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

August 7, 2003

Mr. Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Re: Royalty Payment and Audit Request Pursuant to Asset Purchase Agreement Dated September 19, 1995

Dear Mr. McBride:

We are in receipt of Mr. Bench's letter to Mr. Bready concerning SCO's royalty payments to Novell and the audit to be conducted in August. Mr. Bready will be replying separately concerning certain audit and financial details.

I write with respect to the statement in Mr. Bench's letter that "recent payments were withheld pending our review of Novell's recent announcements regarding Linux." There is absolutely no basis for SCO to be withholding royalty payments to Novell on any ground whatsoever, and we categorically reject the proposition that SCO had or has a right to withhold payments based on Linux concerns.

Permit me to remind you of the structure of the Asset Purchase Agreement. Under Section 1.2(b) (Royalties), SCO agreed to "collect and pass through to [Novell] 100 percent (100%) of the SVRX Royalties." This section goes on to state that "[Novell] is retaining all rights to the SVRX Royalties notwithstanding the transfer of the SVRX Licenses to [SCO] pursuant hereto."

Moreover, Section 4.16(a) of the Asset Purchase Agreement, as amended by Amendment No. 1, requires that SCO make payment of 100% of all royalties to Novell within one calendar month of receipt. Novell then is to remit payment of SCO's administrative fee to SCO.

Finally, Section 1.2(f) (added by Amendment No. 1) requires detailed monthly reports on all royalties.

While the parties may have agreed in the past to modify the payment and report schedule, no such modification went to the structure of the Asset Purchase Agreement, pursuant to which Novell is the owner of the SVRX Royalties. Moreover, the Asset Purchase Agreement contains no provision allowing SCO to offset any claim against Novell - even assuming for purposes of argument that SCO had or has such a claim.

Novell regards SCO's withholding of payment, and perhaps even more importantly, its rationale for withholding payment, as a very serious matter, and we request your clear and unambiguous assurances that there will be no repetition of this occurrrence.

Sincerely,

Joseph A. LaSala, Jr.


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

August 20, 2003

Mr. Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Re: Source and binary code due Novell under the Asset Purchase Agreement (the "APA"), dated September 19, 1995, and the Technology License Agreement (the "TLA"), executed December 6, 1995, both between Novell and The Santa Cruz Operation, Inc.

Dear Mr. McBride:

Under Section II of the TLA, Novell retains "a non-exclusive, non-terminable, world-wide, fee-free license to" the "Licensed Technology," as that term is defined in the APA. Section 1.6 of the APA defines the term "Licensed Technology" as "all of the technology included in the Assets and . . . all derivatives of the technology included in the Assets, including the 'Eiger' product release." In turn, Section 1.1(a) of the APA defines the "Assets" as those assets and properties identified on Schedule 1.1(a), exclusing the assets identified on Schedule 1.1(b). Schedule 1.1(a) includes "all versions of UNIX and UnixWare," including Unix source code products and UnixWare binary product releases. Thus, Novell retained a license to all derivatives of all versions of UNIX and UnixWare.

It follows from the foregoing that Novell is entitled to, among other things, copies of the source and binary code for all versions of UNIX and UnixWare under SCO's control.

Novell has made several informal attempts in phone conversations between Chris Sontag and Novell's Dave Wright to obtain copies of the source and binary code for Unix and UnixWare, but to no avail. Recent phone messages Dave Wright has left with Chris Sontag have not been returned.

Since our informal requests have met with no success, Novell now formally demands that SCO promptly supply to Novell copies of the source and binary code for all versions of UNIX and UnixWare under SCO's control. Novell would prefer to receive the code via a secure ftp site given the considerable volume involved, but we are open to other delivery methods if SCO has its own preference.

Please respond promptly with a date by which Novell can expect to receive the above shown code.

Sincerely,

Joseph A. LaSala, Jr.


Via Telecopy and Certified Mail

September 10, 2003

Mr. Joseph A. LaSala, Jr.
Novell, Inc.
[address]

Dear Mr. LaSala,

I write in response to your letters to Darl McBride of August 4, 2003, and August 20, 2003. Please direct all future correspondence to The SCO Group, Inc. to my attention.

We have reviewed and considered your letters in detail and disagree with your analysis and conclusions. Your current interpretation of the agreements, which appears to be of recent vintage, ignores certain provisions of the relevant documents and does not consider the agreements between Novell and SCO as a whole. We respectfully suggest that you carefully review all of the agreements in their entirety, particularly Amendment No. 2.

In addition, it appears that Novell is acting in concert with IBM to destroy the value of SCO UNIX and UnixWare intellectual property acquired from Novell in the Asset Purchase Agreement. SCO is not going to let this happen. Further, we request that Novell abide by the terms of the agreement, including all amendments.

Thank you for your attention to this matter. Please feel free to call if you have any questions.

Sincerely,

Ryan Tibbitts
General Counsel
The SCO Group, Inc.


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

October 7, 2003

Mr. Ryan Tibbitts
General Counsel
The SCO Group

RE: IBM Code Contributed to AIX

Dear Mr. Tibbitts: I write further to the exchange of correspondence between Novell and SCO concerning SCO's campaign directed against the Linux community.

SCO appears to be taking the position that code developed by IBM, or licensed by IBM from a third party, which IBM incorporated in AIX but which itself does not contain proprietary UNIX code supplied by AT&T under the license agreements between AT&T and IBM ("IBM Code"), must nevertheless be maintained as confidential and may not be contributed to Linux.

For instance, at Forum 2003, SCO gave a presentation in which it asserted that particular code modules constitute "examples of significant infringing derivative works contributions to Linux 2.4/2.5 kernels." SCO concluded that over 1,500 files and more than a million lines of code were unlawfully copied from UNIX into Linux. It appears that SCO included IBM Code in its calculation.

The position that IBM Code must be maintained as confidential and subject to use restrictions is contrary to the agreements between AT&T and IBM, including Amendment X, to which Novell is a party. Section 2.01 of the Software Agreement, dated February 1, 1985, between AT&T Technologies, Inc. and IBM, states that:

AT&T grants to LICENSEE a personal, nontransferable and nonexclusive right to use in the United States each SOFTWARE PRODUCT identified in the one or more Supplements hereto, solely for LICENSEE'S own internal business purposes and solely on or in conjunction with DESIGNATED CPUs for such SOFTWARE PRODUCT. Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT.
A side letter clarifying the parties' understanding of the Software Agreement, also dated Februaru 1, 1985, states (in paragraph A.2) that:
Regarding Section 2.01, we [AT&T] agree that modifications and derivative works prepared by or for you [IBM] are owned by you. However, ownership of any portion or portions of SOFTWARE PRODUCTS included in any such modification or derivative work remains with us.

The agreements between AT&T and IBM, as amended, including the side letter (the "Agreements"), thus provide for a straightforward allocation of rights: (1) AT&T retained ownership of its code from the Software Products ("AT&T Code"), and the Agreements' restrictions on confidentiality and use apply to the AT&T Code, whether in its original form or as incorporated in a modification or derivative work, but (2) IBM retained ownership of its own code, and the Agreements' restrictions on confidentiality and use do not apply to that code so long as it does not embody any AT&T Code.

To be sure, to the extent that a modification or derivative work embodies AT&T Code, the combined work consisting of AT&T Code and IBM Code constitutes "resulting material" that is subject to the Agreements. The IBM Code itself is, however, not "resulting material." Therefore, AT&T Code is not subject to the confidentiality obligations or use restrictions of the Agreement.

This outcome is consistent with other provisions of the Agreements. For example, the side letter (as amended by Amendment X) further provides (in paragraph 9) that:

Nothing in this agreement shall prevent LICENSEE from developing or marketing products or services employing ideas, concepts, knowhow or techniques relating to data processing, embodied in SOFTWARE PRODUCTS subject to this Agreement, provided that LICENSEE shall not copy any code from such SOFTWARE PRODUCTS into any such product or in connection with any such service.

As reflected in this language, the focus of the Agrements was on protecting AT&T Code, not on restricting IBM Code just because it happened to be combined with AT&T Code in a modification or derivative work. Any other result would defy logic as well as the intent of the parties.

As you know, under Section 4.16(b) of the Asset Purchase Agreement Novell retains the right, at Novell's "sole discretion and direction," to require SCO to "amend, supplement, modify or waive any rights under, or . . . assign any rights to, any SVRX License to the extent so directed in any manner or respect by [Novell]." That section further provides that to the extent SCO "shall fail to take any action concerning the SVRX Licenses" as directed by Novell, Novell "shall be authorized, and hereby is granted, the rights to take any action on [SCO's] own behalf."

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may claim to require IBM to treat IBM Code itself as subject to the confidentiality obligations or use restrictions of the Agreements. Novell directs SCO to take this action by noon, MST, on October 10, 2003, and to notify Novell that it has done so by that time.

Sincerely,

Joseph A. LaSala, Jr.


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

October 7, 2003

Mr. Ryan Tibbitts
General Counsel
The SCO Group
[address]

Re: Silicon Graphics, Inc.

Dear Mr. Tibbitts:

On August 13, 2003, SCO sent a letter to Silicon Graphics, Inc. ("SGI"), providing notice that it would terminate SGI's SVRX license by October 14, 2003 if SGI did not remedy certain alleged breaches. SGI responded to that letter of September 30, 2003.

As it has with IBM, SCO appears to be taking the position that code developed by SGI, or licensed by SGI from a third party, which SGI incorporated in its UNIX variant but which itself does not contain proprietary UNIX code supplyed by AT&T under the license agreement between AT&T and SGI ("SGI Code"), must nevertheless be maintained as confidential and may not be contributed to Linux.

We have reviewed the terms of the AT&T/SGI License and we believe that SCO's position is not supportable. In particular, we note that Section 2.01 of the license specifically states that "ATT-IS claims no ownership interest in any portion of such a modification or derivative work that is not part of a SOFTWARE PRODUCT."

SCO has also alleged that SGI contributed to Linux certain proprietary UNIX code supplied by AT&T under the AT&T/SGI license agreement. SGI has responded to that allegation in its letter by, among other things, noting the small amount of code at issue and its efforts to expunge potentially problematic code from Linux.

In 1995, Novell and SGI entered into an amendment which granted SGI a fully paid-up license in return for a payment to Novell of $19 million. SCO has not demonstrated to Novell that there has been a breach of the SGI license sufficient to conclude that termination is warranted.

Under Section 4.16(b) of the Asset Purchase Agreement, Novell retains the right, at Novell's "sole discretion and direction," to require SCO to "amend, supplement, modify or waive any rights under, or . . . assign any rights to, any SVRX License to the extent so directed in any mannerr or respect by [Novell]." That section further provides that to the extent SCO "shall fail to take any action concerning SVRX Licenses" as directed by Novell, Novell "shall be authorized, and hereby is granted, the rights to take any action on [SCO's] own behalf."

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO to waive any purported right SCO may claim to terminate SGI's SVRX license or to revoke any rights thereunder, including any purported right to terminate asserted in SCO's letter of August 13, 2003.

In addition, Novell hereby directs SCO to waive any purported right SCO may claim to require SGI to treat SGI Code itself as subject to the confidentiality obligations or use restrictions of SGI's SVRX license.

For the avoidance of doubt, Novell is not at this time directing SCO to take any action (other than to waive termination) with respect to claims that SGI incorporated in Linux certain proprietary UNIX code supplied by AT&T under the SGI license agreement.

Novell directs SCO to take these actions by noon, MST, October 10, 2003, and to notify Novell that it has done so by that time.

Sincerely,

Joseph A. LaSala, Jr.

cc: Mr. Darl McBride
Ms. Sandra M. Escher
Senior Vice President and General Counsel
SGI


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

October 7, 2003

Mr. Ryan Tibbitts
General Counsel
The SCO Group
[address]

Re: Technology License Agreement

Dear Mr. Tibbitts:

It has come to our attention that SCO is planning to "invoice" Linux users based on the claim that Linux contains code from UNIX. In this connection, we want to be sure you are aware of the provisions of the Technology License Agreement, dated December 6, 1995 (the "TLA"). We draw your attention, in particular, to the following:

Section II.A. (1) of the TLA provides Novell with "a non-exclusive, non-terminable, worldwide, fee-free license to . . . use, reproduce and modify, and authorize its customers to use, reproduce and modify, Licensed Technology (including related documentation) in their respective internal business operations" (emphasis added).

Section II.A.(2) provides Novell with "a non-exclusive, non-terminable, worldwide, fee-free license to . . . sublicense and distribute, and authorize its customers to sublicense and distribute, such Licensed Technology and modifications thereof, in source and binary form" (emphasis added).

The license in Section II.A. (1) has no restrictive provisions.

Section II.A. (2) contains apparent restrictions on the scope of the licensed rights, but they apply only to sublicensing and/or distribution by Novell and not to Novell's authorization of its customers to sublicense or distribute.

Moreover, under Section II.B., the proviso "setting forth restrictions on the sublicense and/or distribution of Licensed Technology and modifications thereof" ceases to exist in the event of a "Change of Control of SCO." The "Definitions" provisions of the TLA specify that "Change of Control" is defined in the Asset Purchase Agreement ("APA"). The APA defines "'Change of Control' with respect to one party" in Section 6.6 (c). That definition easily embraces the transactions pursuant to which the SCO of today acquired the assets sold to the SCO of yesteryear. Accordingly, the restrictions on Novell's sublicensing and distribution of Licensed Technology are no longer applicable.

In view of SCO's continued harassment of Linux users based on exaggerated and unfounded claims, Novell reserves the right to exercise its rights under the TLA.

Sincerely,

Joseph A. LaSala Jr.

cc: Mr. Darl McBride.


Via Telecopy [number] and
UPS Delivery

October 9, 2003

Mr. Joseph A. LaSala Jr.
Senior Vice President,
General Counsel and Secretary
Novell, Inc.
[address]

Re: Technology License Agreement,
Silicon Graphics, Inc.
IBM Code Contributed to AIX

Dear Mr. LaSala,

We write in response to your series of letters to The SCO Group dated October 7, 2003. Your analysis of the obligations that IBM and SGI owe to SCO pursuant to the relevant Software Agreements is incorrect. However, we need not debate the incorrectness of your views, particularly Novell's purported ability to waive any and all licensees' obligations under the Software Agreements, because, as you are well aware, we are currently litigating these issues with IBM.

Nevertheless, having said that, we remind you that Novell sold the UNIX business, source code and copyrights to SCO for approximately $150 million. SCO also obtained the right to enforce the copyrights, as well as the contract rights with roughly 6000 licensees of UNIX. Although Novell now appears to wish it had not accepted payment of many millions of dollars for this business, which is what transpired. You claim that any result other than your selective interpretation of the agreements would "defy logic". We submit that your position that SCO received basically nothing for the many millions it paid Novell or that Novell has the unfettered right to simply declare that all SCO license rights have been waived defies logic.

Likewise, your analysis of the Technology License Agreement is not a supportable interpretation of the transaction between Novell and SCO. Moreover, your alleged concern about SCO's purported harassment of Linux users ignores SGI's recent public admission that it, in fact, improperly contributed System V Unix code into Linux. As a result, it is now undisputed that millions of Linux servers have been operating for years making use of System V Unix code in violation of the Software Agreements. This confirms the very position SCO has taken with the Linux Community, i.e., Linux contains misappropriated UNIX code. This is not harassment, but is instead a statement of fact.

As we have alleged in the IBM case, IBM has breached its agreements with us in many particulars. Our Amended Complaint is publicly available and we encourage you to read it again. Further, as we suggested to you in our last letter, rather than picking and choosing selected paragraphs from various agreements which you claim support IBM's position, you would be well served to read the agreements as a whole. Again, we can tell you that we disagree with your analysis and conclusions.

SCO shareholders have already been harmed by Novell's previous uninformed and unfounded claim that Novell owned the copyrights to UNIX - a claim Novell knowingly and recklessly publicly asserted on the very day SCO announced earnings. Any further unfounded attempts by Novell to harm SCO or its shareholders will be dealt with aggressively.

Sincerely,

The SCO Group, Inc.
Ryan E. Tibbitts
General Counsel


VIA FAX AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

October 10, 2003

Mr. Ryan Tibbitts
General Counsel
The SCO Group
[address]

Mr. Ronald A. Lauderdale
Vice-President, Assistant General Counsel
International Business Machines Corporation
[address]

Re: IBM Code

Counsel:

Reference is made to the following:

Asset Purchase Agreement by and between The Santa Cruz Operation, Inc. and Novell, Inc. dated as of September 19, 1995, and more particularly to Section 4.16(b) of that agreement;
Software Agreement No. SOFT-00015, et seq., between AT&T Technologies, Inc. and International Business Machines Corporation, and Amendment No. X to Software Agreement No. SOFT-00015, et seq., between International Business Machines Corporation, The Santa Cruz Operation, Inc., and Novell, Inc. (the "Agreements");
Letter dated October 7, 2003 from Novell, Inc. to The SCO Group regarding IBM Code.

In its October 7 letter to The SCO Group, Novell directed "SCO to waive any purported right SCO may claim to require IBM to treat IBM Code itself as subject to the confidentiality obligations or use restrictions of the Agreements." Novell directed SCO "to take these actions by noon, MST, on October 10, 2003."

SCO has failed to take the action directed by Novell.

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of the SCO Group, hereby waives any purported right SCO may claim to require IBM to treat IBM Code, that is code developed by IBM, or licensed by IBM from a third party, which IBM incorporated in AIX but which itself does not contain proprietary UNIX code supplied by AT&T under the license agreements between AT&T and IBM, itself as subject to the confidentiality obligations or use restrictions of the Agreements.

Sincerely,

Joseph A. LaSala, Jr.

cc: Mr. Darl McBride


VIA FAX AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

October 10, 2003

Mr. Ryan Tibbitts
General Counsel
The SCO Group
[address]

Ms. Sandra M. Escher
Senior Vice President and General Counsel
Silicon Graphics, Inc.
[address]

Re: Silicon Graphics, Inc.

Counsel:

Reference is made to the following:

Asset Purchase Agreement by and between The Santa Cruz Operation, Inc. and Novell, Inc. dated as of September 19, 1995, and more particularly to section 4.16(b) of that agreement;
Software Agreement No. SOFT-00039, et seq., between AT&T Information Systems Inc. and Silicon Graphics Inc., and amendments to Software Agreement No. SOFT-0039 between Novell, Inc. and Silicon Graphics, Inc., dated as of April 25, 1995 and July 12, 1995 ("SGI's SVRX license");
Letter dated August 13, 2003 from The SCO Group to Silicon Graphics, Inc.; and
Letter dated October 7, 2003 from Novell, Inc. to The SCO Group regarding Silicon Graphics, Inc.

In its October 7 letter to The SCO Group, Novell directed "SCO to waive any purported right SCO may claim to terminate SGI's SVRX license or to revoke any rights thereunder, including any purported right to terminate asserted in SCO's letter of August 13, 2003." In addition, Novell directed "SCO to waive any purported right SCO may claim to require SGI to treat SGI Code itself as subject to the confidentiality obligations or use restrictions of SGI's SVRX license." Novell directed SCO "to take these actions by noon, MST, October 10, 2003."

SCO has failed to take the actions directed by Novell.

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to terminate SGI's SVRX license or to revoke any rights thereunder, including any purported right to terminate asserted in SCO's letter of August 13, 2003 to SGI. In addition, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to require SGI to treat SGI Code, that is code developed by SGI, or licensed by SGI from a third party, which SGI incorporated in its UNIX variant but which itself does not contain proprietary UNIX code supplied by AT&T under the license agreements between AT&T and SGI, itself as subject to the confidentiality obligations or use restrictions of SGI's SVRX license.

Sincerely,

Joseph A. LaSala, Jr.

cc: Mr. Darl McBride


Via Telecopy [number] and
UPS Overnight Delivery

October 13, 2003

Mr. Joseph A. LaSala, Jr.
Senior Vice President
General Counsel and Secretary
Novell, Inc.
[address]

Re: Technology License Agreement,
Silicon Graphics, Inc.
IBM Code Contributed to AIX

Dear Mr. LaSala,

We received your letters purporting to waive IBM and SGI's obligations under their respective Software Agreements and related documents. Please be advised that Novell is without authority to make such a waiver and thus it is of no force and effect.

Sincerely,

The SCO Group, Inc.

Ryan E. Tibbitts
General Counsel

RET/jhb

Cc: Ronald A. Lauderdale, Esq., IBM (via telecopy [number] & UPS Overnight)
Sandra M. Escher, Esq. SGI (via telecopy [number] & UPS Overnight)


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

November 19, 2003

Mr. Darl McBride
President and Chief Executive Officer
The SCO Group
[address]

Re: Asset Purchase Agreement

Dear Mr. McBride:

You have recently stated publicly that Novell's pending acquisition of SuSE violates non-competition provisions of the Asset Purchase Agreement and related agreements. You made these statements without first raising the issue with us, and based on our reading of the press, you have provided no specific citations or analysis to support this position. In our review of the agreements, we find nothing supporting your statements.

In the absence of contractual support, these statements must be regarded as having been made in bad faith and for the sole purpose of disrupting Novell's planned acquisition and its prospective value to our company. Novell reserves all rights, including the right to hold you liable for any damages these statements may cause the company and for punitive damages based on your malicious and unfounded conduct.

Sincerely,

Joseph A. LaSala, Jr.


November 21, 2003

VIA FACSIMILE AND CERTIFIED MAIL (RETURN RECEIPT REQUESTED)

Robert Bench
Chief Financial Officer
The SCO Group
[address]

Re: Request for information in furtherance of ongoing Audit of SCO obligations under Asset Purchase Agreement dated September 19, 1995 (the "Asset Purchase Agreement" or "APA")

Dear Mr. Bench:

As you are aware, Novell is auditing SCO's compliance with its obligations under the Asset Purchase Agreement. Among other things, Novell's audit focuses on SCO's compliance with Section 1.2 of the APA, and its performance as Novell's agent in administering and collection SVRX license fees. We have completed significant portions of the audit, but are still lacking critical information and documentation necessary to finish the audit.

The purpose of this letter is to emphasize and repeat Novell's outstanding request for information and documentation. In addition, this letter sets forth additional requests for information and documentation we must receive before we can close the audit.

Specifically, Novell's audit team has requested certain information and documentation from SCO's representatives and has yet to receive a full response. Attached hereto is a list of specific information that Novell must receive from SCO. We appreciate your assistance in expediting SCO's response to these requests.

In addition, Novell, makes the following additional requests for information and documentation that we must receive before we can close the pending audit:

1. Amendments and Modifications to SVRX Licenses

1.1. Section 4.16(b) of the APA specifies that SCO "shall not, and shall not have the authority to, amend, modify, or waive any right under or assign any SVRX License without the prior written consent of" Novell.

1.2. Section J of Amendment No. 1 to the APA establishes certain exceptions to the prohibition on amendments by SCO, namely, those amendments (i) "as may be incidentally involved through [SCO's] rights to sell and license UnixWare software or the Merged Product," or (ii) that "allow a licensee ... to use the source code ... on additional CPU's or to receive an additional distribution, from [SCO], of such source code."

1.3. Also, Section B of Amendment No. 2 to the APA provides that "any potentional transaction with an SVRX licensee which concerns a buy-out of any such licensee's royalty obligations shall be managed as" specified in subsections 1 - 6.

1.4. With these obligations and prohibitions in mind, Novell has noted recent public statements by SCO indicating that SCO has unilaterally amended and modified SVRX Licenses with Sun Microsystems and Microsoft. These public statements also indicate that SCO may have agreed to a buy-out of Sun and Microsoft's royalty obligations under their SVRX Licenses.

1.5. Novell requests copies of the Sun and Microsoft amendments to verify SCO's compliance with Section 4.16(b) of the APA and Section B of Amendment No. 2. In addition, Novell, requests copies of any similar agreements SCO has entered into, or assurances that SCO has not entered into any similar agreements. Finally, Novell requests that SCO identify any potential buy-out transactions it has become aware of, or that SCO assure Novell that no such potential buy-outs have come to its attention.

1.6. If SCO contends that either the exceptions (i) and (ii) under Section J of Amendment No. 1 has been triggered, Novell requests a detailed explanation of SCO's position.

2. New SVRX Licenses

2.1. Section J of Amendment No.1 prohibits SCO from entering "into new SVRX Licenses" except "as may be incidentally involved through [SCO's] rights to sell and license UnixWare software or the Merged Product."

2.2. With this prohibition in mind, Novell has noted SCO's recent introduction of its "SCO Intellectual Property License for Linux," in which SCO attempts to enter into new SVRX Licenses with Linux end users.

2.3. Novell requests 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 Section J of Amendment No. 1. If SCO contents that exception (i) under Section J of Amendment No. 1 has been triggered, Novell requests a detailed explanation of SCO's position.

3. SVRX to UnixWare Conversions

3.1. Novell requests that SCO identify and provide documentation for any allegedly valid conversions from SVRX to UnixWare under Section (f) of Schedule 1.2(b) of the APA. For any such allegedly valid conversion SCO identifies, Novell requests that SCO explain in detail how the alleged conversion complies with the requirements of Section (f) of Schedule 1.2(b). If SCO contends that any of the exceptions (i), (ii), (iii), and (iv) under Section E of Amendment No. 1 have been triggered, Novell requests a detailed explanation of SCO's position.

We anticipate and look forward to your prompt assistance with and response to these requests.

Sincerely,

Mike Bready
Director, Contract Management

Enclosure


VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED

December 23, 2003

Mr. Ryan Tibbits
General Counsel
The SCO Group
[address]

Re: SVRX Licenses

Dear Mr. Tibbits:

We learned yesterday that SCO is demanding that UNIX SVRX licensees issue a certification meeting SCO specifications.

To the extent that this communication is directed to licensees under SVRX Licenses (as defined in the Asset Purchase Agreement), SCO is once again purporting to take action that Novell believes is unwarranted, and that is designed less to protect legitimate intellectual property or contractual rights and more to harass customers. At no time did SCO consult with Novell on this issue -- notwithstanding Novell's 95% interest in revenues from these SVRX licenses.

Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell hereby directs SCO immediately to withdraw its demands for certification from licensees under SVRX Licenses, and to communicate SCO's compliance with this demand to Novell by no later than December 30, 2003. Should SCO fail to do so, Novell will take further action consistent with Section 4.16(b)

Sincerely,

Joseph A. LaSala, Jr.


December 29, 2003

VIA FACSIMILE AND CERTIFIED MAIL (RETURN RECEIPT REQUESTED)

Robert Bench
Chief Financial Officer
The SCO Group
[address]

Re: Request for Information in furtherance of ongoing Audit of SCO obligations under Asset Purchase Agreement dated September 19, 1995 (the "Asset Purchase Agreement" or "APA")

Dear Mr. Bench:

On November 21st, 2003, Novell requested additional information and documentation necessary to complete the aforementioned audit. Novell has not received a response to these requests.

The purpose of this letter is to repeat Novell's request stated in the letter you received November 21st, 2003 and ask SCO to return a full response no later than January 12th, 2004.

Sincerely,

Mike Bready
Director, Contract Management


Via Telecopy [number] and
UPS Delivery

January 2, 2004

Mr. Joseph A. LaSala, Jr.
Senior Vice President,
General Counsel and Secretary
Novell, Inc.
[address]

Re: Your letter of December 23, 2003

Dear Mr. LaSala,

I returned to my office today from the holidays and received your letter of December 23, 2003, which was faxed to our office after the close of business on December 23, 2003. Our offices were closed, begining December 23, 2003 until today.

We will respond to your December 23, 2003 letter next week. In the meantime if you have any questions or concerns, please do not hesitate to call me at xxx-xxx-xxxx.

Sincerely,

The SCO Group

Ryan E. Tibbitts
General Counsel


Via Telecopy and Regular Mail

January 7, 2004

Mr. Joseph A. LaSala, Jr.
Novell, Inc.
[address]

Re: Your Letter of December 23, 2003

Dear Mr. LaSala,

As you are aware, we are requesting UNIX licensees to certify that they are in full compliance with the terms of their license agreement. The license agreements specifically gave SCO this right. Also, as you should be aware, as part of its purchase of the UNIX business and designated assets from Novell, SCO acquired the claims relating to any right, property or asset included in the business arising after the closing. Additionally, in Amendment No. 2 to the Asset Purchase Agreement, it was agreed that Novell could not prevent SCO from exercising its rights under the agreement with respect to protecting SVRX source code. These certifications go directly to SCO's protection of its assets and particularly its SVRX source code. Therefore, SCO is entitled to take these actions and will continue to protect the assets it purchased from Novell in 1995, as was contemplated at the time. Any action by Novell to impede this effort would be contrary to the intent of the Asset Purchase Agreement and would irreparably damage SCO.

If you have any further questions, please do not hesitate to contact me.

Sincerely,

Ryan Tibbitts
General Counsel
The SCO Group, Inc.


  View Printable Version


Groklaw © Copyright 2003-2013 Pamela Jones.
All trademarks and copyrights on this page are owned by their respective owners.
Comments are owned by the individual posters.

PJ's articles are licensed under a Creative Commons License. ( Details )