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Now It's Novell v. Canopy
Wednesday, May 12 2004 @ 02:00 PM EDT

Now it's Novell and Canopy suing each other. You may have seen Grace Leong's exclusive story in the Daily Herald on April 2 about Canopy and Novell attending a hearing in a breach of contract case stemming from the DR-DOS lawsuit. Or maybe you didn't hear about it. I didn't until a reader sent it to me. There is, natch, an order sealing the case from the public, as always there seems to be in Canopy lawsuits, and that gives it a low profile and makes it hard to get a totally clear picture.

According to the Daily Herald article, Canopy says it all happened like this: Novell was really the one that wanted to sue Microsoft but was afraid of retaliation. So they negotiated with Canopy to do it for them, then sold them rights to the DR-DOS source code on condition that Canopy sue Microsoft. Novell retained rights to royalties and license fees, but they kept out of the written agreements the part about Canopy suing on their behalf. That, according to Canopy, was agreed upon orally, their little secret. Now Canopy is trying to compel them to live up to the alleged oral contract. Those Canopy folks seem to have altogether too much time on their hands.

Novell tells the story very differently, naturally, which is why they ended up in court.

It's a fight about money, actually. But it has the same smarmy feel we have become accustomed to in Utah lawsuits. Here's what happened so far. Novell sued Canopy first, saying they breached their contract. It seems Canopy, when it won the DR-DOS lawsuit, deducted money paid to their lawyers in the case before paying Novell royalties owed them under the Novell-Canopy agreement. Novell sued and prevailed, the court granting their motion for summary judgment, but now Canopy has appealed and is asking for a jury trial. There was a hearing on April 2, which is what the Daily Herald was reporting.

Here is how one of Canopy's attorneys described its appeal of the lower court's decision in an interview with Leong:

"'There were oral understandings outside the written agreement, and Novell wanted to hide what the actual oral agreements were from Microsoft for fear of retaliation,' he said. 'That's why there's no clear definition in the agreements of Novell's participation in the Caldera lawsuit against Microsoft, and no clear definition of how the proceeds should be divided.'"

I contacted Novell, of course, and Bruce Lowry said this about Canopy's allegations:

"The Daily Herald got it wrong. Novell agrees that there were 'rights and causes of action' included in the terms of the deal, but we certainly don't believe these included an unwritten obligation for Caldera to sue Microsoft, as Canopy attests and as the Daily Herald misquote of Lundberg implies. That's what this whole case is about. Canopy is claiming there were 'unwritten' agreements that they'd sue Microsoft and that legal fees would be shaved off from any eventual settlement money that Novell was due (as part of the Novell-Canopy deal, Novell was entitled to royalties for any revenues derived from DR-DOS). The court found in Novell's favor that there weren't any 'unwritten agreements'. That's what Canopy is now appealing...

"At Canopy's request, the case was sealed, so seeing the contract isn't doable. There were two agreements - an asset transfer agreement and a licensing agreement (this was acknowledged by Canopy in open court). "

I started digging, and here is what I found. A decision could come any time, although it could be some months from now, according to Novell attorney John Mullen. We can't get the documents, because of the order putting the case under seal, and the judge put everything under seal, not just certain details, so the Provo District Court won't release any of the filed documents without a judge's order and neither will the Appeals Court. But Novell utterly disputes Canopy's revisionist history, as they see it. Note that they did win in the lower court, not Canopy.

I think you will find the details of what I did find fascinating. First, I find it intriguing that Canopy would like to forget about a written document and introduce testimony to a jury to try to say a deal on paper isn't the real deal. Who does that remind you of?

And another interesting thing. Canopy is represented in this case by two law firms, one local and the other the Summit Law Group, which is based in Seattle, WA. You may remember that name. I remembered with a start that they were one of the sponsors of the Open Source Business Conference in San Francisco back in March, where Novell's Chris Stone spoke, along with many others.

It turns out, after a little digging, that the Summit Law Group was started by thirteen attorneys, including Matt Harris, who two sources told me was involved in Lineo legal matters, and Ralph Palumbo, the latter listed as one of the attorneys for Canopy in the current case. ( John Mullen, listed for Novell, also represented Novell yesterday in the SCO v. Novell hearing.) Summit Law Group's customers page doesn't list Canopy by name, but it was one of the firms representing Caldera in the Microsoft antitrust action. Summit refers to a successful "multbillion dollar software antitrust action" on the firm's litigation page; on Palumbo's page it lists Caldera v. Microsoft as one of his cases, and it calls it a multibillion dollar antitrust action, which is interesting because so far as I know, the amount of the settlement was one of the things not publicly revealed, because that case was under seal too, of course. Now we know Summit says it was in the billions. They also later represented Lineo, another Canopy Group company, as you can see in this SEC filing. Here is a 1999 Caldera press release that tells the Lineo story and lineage this way:

"Caldera®, Inc. today announced that its embedded Linux® research and development plans will be carried forward by its wholly-owned subsidiary, Caldera Thin Clients, which was today renamed Lineo™, Inc. Lineo's embedded Linux platform, Embedix™, is based on Caldera Systems' OpenLinux®, a full-featured operating system platform. . . .

"'Caldera was the first company to invest heavily in the establishment of Linux as an acceptable business solution,' said Bryan Sparks, CEO of both Caldera, Inc. and the newly-evolved Lineo, Inc. 'Five years after forming Caldera, we are now launching Lineo for the purpose of defining the commercial embedded Linux marketplace and obtaining wide market implementation of this incredible operating system environment in compact devices worldwide.' . . .

"Lineo will continue to develop and market its DR DOS® product line to embedded OEMs, including Embrowser™(formerly WebSpyder), the company's DOS-based graphical embedded Web browser. For the past two years, revenues from the DR DOS product line have funded Caldera Thin Clients' embedded business and the research and development for both Embedix and Embrowser. Lineo has already begun to port Embrowser to Linux. . . .

"Lineo is a wholly-owned subsidiary of Caldera, Inc. . . .Caldera, Inc. was founded by Bryan Sparks in the fall of 1994, and was incorporated in January of 1995. Caldera received initial funding from The Canopy Group, the family trust of Raymond J. Noorda, former Novell, Inc. Chairman and CEO. Caldera's business plan was to offer products based on the then-fledgling Linux operating system to business customers. Caldera built its success with Linux-based products through reseller, retail and direct channels. In July of 1996, Caldera purchased the DR DOS business and all related DOS assets from Novell for purposes of offering these technologies into embedded markets as well as integrating these products with the existing Linux product lines. In the summer of 1998, Caldera, Inc. created two separate companies to further focus development, marketing and sales efforts. Caldera Systems, Inc. was created to develop Linux-based products for PC software markets, with greatest success on desktops and servers. Caldera Thin Clients, Inc., targeted the thin client and embedded systems markets.

"Today, Caldera Thin Clients changed its name to Lineo, Inc. -- in part to distinguish the company's embedded Linux products from Caldera Systems's full-featured OpenLinux solutions, and in part to emphasize the evolution of the company to focus on the emerging embedded Linux market. Lineo actively defines the embedded Linux market and offers embedded Linux-based components and solutions to OEMs. Lineo maintains a strong relationship with Caldera Systems and uses Caldera System's OpenLinux technology as a basis for its embedded Linux solutions. Lineo is the benefactor of a history with both Linux and embedded systems. Lineo is based in Lindon, Utah and has a sales office in Taipei, Taiwan. Revenues for the company remain private and are released only to prospective investors."

In 2000, Lineo gave thought to going public, and they told their history like this in this S-1/A SEC filing:

"We began operations as a part of Caldera, Inc. in July 1996. We were incorporated as a separate entity in the State of Utah in August 1998 as Caldera Thin Clients, Inc., changed our name to Lineo, Inc. in July 1999 and reincorporated in the State of Delaware in January 2000."

Lineo became Embedix, with Matt Harris as CEO, and Embedix was later acquired by Motorola/Metrowerks. Here's the press release fromm 2002 on the acquisition of Lineo:

"SPECIAL REPORT: Motorola/Metrowerks acquires embedded Linux pioneer Lineo

"Dec. 17, 2002

"It's official: Following weeks of speculation, Motorola's Metrowerks embedded tools subsidiary today formally announced that they are acquiring the key assets of Embedix Inc. (formerly Lineo, Inc.), one of the earliest and most popular providers of embedded Linux software and tools.

"Metrowerks is well known for its popular CodeWarrior integrated development environment (IDE), which is used for embedded system software development. Lineo and Metrowerks have had a long standing strategic partnership including a $22.5 million investment by Metrowerks in Lineo in September 2000.

"According to today's announcement, Metrowerks is acquiring all key Embedix assets, including . . .

• Embedix SDK, a development tool for configuring and packaging embedded Linux distributions

• Embedix Plus for Smart Handheld Devices (used by Sharp in its Zaurus family of Linux-based handhelds)

• Embedix Plus RG for Residential Gateways

• Embedix Plus for Digital TVs

"In addition to acquiring the Embedix assets, Metrowerks plans to retain a significant portion of the Embedix (Lineo) team, including key management, engineering, marketing, and sales personnel, according to John Smolucha, Metrowerks vice president of strategic marketing.

"Metrowerks will use the newly gained embedded Linux assets and talent to target manufacturers developing applications for PDAs, smart handhelds, residential gateways, digital TVs, and other embedded systems and devices, Smolucha said. Additionally, the company plans to offer Linux-based end-to-end solutions including middleware and IP stacks targeting the netcom, wireless, and consumer electronics markets."

DR-DOS went to Device Logics. Bryan Sparks, who worked at Novell and then founded Caldera, Inc., later ended up heading up Device Logics. Yes, that Caldera, Inc., the one that sued Microsoft. His bio says he oversaw the purchase of DR-DOS from Novell while he was at Caldera:

"In 1996, Sparks oversaw the acquisition of DR-DOS from Novell and the creation of a thin clients initiative that created software solutions for the embedded market. In 1999, this initiative was created as Lineo, Inc."

Then, after overseeing the acquisition of DR-DOS, Sparks spun it to Lineo, which he was also CEO of, and then, after he arrived at Device Logics, he bought it from Canopy Group. What I'm not clear on is how DR DOS went from Caldera to Lineo to Canopy. Caldera and Lineo were both Canopy companies, so maybe it was informal, but there does seem to be a bit of a hop, skip and a jump here in the chain of ownership that I can't yet explain. The one person who appears in each hop, however, is Sparks, leaving out the unexplained Canopy step. He buys it for Caldera, and it is then sent to Lineo, and then somehow it goes to Canopy, and there is Sparks, on the receiving end of the next hop to Device Logics. Here is the November 2002 Device Logics press release about that acquisition:

"DeviceLogics, Inc. today announced that it has acquired DR-DOS from the Canopy Group, a Utah technology venture group, and has plans to release in Spring of 2003 an 8.0 version of DOS, bringing it up-to-date with core embedded functionality. DeviceLogics also plans to release an updated software development kit (SDK) targeted at embedded developers.

"'Fortune 500 companies continue to depend on DOS-based devices to deliver their day-to-day services. Arguably, DOS remains one of the most stable OS environments and, with our planned enhancements, will continue to be deployed on embedded devices where stability and ease-of-development are king,' said Bryan Sparks, CEO of DeviceLogics, Inc. 'The scrawny, old cow is still giving milk.'"

"DR-DOS originated in 1987 at Digital Research, Inc.; was then acquired by Novell in the early 90s; in 1996, DR-DOS was acquired by Caldera, Inc., the same company that sued and settled out-of-court with Microsoft Corporation over DOS-related anti-trust allegations; in 1998, it was spun out to Lineo, Inc. (a Canopy company) where it underwent enhancements targeted at the embedded market and, in October 2002, was acquired by DeviceLogics, Inc.

"DeviceLogics, Inc. was founded by Bryan Sparks, Bryce Burns and Troy Tribe for the advancement of DOS as an embedded solution."

See what I mean about the missing link? Lineo had DR-DOS, and it wasn't acquired until December 2002, according to the date on the press release. But two months prior, in October, Device Logics buys it from Canopy. No Canopy is mentioned in their paragraph at the end describing the DR-DOS history, but yet Device Logics is announcing it is buying it not from Lineo (or Embedix), but from Canopy.

Matt Harris went to Embedix, which was acquired by Motorola, and it became Metrowerks. Harris is the CEO of Metroworks now. Small world, isn't it? This story is like visiting a small town in the Ozarks, where everyone is related to everyone else some way, somehow, and something just doesn't feel quite right.

Next, I got the eensie bit of information that is publicly available [1] from the court, the Case Summary for Novell, Inc. v. The Canopy Group, Inc. in the Utah Court of Appeals, dated April 2, 2004. Reading it as a paralegal, it looks to me like the administrator wrote up what the case is about from reading Canopy's version in its pleadings, without including anything from Novell, which is not all that rare, particularly because Canopy is the one asking for the appeal. I also don't know, and can't know, what pleadings were filed. The Administrator is evidently supposed to write up a brief background of the case and the issues, and it's logical that he or she looks at the pleadings to get that info. If you are in a hurry, and court personnel often are, you might just skim and write down a good enough version from whatever is on top, without checking carefully to make sure you get it all balanced and exact.

I draw that conclusion because the summary states as facts matters that are still at issue in the case, and yet I know from talking to the court that no decision has yet been reached. In a normal case, it wouldn't much matter, because you could read the documents each side filed in the case and find out for yourself what it is about; but when you can't do that, because the judge has ordered the case sealed, such a summary really needs to be exact, which this doesn't seem to be. On the other hand, because it's all black-boxed, who really knows?

It is a valuable document, despite being one-sided, because it lays out Canopy's case, and for that reason it is worth reading. It's possible the Daily Herald may have gotten its theme from this summary, in addition to talking with the attorneys at the hearing, and if you were not a lawyer or a paralegal and so didn't know how these things can work, reading the summary might cause you to get a wrong impression. So here it is:

Case Summary for
Novell, Inc. v. The Canopy Group, Inc.
in the Utah Court of Appeals

2 April 2004

I. Background

This is a breach of contract action. Novell, Inc. (Novell) owned the source code for DR DOS, a computer operating system, that was the target of anti-competitive practices by Microsoft in the early 1990's. Novell's board of directors worried that, if they brought suit against Microsoft in a private anti-trust action, Microsoft would retaliate with further unfair practices that could neutralize any anti-trust recovery. At the same time, shareholders would not permit Novell to simply walk away from such a significant cause of action.

Accordingly, Novell entered into negotiations with The Canopy Group, Inc. (Canopy), to sell DR DOS to Canopy. The main purpose of this sale was to obligate Canopy to bring suit against Microsoft, allow Novell to share in the recovery, and at the same time obfuscate Novell's role in the action. Novell insisted that its role be completely undetectable to avoid retaliation from Microsoft.

To accomplish this, Novell and Canopy executed two separate documents, the first a contract of sale, obligating Canopy to pay $400,000 for rights to the source code, and the second a temporary license obligating the company to pay $600,000 in license fees and "royalties'. The royalties included provisions for payment to Novell a percentage of any recoveries from lawsuits.

Upon execution of these documents, Canopy initiated suit against Microsoft. The dispute was settled by Microsoft and Canopy. Before Canopy paid Novell its percentage, Canopy deducted attorney fees, court costs, and other litigation expenses, applying the percentage to the remaining amounts. Novell initiated suit for breach of contract, claiming the two documents that constituted the contract made no allowance for the deductions Canopy made.

Upon competing motions for summary judgment, the Fourth District court granted summary judgment to Novell, ruling that the two documents, when read as a whole, constituted an integrated, unambiguous contract that allowed no such deductions.

II. Issues

Canopy appeals the trial court's grant of summary judgment to Novell and the trial court's denial of summary judgment to Canopy. Canopy raises various challenges to the trial court's rulings regarding integration and ambiguity. For example, Canopy argues the written documents could not be integrated because obligation to bring suit against Microsoft, are not contained in the documents, although both parties agree that such an obligation was an essential provision in the contract.

That last sentence is obviously wrong, since it is the heart of the dispute. If the two sides agreed, they wouldn't be in court. So I take this document as reflective of Canopy's position only. One final note, in the SEC filing for Lineo, which was based on OpenLinux and was the usual Caldera meld of proprietary and GPL software, they list this in the risks section:

" . . .because we rely in part on open source intellectual property, we may find it necessary to defend the open source community from attempts by others to misappropriate, whether by copyright or otherwise, technology which belongs to the open source community."

If you have a taste for irony, I think it would be hard to top that.

[1] There is also a case history available for Novell v. Canopy, Docket Information Case - 20030211, Case: 000402011, status "Under Advisement". However, you can't link to it directly. Instead, click on their New Search button, and type in the case number 20030211, and it will show you the page.

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