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SCO's Answer to Novell's Counterclaims - as text
Sunday, September 18 2005 @ 08:35 AM EDT

Here is SCO's Answer to Novell Counterclaims [PDF], as text, thanks to Frank Sorenson.

I said I'd tell you what I notice, and the first thing I notice is that the unraveling of SCO's case has begun. You'll see why I think that as we go along.

The second thing I notice is something very odd about the way they have written this document. It's different from typical answers, in the way Boies Schiller embellish their admissions to argue their points. Instead of just saying that they admit or deny the facts in paragraph so and so, they add little bits of advocacy, as in this classic, the admission regarding subparagraph 41(d), where I have highlighted in blue the advocacy bits:

Admits that in 2003 and 2004, SCO properly registered its copyrights in UNIX and Unixware, including its copyrights in the UNIX and Unixware releases listed in subparagraph 41(d)

Novell didn't claim that SCO "properly registered its copyrights." It said it did so wrongfully. A normal admission admits only to what the other party alleged, no more. That is for a very good reason. To understand the reason, you have to understand the purpose of admissions. The purpose is to let the other side and the court know what is established, what the other side doesn't have to prove. "Admitting" something that is actually something you have to prove at trial is pointless, because it establishes nothing legally, nothing that an admission is supposed to establish. It's as silly as SCO saying, "SCO admits that it deserves to win this lawsuit." SCO can't "admit" something like that. It's something that has to be decided by the judge or jury, after SCO convinces them by evidence.

Neither the court nor Novell will be influenced by the advocacy at all, unless the court finally realizes the purpose of the SCO litigation is FUD, not to win at trial but to achieve delay, while FUD lingers in the air. SCO doesn't benefit legally from that delay in the end, although the FUD likely benefits its stock price for a while, and Microsoft benefits if customers are scared to switch to Linux.

To throw in advocacy in an admission is so peculiar it seems to me to demonstrate as clearly as anything we've seen that SCO is playing to the public, that the real point of this lawsuit is just FUD. That, of course, is exactly what IBM has accused them of in the SCO v. IBM lawsuit, that none of this is about being wronged and that it's really about using the courts as an anticompetitive weapon.

Let me explain how it normally goes. A normal admission would read "Admits that in 2003 and 2004, SCO registered copyrights in UNIX and Unixware." Or maybe "Admits that it registered Unix copyrights but denies that its registrations were wrongful."

They advocate again in paragraph 44:

44. Admits that in September and October 2003, Novell (wrongfully) obtained copyright registrations for UNIX-related products. . .

Just so, so odd. (You can see a normal answer by looking at Novell's Answer to SCO's complaint.) And it's that way all the way through. Here's another, even more peculiar admission, paragraph 8:

Novell: Linux is the name of a computer operating system, originally developed beginning in the early 1990s when Linus Torvalds, an undergraduate student at the University of Helsinki, began writing the Linux kernel, or the core of the Linux operating system. He released the first version of the Linux kernel on the Internet in 1991. Since then, thousands of software programmers around the world have engaged in a collaborative effort to further develop Linux.

SCO: Admits that Linus Torvalds purportedly developed the Linux operating system by consulting and referring to other materials; admits that numerous other parties have also contributed to Linux, including parties who wrongfully contributed SCO's UNIX intellectual property; but denies information or knowledge sufficient to form a belief as to the truth of each and every other allegation of 8.

Novell never said anything about "consulting and referring to other materials." Obviously, SCO plans to so allege, and I don't doubt that the ADTI nonsense about Minix will be trotted out once again, but it doesn't belong here, for sure. I have never seen anything quite like this. Paragraph 10 is even more peculiar:

Novell: In 1995, Novell and a company called The Santa Cruz Operation, Inc. ("Santa Cruz") entered into negotiations over the sale of certain business assets of Novell relating to its UNIX and UnixWare software products.

SCO: Admits that in 1995, Novell ("Seller") and The Santa Cruz Operation, Inc. ("Santa Cruz") entered into negotiations resulting in the transfer to Santa Cruz of "all of Seller's right, title and interest in and to the assets and properties of Seller relating to the [UNIX and Unixware] Business," including the copyrights in UNIX and Unixware; but denies each and every other allegation of 10.

All Novell said was that the two companies entered into negotiations over the sale of certain assets. It didn't say one word about what did or didn't transfer, so for SCO to add all that other junk in there is inappropriate.

In the next paragraph Novell says Santa Cruz was founded as a "UNIX system porting and consulting company." SCO "admits" instead that "Santa Cruz was founded and operated as a UNIX development, porting, distribution, support and consulting company." Such a strange answer. SCO didn't want to just admit part and deny the rest, which is what you would normally expect, so it admitted with embellishments that usually would be entered into the litigation stew later in the proceedings. They seem absolutely desperate to make sure the public hears their story, because for sure the court doesn't need any additions like this.

Say, this isn't about the stock price, is it? Or is it frustration that no one takes their chances of victory seriously any more? Or maybe they are hoping Novell won't notice that their answer really isn't a straight admission? I'm sure if *I* noticed, Novell's attorneys will too. I can't understand why they are doing what they are doing. For another example, take a look at the answer to paragraph 14:

Novell: Under the APA and its Amendments, and subject to various conditions and exclusions set forth therein, Santa Cruz obtained a variety of assets, including assignment of tens of thousands of contracts and licenses, various trademarks, source code and binaries to UNIX and UnixWare products, and physical assets such as furniture and personal computers. The obtained assets also included the right for Santa Cruz to develop a "Merged Product."

SCO: Admits that the APA transferred to Santa Cruz "all of Seller's right, title and interest in and to the assets and properties of Seller relating to the [UNIX and Unixware] Business," including (among other things) the copyrights in UNIX and Unixware, the assignment of thousands of contracts and licenses, and the other assets listed in 14.

All SCO had to say was: "Admits." All the rest is stuff they have to prove. They can't just "admit" them. It doesn't mean anything to "admit" them.

What SCO Denies and Admits

So what's still in dispute, stripping away the Boies Schiller advocacy bling? The most important issues are: SCO claims that SVRX licenses is a term without a certain definition in the APA, and to them it means licenses for distribution of binary-only code under sublicensing agreements, licenses that were in existence at the time of the Novell transfer to Santa Cruz; that the Sun, Microsoft, and IP Licenses for Linux are not SVRX licenses, and thus SCO doesn't have to pay Novell anything or take direction from Novell regarding them. What else is denied?

  • Paragraph 7, Novell says that AT&T transferred to Novell "all active UNIX licensing agreements." SCO denied that only "active" UNIX licensing agreements transferred.
  • In paragraph 15, denies that Novell has prior approval rights relating to new SVRX licenses and amended licenses, or at least they hint at that. They admit only that Novell retained "certain rights" to protect the royalty stream but they are not specific. That means this is going to be an area of dispute.
  • Paragraph 17 highlights the core dispute, whether Novell retained copyrights, something SCO denies.
  • Novell claims in paragraph 18 that it retained the "sole discretion" to direct Santa Cruz to amend, supplement, modify, waive or assign any rights under or to the SVRX licenses; if Santa Cruz fails to take any such action, the APA specifically granted Novell the right to take these actions on behalf of Santa Cruz. Novell retained the right to veto Santa Cruz's attempts to amend SVRX licenses, subject to two exceptions, as noted below. Novell also retained the right to veto Santa Cruz's' attempts to enter into new SVRX licenses, subject to one exception, as noted below. SCO denies all of this.
  • This denial, in paragraph 20, is the most peculiar of all. Novell says that "SCO purports to be the successor in interest to Santa Cruz under the APA and its Amendments." SCO denies. Is this a goof on their part? I don't know.
  • For paragraph 21, SCO denies Novell's sentence that the APA excluded "[a]ll copyrights and trademarks, except for the trademarks UNIX and UnixWare." SCO says only that it admits "certain limited assets were excluded." So this is another core area of dipute.
  • Paragraph 24, SCO denies that copyrights were not intended to transfer under Amendment 2.
  • In paragraph 25, Novell provides the clearest list of reasons why it doesn't believe that the APA or Amendment 2 or the APA plus Amendment 2 transferred copyrights:

    "Neither Amendment No. 2 nor the APA as modified by Amendment No. 2 qualify as "an instrument of conveyance, or a note or memorandum of the transfer" under 17 U.S.C. 204(a) for at least the following reasons:

    a. Amendment No. 2 merely amends the schedule of excluded assets and therefore does not, itself, constitute a transfer of any asset.

    b. Neither Amendment No. 2 nor the modified APA identifies "the copyrights and trademarks owned by Novell] as of the date of the Agreement required for Santa Cruz to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies."

    c. Neither Amendment No. 2 nor the modified APA contains any language suggesting a contemporaneous transfer of any copyright. To the contrary, the APA provides only that certain assets "will" be transferred.

    d. Neither Amendment No. 2 nor the modified APA provides a date for any purported transfer of copyrights.

    Naturally SCO denies all the above.

  • SCO denies in the next paragraph that it repeatedly asked Novell in 2003 to transfer the copyrights but was turned down.
  • In paragraph 29, SCO denies that with the acquisition of Santa Cruz's Server Software and Professional Services divisions, "Caldera Systems planned to add Santa Cruz's UNIX server solutions and services to its Linux business." How they can sustain that denial, I can't imagine, with so much evidence in the media accounts of the day, but by denying, they are forcing Novell to prove it. I believe they can and will.
  • Paragraph 34 is noteworthy. SCO admits that Darl McBride was responsible "with input from other executives" for Caldera's strategic direction, but denies that he was responsible for the company's "planning." Your guess is as good as mine on that paragraph. One can only assume that it is an attempt to limit his liability. But if he didn't do the planning, who did?
  • Paragraph 37 is problematic for SCO. It claims that while it announced SCOsource in January of 2003, it didn't enter into a SCOsource agreement until August 2003. How does that match what Darl McBride said in this teleconference, dated May 28, 2003 regarding SCO's Second Quarter results:
    "Revenue for the second quarter of fiscal 2003 from the company's Operating System platforms was 13.1 million, and revenue ... from our SCOsource licensing initiative was 8.3 million. During the quarter ended April 30th, 2003 the first two licensing agreements relating to our SCOsource initiative, our division for the licensing and protecting the company's Unix intellectual property, derived the company of 8.8 million in cash and added 6.1 million to gross margin."

    Or how about making it jibe with what he said at the next teleconference regarding 3rd Quarter results:

    "Our quarter that ended July 31, 2003, marked the second consecutive quarter of strong positive earnings. Revenue attributed to our SCOsource intellectual property licensing initiative has generated positive operating margins and has contributed to positive case flows from operations. These activities during the past two quarters have nearly tripled our cash balance and thus strengthening our balance sheet. Over the past four quarters our market cap has gone from under 10 million dollars to over 140 million dollars making SCOX one of the top performing stocks on the NASDAQ market."

  • Paragraph 38 is a core paragraph, where Novell says SCO tried to interest them in a Linux licensing program, extracting a license fee from Linux end users to use UNIX IP purportedly in Linux, and SCO denies it.
  • In paragraph 39, SCO denies that it asked Novell to amend the Santa Cruz agreement to transfer the UNIX copyrights.
  • How SCO can deny paragraph 40 in its totality, instead of denying the word "falsely" and admitting the rest, when it then admits the same things in paragraphs 52-57 it denies in 40 is a puzzlement.
  • SCO denies that SCOsource is a "scheme," specifically that it is a "licensing scheme" to extract "'licenses' from the UNIX and Linux communities based on claims to own intellectual property specifically reserved to Novell, i.e., the UNIX Copyrights." See paragraphs 45 and 46.
  • In paragraph 47, another core dispute shows up, probably the biggest from SCO's standpoint. Novell says that under SCOsource, "SCO seeks to enter into license agreements with UNIX vendors" and offers IP licenses to Linux end users. That would mean that the Microsoft and Sun monies would fit under the SCOsource umbrella. SCO denies that, naturally. While SCO here denies, I note that in their latest 10Q filed with the SEC, they say this: "In an effort to protect our UNIX intellectual property, we initiated our SCOsource business. The initiatives of this business include seeking to enter into license agreements with UNIX vendors and offering SCOsource IP agreements to Linux and other end users allowing them to continue to use our UNIX source code and derivative works found in Linux." Isn't that exactly what Novell just said?
  • 48 is funny. Novell points out how much SCO charges for its IP License for Linux, that they are costly. SCO says it charges "market price (including appropriate discounts)". And what, pray tell, is the "market price" for this IP License for Linux? Where else can I get one? Where can I comparison shop to be able to figure a "market price"? Is Microsoft selling them too now? In paragraph 56 Novell says that SCO has stated on its website that "only SCO is in a position to license the use of this infringing intellectual property," and SCO admits its website says that, so here I gather market price means whatever the market will bear from terrified victims.
  • In 49-51, Novell ties the IBM lawsuit and the Microsoft and Sun agreements to SCOsource. SCO denies that they are part of SCOsource, only admitting that the SCOsource division arranged the MS and Sun deals. Obviously, SCO wants to keep that money. Novell is asserting that SCO is collecting money based on copyrights that actually Novell owns. Any money SCO got or could get would therefore belong to Novell, if Novell prevails. SCO shareholders might not have thought of such an outcome.
  • In 52, SCO seems to deny that all the letters they sent in May of 2003 to 1500 companies were identical and that they were sent under SCOsource.
  • In 67-73, Novell charges SCO with failing to respond favorably to their audit letters asking for an explanation about the Microsoft, Sun, and SCOsource monies. They asked for details, for any amendments, any buyouts, any new SVRX licenses, any SVRX to UnixWare conversions, and in particular for copies of all IP Licenses for Linux. They say they "noted that SCO's Intellectual Property Licenses for Linux appeared to be SVRX Licenses since they purported to grant rights relating to UNIX System V or Unix-Ware." *That* SCO denies and it acknowledges it refused to provide the information requested. However, in 73, SCO says that it "admits" that it responded to Novell's letters, and in 136, it again denies that it failed to turn over copies of the Sun, Microsoft and IP Licenses for Linux agreements, by denying this Novell sentence: "Because SCO has refused to provide Novell with a copy of these licenses, Novell is unable to allege with particularity the precise payment terms of the licenses or the corresponding amounts payable to Novell under these licenses pursuant to the APA." How they can deny that is inexplicable to me.
  • In 74-78, Novell zeroes in for the kill, claiming that according to Sections 1.2(b) and 4.16(a) of the APA, SCO owes them for all SVRX royalties, and it points out that the agreements with Sun and Microsoft are "new" agreements, and that they are "'contracts relating to' the various UNIX System releases and auxiliary products enumerated at Schedule 1.1 (a)(VI) and Attachment A to Amendment No. 1. The new agreements are therefore SVRX Licenses under the APA." So where's their money? SCO sticks to its definition, that "SVRX Licenses" are "royalties that SCO collected from then-existing SVRX licensees for their distribution of binary-code versions of System V products pursuant to sublicensing agreements." There's no definition of what the term "SVRX Licenses" means in a "Definitions" or Recitals section of the APA, SCO says. Not so, claims Novell: "'SVRX Licenses' are in turn defined to include '[a]ll contracts relating to' the various UNIX System releases and auxiliary products enumerated at Schedule 1.1(a)(VI) and Attachment A to Amendment No. 1." We're going to hear a lot more about this term "SVRX Licenses" and what it means, because millions are in the balance.
  • Then Novell, in paragraphs 81-82, says that if the Sun and Microsoft new agreements are new SVRX licenses, under the Section 1.2(e) exception, SCO was supposed to ask Novell's approval first, which they failed to do, so the licenses don't fall under the exception, so where's Novell's money? SCO denies it was supposed to ask for prior approval or that the deals were SVRX license deals, or that it owes Novell any money.
  • Novell in paragraphs 79-80, says the IP Licenses for Linux, like the EV1 deal, seem to be contracts about Unix too, so that would make them SVRX licenses too under the APA, so where's Novell's money? SCO . . . sputter, sputter . . . denies everything, but admits it paid Novell nothing.
  • In 84-89, Novell recounts its demand that SCO waive any right SCO might think it had to terminate IBM and Sequent's licenses, SCO's refusal, and Novell's subsequent election to take action itself. SCO, they say, was supposed to seek their permission to terminate. SCO admits that it refused to waive and denies that Novell has the right under the APA to direct them, since they deny that the terminated licenses were "SVRX Licenses." Back to the defense that "SVRX Licenses" means "royalties that SCO collected from then-existing SVRX licensees for their distribution of binary-code versions of System V products pursuant to sublicensing agreements".
  • In 90-93, SCO denies Novell's assertion that SCO had no right to enter into the Sun or Microsoft agreements or the IP Licenses for Linux, or that it had to ask for prior permission.

What has SCO now admitted? Here are the significant items:

  • That Novell retained the right to conduct audits and to direct Santa Cruz to "take certain actions to protect that future binary royalty stream." Paragraphs 18 and 63 shows SCO admitting that "Novell retained certain rights to audit Santa Cruz's administration of the SVRX binary royalty stream" but claims that the audit rights relate only to "the administration of the SVRX binary royalty stream" -- how they can say that after correctly quoting the APA is a mystery, because the wording is this: "Seller shall be entitled to conduct periodic audits of Buyer concerning all royalties and payment due to Seller hereunder or under the SVRX Licenses . . ." but again, it's how you define what is a SVRX license.
  • SCO admits Caldera never was a profitable Linux company and that its revenue declined from UNIX-based products, after it acquired Santa Cruz's Server Software and Professional Services divisions. Of course it throws in that it was "in part because of the unauthorized use of SCO's proprietary UNIX code and other protected materials in Linux".
  • Admits in 83 that Novell correctly quotes Section 4.16(b) of the APA:
    In addition, at [Novell's] sole discretion and direction, [SCO] shall amend, supplement, modify or waive any rights under, or shall assign any rights to, any SVRX License to the extent so directed in any manner or respect by [Novell].
    OK, SCO admits it says that, but it lamely adds that this isn't the only pertinent part of that section.
  • SCO admits that it asked Novell for a letter saying that copyrights had transferred under the APA, but that Novell declined.

Novell, as you will recall, is asking for a declaratory judgment, 1 in the alternative, pursuant to 28 U.S.C. 2201 "that SCO had no authority to enter into the Sun and Microsoft SVRX Licenses, as well as the Intellectual Property Licenses with Linux end users and UNIX vendors."

Other Interesting Points

Another thing. Note a subtle change in wording in the following paragraph regarding copyrights that Dr Stupid pointed out to me:

SCO contacted Novell to confirm SCO's understanding that the UNIX and Unixware copyrights had been transferred under the APA .... [alleges] that in early 2003, Novell counsel agreed to sign a letter stating that the APA transferred all right, title, and interest in and to the copyrights associated with the AT&T SVRX software agreements.

Note that the passage starts referring to the "UNIX and Unixware copyrights" but doesn't end by referring to those copyrights. Wouldn't it have been more natural to write:

SCO contacted Novell to confirm SCO's understanding that the UNIX and Unixware copyrights had been transferred under the APA .... [alleges] that in early 2003, Novell counsel agreed to sign a letter stating that the APA transferred all right, title, and interest in and to the UNIX and Unixware copyrights.

"Copyrights associated with the AT&T SVRX software agreements" could mean almost anything. But there seems to be some significance to the wording shift, knowing, as I do, the precision with which lawyers try to express themselves.

Might this be what happened, then?

SCO asked Novell (after some discussion) something along the lines of "Well, would you sign something to convey the copyrights we need to administer the SVRX contracts, as per the 'required to exercise rights' clause?" Novell may have said, "Provisionally, yes, but I'd have to see the wording."

SCO then sent a proposed letter that while purporting to relate to that "required to exercise rights" clause, was much broader. Novell read the letter, realized what SCO was trying to pull and told them where to get off.

I am only asking.

The bottom line to me about this filing is that SCO here is telling the world that they tried to get Novell to sign a clear conveyance but failed. This seems to be fatal to their slander of title claim -- which requires malice, after all -- and probably to their claim to own copyrights, since if they clearly owned the copyrights, no such request would even have been required. You can hardly blame Novell for thinking there was no conveyance if SCO was asking for one. Poof. No malice. And no transfer, because if there is no clear writing of conveyance, copyright doesn't transfer, and so that would mean that Novell would still hold the copyrights.

I note also that, now that Novell has brought a slander of title counterclaim, SCO wraps itself in the Constitution as a defense:

Novell's slander-of-title counterclaim is barred by the First Amendment to the United States Constitution.

Well, SCO gang, what's good for the goose is good for the gander. It's a defense that cuts both ways. If SCO has a First Amendment right to speak about their ownership of copyrights, so does Novell. Talk about irony. Here's the complete list of their ten defenses:

  • Novell's slander-of-title counterclaim is barred by the absolute and conditional privileges enjoyed by SCO.
  • Novell's slander-of-title counterclaim is barred by the First Amendment to the United States Constitution.
  • Novell's counterclaims are barred, in whole or in part, by the doctrine of waiver.
  • Novell's counterclaims are barred, in whole or in part, by the doctrines of laches and delay.
  • Novell's counterclaims are barred, in whole or in part, by the doctrine of estoppel.
  • Novell's counterclaims are barred, in whole or in part, by the doctrine of unclean hands.
  • Novell's counterclaims are barred, in whole or in part, by the applicable statute of limitations.
  • Novell has failed to mitigate its alleged damages, and accordingly, any damages awarded to Novell should be reduced to the extent of its failure to mitigate.
  • Novell's counterclaims are barred, in whole or in part, by lack of causation. To the extent that Novell alleges (contrary to fact) that it has suffered damages, such damages were not proximately caused by any act or omission of SCO, or were not reasonably foreseeable, or both.
  • Novell's Answer and Counterclaims fails to state a claim upon which relief can be granted.

The ones that intrigue me and foretell some interesting future fights and revelations are the unclean hands and the statute of limitations defenses. I have no idea why those two are listed, which means that SCO either knows something I don't, or they will at least claim to. On the statute of limitations defense, perhaps it refers to paragraph 43, where SCO "[d]enies that Novell did not acquiesce to SCO's ownership claims during the years between the execution of the APA (in September 1995) and about May 2003." Unclean hands means they are saying that even if Novell is correct in its claim that SCO misbehaved, they shouldn't get any relief because Novell misbehaved too. We'll see. Here's how Dictionary.com defines unclean hands:

"a legal doctrine which is a defense to a complaint, which states that a party who is asking for a judgment cannot have the help of the court if he/she has done anything unethical in relation to the subject of the lawsuit. Thus, if a defendant can show the plaintiff had "unclean hands," the plaintiff's complaint will be dismissed or the plaintiff will be denied judgment. Unclean hands is a common "affirmative defense" pleaded by defendants and must be proved by the defendant. Example: Hank Hardnose sues Grace Goodenough for breach of contract for failure to pay the full amount for construction of an addition to her house. Goodenough proves that Hardnose had shown her faked estimates from subcontractors to justify his original bid to Goodenough."

You know what this makes me think of? You know how when you were kids, your sibling would say, "If you tell Dad I did xyx, I'll tell him that you did abc" in an effort to control you?

Lamlaw noticed something I didn't regarding SCO's claim that they only have to pay royalties on SVRX binaries:

Novell is certainly going to argue that if SCO is collecting money simply to not sue third parties (as opposed to collecting license fees for a merged product), then that revenue is directly related to which of the two parties (Novell or SCO) holds the copyrights and holds the right to sue if those copyrights might be violated.

He also notes something interesting about Novell's ability to waive SCO's lawsuits away:

Paragraph #18 relates to retained rights to supervise administration of SVRX licenses. Novell suggests that it retained its "sole discretion" to direct Santa Cruz to amend, supplement, modify, wave or assign any rights under or to the SVRX licenses. Of course this issue is directly related to the suit against IBM. But is also relates directly to SUN and Microsoft as well as each of the SCOSource licensees. None of those parties are buying, licensing or running an SCO product. Rather they are paying money to avoid being sued for violating the IP rights associated with Unix. And the APA terms here strongly suggest that only Novell had such a right. Novell retained the rights to the revenue stream. And the APA suggests here that Novell also retained the right to control how the SVRX licenses were enforced or not enforced as the case may be.

And the key here is the associated revenue stream. If Novell is getting all the money, then the court is going to be loath to suggest that Novell gets the royalties yet SCO can sue the parties and generally ruin the value of the underlying technologies. The terms of the APA referred to here are key to protecting the very real financial interests retained by Novell. Financial interests which SCO has admitted were excluded in order to make a smaller deal. The court is simply not going to separate out abstract legal rights from the revenue stream.

Actually, SCO makes a mistake here in their answer. #18 is not about "audits". #18 is about the ability of Novell (using their sole discretion) to direct SCO. #19 is related to audits. #18 covers those issues SCO wishes did not exist at all. So here you find SCO not even able to deny them correctly. Oh, they denied them alright. But they did so by making reference to audits when the power retained by Novell was the issue instead.

The fact that Novell has the right to direct matters is likely why SCO, according to Novell, approached them and asked them to join them in what Novell calls their antiLinux "scheme." That same Novell right also bears on the Microsoft and Sun payments. What were they paying for? See what I mean about the unraveling has begun?

Of course, if you have been watching this case from the beginning, you already know nothing will be simple. Boies Schiller will come up with some inventive things that will take months to shoot down. As Lamlaw pointed out from the beginning, SCO probably should have filed for specific performance, not slander of title, but I guess SCO felt it couldn't, since it didn't fit with the earlier public blabbermouthing, the SEC filings, or the press releases about being the owner of UNIX and all rights, blah blah, not to mention that specific perfomance brings the contract to the heart of your case, and this contract is not helping SCO much at all. This is getting ugly for them.

Here's Dr Stupid's favorite part of this document:

My "favorite" part of that passage though is where SCO admits to calling Novell over and over, but tries to make it sound like Novell is doing the harassing:
"38. . . admits that Novell counsel and other employees repeatedly and successively asked SCO to call again at a later time after Novell had had the opoportunity to research the matter."
I'm imagining a door-to-door salesman complaining that someone "repeatedly and successively informed me that he didn't want to buy any brushes today."

SCO is such a hoot. They probably aren't finding this as funny as I am. SCO isn't the bully aggressor now. Here SCO is desperately trying to protect itself from having to pay Novell millions, and it shows.

I wonder what the SEC will make of paragraph 50:

50. Admits that SCO, through its SCOsource division, entered into agreements related to UNIX and Unixware with Sun Microsystems, Inc., and Microsoft Corporation (in that order) and that the Microsoft agreement covered UNIX compatibility products; but denies each and every other allegation of 50, including the allegation that the Sun and Microsoft agreements were part of the SCOsource licensing program.

Catch that? But didn't you get the impression at the time that the monies were the first fruits of the SCOsource initiative? You mean that wasn't precisely true? Hmm. Well, knock me over with a feather. Did folks buy stock under that wrong impression, do you suppose? Yet paragraph 47 defines the SCOsource program like this:

47. Admits that the SCOsource licensing program allows Linux end-users to enter into intellectual property agreements that properly compensate SCO for its UNIX intellectual property found in Linux . . .

Except when it doesn't, like when Sun and Microsoft pony up. Then SCOsource is about "agreements related to UNIX and Unixware with Sun Microsystems, Inc., and Microsoft Corporation . . . and that the Microsoft agreement covered UNIX compatibility products . . . "

If you say so, SCO.

Here's my favorite part. After vehemently telling Judge Kimball earlier in this case that the APA and Amendment 2 constituted a sufficient copyright conveyance, now they are acknowledging that they didn't always think so. Imagine that. What a pickle. Thank you, Novell, for forcing SCO to tell him that. I'm sure there will be many more interesting details to come.

I will let Lamlaw put the cherry on top:

I do not doubt that SCO lawyers thought this day may come. But I can assure you that they have tried their best to avoid it. It explains in part why SCO first sued Novell only for slander of title rather than a breach of an agreement, etc. The agreement favors Novell hands down. And it explains in part why they never sued IBM for copyright infringement either (i.e. except for continue to sell AIX after SCO claimed they must stop). And it explains why SCO tried to avoid a law suit with Red Hat too. And, yes it also explains why they did sue Autozone. Autozone and indeed DaimlerChrysler as well could not directly contest the false claims by SCO in regard to copyrights. IBM can not really do that either. Only the party with a legitimate claim to the copyrights can litigate that issue. And that is Novell.

Welcome to the courtroom.

All rise.

If you wish to follow along, here's the APA and Amendment 2. And here's the side-by-side chart with Novell's Counterclaims and SCO's answers.

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

Brent O. Hatch (5715)
Mark F. James (5295)
HATCH, JAMES & DODGE
[address]
[phone]
[fax]

Stuart H. Singer (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

Robert Silver (admitted pro hac vice)
Edward Normand (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

Stephen N. Zack (admitted pro hac vice)
BOIES, SCHILLER & FLEXNER LLP
[address]
[phone]
[fax]

Attorneys for The SCO Group, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC.,

Plaintiff,

v.

NOVELL, INC.,

Defendant.

SCO'S ANSWER TO NOVELL'S
COUNTERCLAIMS

Case No. 2:04CV00139
Honorable Dale A. Kimball

1

Plaintiff and counterclaim-defendant, The SCO Group, Inc. ("SCO), by and through its counsel, answers the counterclaims of defendant and counterclaim-plaintiff, Novell, Inc. ("Novell"), as follows:

PARTIES

1. Admits the allegations of 1, except denies knowledge sufficient to form a belief as to the truth of the allegations of the third sentence of 1.

2. Admits the allegations of 2.

JURISDICTION

3. Admits, based on the Court's Order dated June 9, 2004, that the Court has jurisdiction over SCO's Amended Complaint.

4. Admits, based on the Court's Order dated June 9, 2004, that the Court has jurisdiction over Novell's counterclaims.

VENUE

5. Admits the allegations of 5.

FACTS

A. UNIX

6. Admits the allegations of 6.

7. Admits the allegations of 7, except denies the allegation that AT&T transferred to Novell only "active" UNIX licensing agreements.

B. Linux

8. Admits that Linus Torvalds purportedly developed the Linux operating system by consulting and referring to other materials; admits that numerous other parties have also

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contributed to Linux, including parties who wrongfully contributed SCO's UNIX intellectual property; but denies information or knowledge sufficient to form a belief as to the truth of each and every other allegation of 8.

9. Admits the allegations of the first sentence of 9, but denies the second sentence of 9 to the extent it alleges that SCO intellectual property in Linux is legally and properly available to the public.

C. The Asset Purchase Agreement Between Novell and The Santa Cruz Operation, Inc.

10. Admits that in 1995, Novell ("Seller") and The Santa Cruz Operation, Inc. ("Santa Cruz") entered into negotiations resulting in the transfer to Santa Cruz of "all of Seller's right, title and interest in and to the assets and properties of Seller relating to the [UNIX and Unixware] Business," including the copyrights in UNIX and Unixware; but denies each and every other allegation of 10.

11. Admits that Santa Cruz was founded and operated as a UNIX development, porting, distribution, support, and consulting company; and admits the other allegations of 11.

12. Admits the allegations of 12.

13. Admits the allegations of 13.

14. Admits that the APA transferred to Santa Cruz "all of Seller's right, title and interest in and to the assets and properties of Seller relating to the [UNIX and Unixware] Business," including (among other things) the copyrights in UNIX and Unixware, the assignment of thousands of contracts and licenses, and the other assets listed in 14.

15. Admits that, to help bridge the gap between the purchase price of the UNIX business and the price Santa Cruz could afford, the parties agreed to a narrow exception to the

3

complete transfer of the UNIX business; that pursuant to this exception Novell retained the right to continue receiving royalties that SCO collected from then-existing SVRX licensees for their distribution of binary (object) code versions of System V products pursuant to sublicensing agreements; and that Novell retained the right to conduct audits, and direct Santa Cruz to take certain actions, to protect that future binary royalty stream. SCO, however, denies each and every other allegation of 15; and to the extent 15 purports to state a legal conclusion, states that no response is required.

16. Admits the allegations of the first three sentences of 16 to the extent those allegations refer only to the SVRX binary royalty stream (as described in 15, above); and admits the allegations of the last sentence of 16.

17. Admits the allegations of 17, except denies the allegation that Novell retained, or that the parties to the APA intended for Novell to retain, the copyrights in UNIX and Unixware under Schedule l.l(b) or any other schedule or provision of the APA.

18. Admits that Novell retained certain rights to audit Santa Cruz's administration of the SVRX binary royalty stream; denies each and every other allegation of 18; and to the extent 18 purports to state a legal conclusion, states that no response is required.

19. Admits the allegations of 19 only to the extent they refer to the rights and obligations of the parties with respect to the SVRX binary royalty stream (as described in 15, above).

20. Admits the allegations of the first three sentences of 20, but denies each and every other allegation of 20.

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D. Novell's Alleged Ownership of the UNIX Copyrights

21. Admits that the APA transferred to Santa Cruz all of Novell's right, title, and interest in and to Novell's assets and properties relating to the UNIX and Unixware business; admits that certain limited assets were excluded from the transfer; but denies each and every other allegation of 21, including the allegation that the APA did not transfer to Santa Cruz the copyrights in UNIX and Unixware.

22. Denies the allegations of 22; and to the extent 22 purports to state a legal conclusion, states that no response is required.

23. Admits that Novel1 and Santa Cruz executed Amendment No. 2 to the APA; and to the extent 23 purports to state a legal conclusion, states that no response is required.

24. Denies the allegations of 24; and to extent 24 purports to state a legal conclusion, states that no response is required.

25. Denies the allegations of 25 (including subparagraphs a-d); and to the extent 25 (including subparagraphs a-d) purports to state a legal conclusion, states that no response is required.

26. Denies the allegations of 26; and to the extent 26 purports to state a legal conclusion, states that no response is required.

27. Denies the allegations of 27.

E. Sale of the UNIX Business to Caldera

28. Admits the allegations of 28.

29. Admits the allegations of the first sentence of 29, but denies each and every other allegation of 29.

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30. Admits the allegations of 30.

F. Caldera's Financial Position and Business Strategy

31. Admits that Caldera (like, on information and belief, Novell and nearly all other companies) did not produce a profitable Linux business; and admits the other allegations of 31.

32. Admits that, after Caldera's acquisition of Santa Cruz's Server Software and Professional Services divisions, most of Caldera's revenue came from UNIX products and services, including approximately 90% of its total revenues at the end of fiscal year 2001 and 95% of its total revenues at the end of fiscal year 2002; admits that (at least in part because of the unauthorized use of SCO's proprietary UNIX code and other protected materials in Linux) Caldera's actual and forecasted revenues from the sale of UNIX-based products declined in the fiscal quarters following the acquisition; but denies each and every other allegation of 32.

33. Admits the allegations of 33.

34. Admits that Caldera hired Darl McBride as its President and Chief Executive Officer in June 2002 and that Mr. McBride was responsible for Caldera's strategic direction, with input from other executives of the company; but denies each and every other allegation of 34.

35. Admits the allegations of 35.

36. Admits the allegations of 36.

37. Admits that SCO launched the SCOsource initiative to review, enforce, and defend SCO's ownership of its UNIX intellectual property (including copyrights); admits that

6

SCO announced that initiative in January 2003 but did not enter into a SCOsource agreement until August 2003; and denies each and every other allegation of 37.

G. Communications Between SCO and Novell in Late 2002 and Early 2003

38. Admits that in late 2002, as part of the review of its intellectual property, SCO contacted Novell to confirm SCO's understanding that the UNIX and Unixware copyrights had been transferred under the APA and to ask if Novell had documents concerning the APA; admits that Novell counsel and other employees repeatedly and successively asked SCO to call again at a later time after Novell had had the opportunity to research the matter; admits that in early 2003, Novell counsel agreed to sign a letter stating that the APA transferred all right, title, and interest in and to the copyrights associated with the AT&T SVRX software agreements; admits that SCO sent Novell counsel a draft of that letter but Novell responded that it was no longer interested in UNIX and would not sign; admits that Novell did not sign the letter and ceased communications with SCO; further admits that during the aforementioned conversations Novell never asserted its purported, or challenged SCO's, ownership of the UNIX and Unixware copyrights; but denies each and every other allegation of 38.

39. Admits that (at Novell's request, as described in 38 above) SCO contacted Novell on multiple occasions in early 2003; but denies each and every other allegation of 39.

H. SCO's Efforts to Protect Its Intellectual Property

40. Denies the allegations of 40.

41. Denies the allegations of the introductory sentence of 41.

a. Admits the allegations of subparagraph 41(a).

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b. Admits the allegations of subparagraph 41(b).

c. Admits the allegations of subparagraph 41(c).

d. Admits that in 2003 and 2004, SCO properly registered its copyrights in UNIX and Unixware, including its copyrights in the UNIX and Unixware releases listed in subparagraph 41(d); denies each and every other allegation of subparagraph 41(d); and to the extent subparagraph 41(d) purports to state a legal conclusion, states that no response is required.

e. Admits the allegations of subparagraph 41(e).

f. Admits the allegations of subparagraph 41(f).

42. Admits that on or about July 21,2003, Darl McBride made the statement quoted in part in 42; but denies each and every other allegation of 42.

43. Denies that Novell did not acquiesce to SCO's ownership claims during the years between the execution of the APA (in September 1995) and about May 2003; further denies, as described below in SCO's response to subparagraph 43(b), that Novell did not acquiesce to SCO's ownership claims in June 2003.

a. Admits that on May 12, 2003, Darl McBride sent Novell a letter setting forth the statements therein.

b. Admits that, in response to Mr. McBride's May 2003 letter, Novell CEO Jack Messman sent SCO a May 28, 2003 letter (published in several newspapers and other publications) stating that "SCO is not the owner of the UNIX copyrights" a statement that Novell recanted in a June 6, 2003 press release stating that

8

Amendment No. 2 to the APA "appears to support SCO's claim that ownership of certain copyrights for UNIX did transfer to SCO in 1996."

c. Admits the allegations of 43(c), including the fact that Mr. LaSala's August 4, 2003 letter to SCO purported to recant the recantation in Novell's June 6, 2003 press release.

44. Admits that in September and October 2003, Novell (wrongfully) obtained copyright registrations for UNIX-related products; denies each and every other allegation and the characterizations in 44; and to the extent 44 purports to state a legal conclusion, states that no response is required.

I. The SCOsource Initiative

45. Denies the allegations of 45; and to the extent 45 purports to state a legal conclusion, states that no response is required.

46. Admits that SCO announced its SCOsource initiative on January 22, 2003, and that in connection with that announcement, Darl McBride made the statement quoted in part in 46; but denies each and every other allegation and the characterizations in 46.

47. Admits that the SCOsource licensing program allows Linux end-users to enter into intellectual property agreements that properly compensate SCO for its UNIX intellectual property found in Linux; admits that the terms of the SCOsource agreements are as stated therein; but denies each and every other allegation of 47.

48. Admits that SCO charges market price (including appropriate discounts) for its intellectual property licenses. but denies each and every other allegation and the characterization in 48.

9

49. Admits that on March 7, 2003, SCO filed a lawsuit against IBM based on the allegations set forth in SCO's pleadings in that lawsuit; denies each and every other allegation of 49; and to the extent 49 purports to state a legal conclusion, states that no response is required.

50. Admits that SCO, through its SCOsource division, entered into agreements related to UNIX and Unixware with Sun Microsystems, Inc., and Microsoft Corporation (in that order) and that the Microsoft agreement covered UNIX compatibility products; but denies each and every other allegation of 50, including the allegation that the Sun and Microsoft agreements were part of the SCOsource licensing program.

51. Admits that the Sun and Microsoft agreements in part produced the profitable quarter; admits the allegations of the second sentence of 51; but denies each and every other allegation and the characterizations in 51.

52. Admits that in May 2003, SCO sent 1,500 end-user corporations (including IBM and Novell) a letter setting forth the statements therein; denies each and every other allegation of 52; and to the extent 52 purports to state a legal conclusion, states that no response is required.

53. Admits that SCO made statements (correctly quoted in part in 53) in the May 2003 letters; denies each and every other allegation of 53; and to the extent 53 purports to state a legal conclusion, states that no response is required.

54. Admits that SCO made statements (correctly quoted in part in 54) in the May 2003 letters; denies each and every other allegation of 54; and to the extent 54 purports to state a legal conclusion, states that no response is required.

10

55. Admits that SCO made statements (correctly quoted in part in 55) in its May 2003 letters to end-users; denies each and every other allegation and the characterizations in 55; and to the extent 55 purports to state a legal conclusion, states that no response is required.

56. Admits that SCO has publicly stated that it owns the UNIX copyrights and that Linux end-users may be liable for infringement of those copyrights; admits that it has stated on its website that "only SCO is in a position to license the use of this infringing intellectual property"; admits that the Court's February 8, 2005 Order in the IBM case sets forth the statements therein; denies each and every other allegation and the characterizations in 56; and to the extent 56 purports to state a legal conclusion, states that no response is required.

57. Admits that SCO has filed lawsuits against Autozone, Inc., and Daimler Chrysler Corporation, based on the allegations set forth in its pleadings in those lawsuits; but denies each and every other allegation and the characterizations in 57.

58. Admits that Novell has established an indemnification program with numerous restrictions (including, for example, the requirement that the Linux customer buy a new upgrade) and limitations (including, for example, on the dollar amount of the indemnification); but denies information or knowledge sufficient to form a belief as to the truth of the other allegations of 58.

59. Admits that, in an effort to protect its UNIX copyrights, SCO has negotiated and continues to negotiate intellectual property agreements with Linux end-users; admits

11

that such agreements generated revenue in fiscal years 2004 and 2005; and denies each and every other allegation and the characterizations in 59.

J. Novell's Allegations that SCO Breached the Asset Purchase Agreement

60. Denies the allegations of 60; and to the extent 60 purports to state a legal conclusion, states that no response is required.

61. Denies the allegations of 61; and to the extent 61 purports to state a legal conclusion, states that no response is required.

62. Denies the allegations of 62; and to the extent 62 purports to state a legal conclusion, states that no response is required.

63. Admits that Section 1.2(h) of the APA provides in part:

Seller shall be entitled to conduct periodic audits of Buyer concerning all royalties and payment due to Seller hereunder or under the SVRX Licenses, provided that Seller shall conduct such audits after reasonable notice to Buyer and during normal business hours and shall not be entitled to more than two (2) such audits per year.

SCO denies each and every other allegation and the characterization in 63, including that under the APA, Novel1 had audit rights other than with respect to the administration of the SVRX binary royalty stream; and to the extent 63 purports to state a legal conclusion, states that no response is required.

64. Admits that Section 1.2(f) of the APA provides in part:

Within one (1) calendar month following each calendar month in which SVRX Royalties [and royalties from Royalty-Bearing Products as contemplated in Schedule 1.2(b) hereof] are received by Buyer, Buyer shall provide to Seller, in electronic file format, a report detailing all such royalties.
SCO denies each and every other allegation of 64.

12

65. Admits the allegations of 65.

66. Admits the allegations of 66.

67. Admits that Novell sent SCO a November 21,2003 letter (correctly quoted in part in 67) requesting the information set forth therein; denies each and every other allegation of 67 (including subparagraphs a-d); and to the extent 67 (including subparagraphs a-d) purports to state a legal conclusion, states that no response is required.

68. Admits that Novell sent letters to SCO on December 29, 2003, and on February 4, 2004, referencing Novell's November 21, 2003 letter.

69. Admits that SCO responded to Novell's letters as set forth in SCO's letter dated February 5, 2004; but denies each and every other allegation of 69.

70. Admits that Novell sent SCO a March 1, 2004 letter (correctly quoted in part in 70), requesting the information set forth therein; denies each and every other allegation of 70; and to the extent 70 purports to state a legal conclusion, states that no response is required.

71. Admits that Novell sent a letter to SCO on April 2, 2004, requesting the information set forth therein.

72. Admits that Novell sent SCO a November 17, 2004 letter (correctly quoted in part in 72) requesting the information set forth therein.

73. Admits that SCO responded to Novell as set forth in SCO's letters; but denies each and every other allegation and the characterizations in 73; and to the extent 73 purports to state a legal conclusion, states that no response is required.

13

74. Admits that SCO was obligated to remit "all royalties, fees and other amounts due under all SVRX Licenses (as listed in detail under item VI of Schedule l.l(a) hereof and referred to herein as 'SVRX Royalties')"; admits that the term "SVRX Licenses" is not listed in a "Definitions" or "Recitals" section of the APA. SCO denies each and every other allegation of 74, including any attempt by Novel1 to define the term "SVRX Licenses" to include anything other than royalties that SCO collected from then-existing SVRX licensees for their distribution of binary-code versions of System V products pursuant to sublicensing agreements.

75. Denies the allegations of 75; and to the extent 75 purports to state a legal conclusion, states that no response is required.

76. Admits that SCO entered into agreements with Sun and Microsoft, but denies each and every other allegation and the characterizations in 76.

77. Denies the allegations of 77; and to the extent 77 purports to state a legal conclusion, states that no response is required.

78. Admits that SCO has not remitted royalties from its licenses with Sun and Microsoft; denies each and every other allegation of 78, including the allegation that SCO entered into "SVRX Licenses" with Sun or Microsoft; and to the extent 78 purports to state a legal conclusion, states that no response is required.

79. Admits that SCO has entered into intellectual property agreements, the terms of which are set forth therein; but denies each and every other allegation of 79.

80. Denies the allegations of 80; and to the extent 80 purports to state a legal conclusion, states that no response is required.

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81. Admits that Amendment No. 1 to the APA added Section 1.2(e) (correctly quoted in part in 81); but denies each and every other allegation of 81; and to the extent 81 purports to state a legal conclusion, states that no response is required.

82. Admits the allegations of the first sentence of 82; but denies the second sentence of 82 to the extent it alleges that the intellectual property licenses and Sun and Microsoft agreements required Novell's prior approval or were "SVRX Licenses"; and to the extent 82 purports to state a legal conclusion, states that no response is required.

83. Admits that Novell correctly quotes in part Section 4.16(b) of the APA, but denies that this is the only pertinent part of that section.

84. Admits that SCO sent letters to various companies, including IBM and Sequent, setting forth the statements therein; but denies each and every other allegation in 84, including the allegation that the licenses referenced in those agreements were "SVRX Licenses."

85. Admits that SCO terminated its software license agreements with IBM and Sequent; admits that it sent Sequent an August 11, 2003 letter of termination; but denies each and every other allegation in 85, including especially the allegation that the terminated licenses were "SVRX Licenses."

86. Admits that SCO did not seek Novell's prior written consent to terminate the IBM and Sequent licenses; admits that Novell sent letters to SCO on June 9, 2003 and October 7, 2003, setting forth the statements therein; but denies each and every other

15

allegation of 86, including especially the allegation that the terminated licenses were "SVRX Licenses."

87. Admits that Novell correctly quotes in part Section 4.16(b) of the APA, but denies that this is the only pertinent part of that section; denies each and every other allegation of 87; and to the extent 87 purports to state a legal conclusion, states that no response is required.

88. Denies the allegations of 88; and to the extent 88 purports to state a legal conclusion, states that no response is required.

89. Admits that SCO refuses to acknowledge Novell's purported right to take certain actions on behalf of SCO; denies the allegation that Novell has that right; and to the extent 89 purports to state a legal conclusion, states that no response is required.

90. Admits that Section 4.16(b) of the APA (correctly quoted in part in 90) sets forth the terms therein; but denies each and every allegation of 90, including any attempt by Novell to define the term "SVRX Licenses" to include anything other than royalties that SCO collected from then-existing SVRX licensees for their distribution of binary-code versions of System V products pursuant to sublicensing agreements.

91. Admits that SCO entered into agreements with Linux end-users, Sun, Microsoft, and others; but denies each and every other allegation in 91, including the allegation that those agreements are "SVRX Licenses."

92. Admits that SCO never sought approval from Novell to enter into the intellectual property licenses or Sun and Microsoft agreements; denies each and every other

16

allegation of 92; and to the extent 92 purports to state a legal conclusion, states that no response is required.

93. Denies the allegations of 93; and to the extent 93 purports to state a legal conclusion, states that no response is required.

FIRST CLAIM FOR RELIEF

94. Repeats and re-alleges its answers to the allegations of 1-93 as if fully set forth herein.

95. Denies the allegations of 95; and to the extent 95 purports to state a legal conclusion, states that no response is required.

96. Denies the allegations of 96; and to the extent 96 purports to state a legal conclusion, states that no response is required.

97. Denies the allegations of 97; and to the extent 97 purports to state a legal conclusion, states that no response is required.

98. Denies the allegations of 98; and to the extent 98 purports to state a legal conclusion, states that no response is required.

SECOND CLAIM FOR RELIEF

99. Repeats and re-alleges its answers to all prior paragraphs as if those answers were fully set forth herein.

100. Admits that Novell sent SCO a November 21, 2003 letter requesting the information set forth therein, but denies each and every other allegation in 100 (including subparagraphs a-d).

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101. Denies the allegations of 101; and to the extent 101 purports to state a legal conclusion, states that no response is required.

102. Denies the allegations of 102; and to the extent 102 purports to state a legal conclusion, states that no response is required.

103. Denies the allegations of 103; to the extent 103 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 103.

THIRD CLAIM FOR RELIEF

104. Repeats and re-alleges its answers to all prior paragraphs as if those answers were fully set forth herein.

105. Denies the allegations of 105; and to the extent 105 purports to state a legal conclusion, states that no response is required.

106. Denies the allegations of 106; and to the extent 106 purports to state a legal conclusion, states that no response is required.

107. Denies the allegations of 107; to the extent 107 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 107.

108. Denies the allegations of 108; to the extent 108 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 108.

109. Admits that SCO expects to have at least $11 million in cash designated for its business operations in 2006; denies each and every other allegation in 109; to the extent 109

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purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 109.

110. Denies the allegations of 110; to the extent 110 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 110.

FOURTH CLAIM FOR RELIEF

111. Repeats and re-alleges its answers to all prior paragraphs as if those answers were fully set forth herein.

112. Denies the allegations of 112; and to the extent 112 purports to state a legal conclusion, states that no response is required.

113. Denies the allegations of 113; to the extent 113 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 113.

114. Denies the allegations of 114; and to the extent 114 purports to state a legal conclusion, states that no response is required.

115. Denies the allegations of 115; to the extent 115 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 115.

116. Denies the allegations of 116; to the extent 116 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 116.

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FIFTH CLAIM FOR RELIEF

117. Repeats and re-alleges its answers to all prior paragraphs as if those answers were fully set forth herein.

118. Admits the allegation of 118.

119. Denies the allegations of 119; and to the extent 119 purports to state a legal conclusion, states that no response is required.

120. Admits that, under the APA, SCO was obligated to administer the intended binary royalty stream described in 15, above; denies each and every other allegation of 120; and to the extent 120 purports to state a legal conclusion, states that no response is required.

121. Denies the allegations of 121; to the extent 121 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 121.

SIXTH CLAIM FOR RELIEF

122. Repeats and re-alleges its answers to all prior paragraphs as if those answers were fully set forth herein.

123. Denies the allegations of 123; and to the extent 123 purports to state a legal conclusion, states that no response is required.

124. Denies the allegations of 124; and to the extent 124 purports to state a legal conclusion, states that no response is required.

125. To the extent 125 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 125.

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126. Denies the allegations of 126; to the extent 126 purports to state a legal conclusion, states that no response is required; and states that Novell is not entitled to the relief it seeks in 126.

SEVENTH CLAIM FOR RELIEF

127. Repeats and re-alleges its answers to all prior paragraphs as if those answers were fully set forth herein.

128. Admits that, under Section 4.16 of the APA, SCO agreed to collect and pass through to Novell 100% of the royalties paid by then-existing SVRX licensees for their distribution of binary-code versions of System V products pursuant to sublicensing agreements; admits that, under Section 4.16, Novell agreed to pay SCO 5% of such binary royalties as an administrative fee; admits that SCO was responsible for making additional payments to Novell for products unrelated to the SVRX licenses and this litigation; denies each and every other allegation of 128; and to the extent 128 purports to state a legal conclusion, states that no response is required.

129. Admits the allegations of 129 to the extent the terms "SVRX royalties" or "SVRX licenses" refer only to the intended binary royalty stream described in 15 and 128, above; and to the extent 129 purports to state a legal conclusion, states that no response is required. 130. Admits the allegations of the first sentence of 130 to the extent they refer to the intended binary royalty stream described in 15 and 128, above, and to payments for products unrelated to the SVRX licenses and this litigation; denies each and every

21

other allegation of 130; and to the extent 130 purports to state a legal conclusion, states that no response is required.

131. Denies the allegations of 131; and to the extent 131 purports to state a legal conclusion, states that no response is required.

132. Admits the allegations of 132 only to the extent the phrase "royalty payments to SCO under the SVRX Licenses" is limited to the binary royalties described in 128, above.

133. Admits the allegations of 133 only to the extent the phrase "royalty payments under the SVRX licenses" refers only to the binary royalty stream described in 15 and 128, above.

134. Admits that SCO did not seek Novell's approval before entering into the intellectual property agreements or Sun and Microsoft agreements; admits that SCO did not report those agreements to Novell because they are not "SVRX Licenses" as intended under the APA; denies each and every other allegation and the characterizations in 134; and to the extent 134 purports to state a legal conclusion, states that no response is required.

135. Denies the allegations of 135; and to the extent 135 purports to state a legal conclusion, states that no response is required.

136. Denies the allegations of 136; and to the extent 136 purports to state a legal conclusion, states that no response is required.

137. Admits that the binary royalty payments due to Novell under the APA are calculated by formula and that SCO directly receives those payments; denies each and every other

22

allegation and the characterizations in 137; and to the extent 137 purports to state a legal conclusion, states that no response is required.

138. Denies the allegation that SCO owes Novell monies under the APA, and states that Novell is not entitled to an accounting.

PRAYER FOR RELIEF

139. States that the enumerated 139-43 following Novell's Prayer for Relief include requests for relief as to which no response is required. To the extent a response is required, SCO denies that Novell is entitled to the requested or any relief.

GENERAL DENIAL

SCO denies each and every allegation in Novell's Counterclaims that is not specifically admitted herein.

AFFIRMATIVE DEFENSES

SCO hereby asserts the following separate defenses to the purported causes of action in Novell's Counterclaims, without assuming any burden of proof that rests with Novell with respect to such defenses.

First Defense

Novell's slander-of-title counterclaim is barred by the absolute and conditional privileges enjoyed by SCO.

Second Defense

Novell's slander-of-title counterclaim is barred by the First Amendment to the United States Constitution.

23

Third Defense

Novell's counterclaims are barred, in whole or in part, by the doctrine of waiver.

Fourth Defense

Novell's counterclaims are barred, in whole or in part, by the doctrines of laches and delay.

Fifth Defense

Novell's counterclaims are barred, in whole or in part, by the doctrine of estoppel.

Sixth Defense

Novell's counterclaims are barred, in whole or in part, by the doctrine of unclean hands.

Seventh Defense

Novell's counterclaims are barred, in whole or in part, by the applicable statute of limitations.

Eighth Defense

Novell has failed to mitigate its alleged damages, and accordingly, any damages awarded to Novell should be reduced to the extent of its failure to mitigate.

Ninth Defense

Novell's counterclaims are barred, in whole or in part, by lack of causation. To the extent that Novell alleges (contrary to fact) that it has suffered damages, such damages were not proximately caused by any act or omission of SCO, or were not reasonably foreseeable, or both.

Tenth Defense

Novell's Answer and Counterclaims fails to state a claim upon which relief can be granted.

24

WHEREFORE, plaintiff and counterclaim-defendant SCO demands judgment dismissing Novell's counterclaims with prejudice, along with such other and further relief as the Court deems just and proper.

DATED this 12th day of September, 2005.

Respectfully submitted, HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark F. James

BOIES, SCHILLER & FLEXNER LLP
Stephen N. Zack
Robert Silver
Stuart H. Singer
Edward Normand

By ___[signature]
Counsel for The SCO Group, Inc.

25

CERTIFICATE OF SERVICE

Plaintiff, The SCO Group, Inc., hereby certifies that on the 12th day of September, 2005, a true and correct copy of the foregoing SCO's Answer to Novell's Counterclaims was served on Defendant Novell, Inc., by U.S. Mail to: Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon
ANDERSON & KARRENBERG
[address]

Michael A. Jacobs
Matthew I. Kreeger
MORRISON & FOERSTER
[address]

____[signature]____

26


1 28 U.S.C. 2201 is called Declaratory Judgment Act, and Section 2201, Creation of remedy, reads like this:

In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

Here's a tutorial on declaratory judgments and I found a case that explains what an actual controversy under the Declaratory Judgment Act is here. Here are the requirements to get a declaratory judgment. We first learned about declaratory judgments in the Red Hat case, because Red Hat is asking for one also, so I explained declaratory judgments way back in June of 2003 and here in some detail.

Actually, Red Hat is requesting several declaratory judgments: 1, "that Red Hat's and its customers' actions . . . do not violate any SCO rights under Section 106 of the Copyright Act. . . and a Declaratory Judgment that any SCO copyright claimed to be infringed by Red Hat or its customers in conjunction with any of Red Hat's products is unenforceable" and, 2, that Red Hat's and its customers' actions . . . do not constitute a misappropriation of any SCO trade secret, a Declaratory Judgment that the LINUX kernel and operating system are public and therefore cannot constitute a trade secret; and a Declaratory Judgment that any SCO trade secret claimed to be misappropriated by Red Hat or its customers in conjunction with any of Red Hat's products is unenforceable."

IBM is asking for several declaratory judgments in its counterclaims as well.


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