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SUSE Files Arbitration Request in Paris - The Jacobs Declaration
Wednesday, April 12 2006 @ 04:55 AM EDT

The SCO v. Novell litigation just got a lot more interesting. Here are some more documents filed yesterday and now available on Pacer, and they provide some more explosive news, namely that SuSE on April 10th filed a Request for Arbitration with The Secretariat of the ICC International Court of Arbitration in Paris. Here are the ICC Rules, which you can download in several languages.

We learn about this development in a Declaration by Michael Jacobs, one of Novell's attorneys, and you can see the request for arbitration on page 53 of his Declaration. Here it is along with the other filings:

What's going on? We can only guess. Let's do. We can at least make some educated guesses. I can't help but guess the following: I think just maybe Novell mapped out a strategy that included goading SCO with Novell's amazingly strong counterclaims, which in turn prompted SCO to amplify its claims, adding copyright infringement claims regarding SuSE Linux -- remember Novell didn't object when SCO asked to be able to file its second amended complaint -- with the hope that SCO would thus trigger the arbitration clause, which it did. That's my best guess, that we are watching some phenomenal lawyering, and even BS&F got sucker punched.

If you were given a choice between having a GPL-related case heard in Europe in a fast-track arbitration based on clear contracts or let it drag out for year after painful year in Utah, what would you choose? Anyway, someone on Novell's team at some point noticed that the UnitedLinux agreements, which Caldera signed, require such arbitration of certain types of claims, likely even designating the jurisdiction, and once SCO filed its 2nd Amended Complaint alleging that distribution of SUSE Linux was copyright infringement, it opened up the door to this request for arbitration in France. The ICC Rules state that those wishing to include arbitration clauses in contracts should specify where the dispute should be heard:

Parties are reminded that it may be desirable for them to stipulate in the arbitration clause itself the law governing the contract, the number of arbitrators and the place and language of the arbitration. The parties’ free choice of the law governing the contract and of the place and language of the arbitration is not limited by the ICC Rules of Arbitration.

So when the parties to UnitedLinux wrote up the contract, they presumably did just that, although we have to guess on that, because a lot of the agreements are redacted. SuSE is asking for the following relief from the Arbitral Tribunal in Paris:

1. Declare that Respondent is precluded under the Master Transaction Agreement (MTA) and the UnitedLinux Joint Development Contract (JDC) from asserting any copyright infringement claims related to SUSE Linux;

2. Declare, in particular, that the MTA and JDC divest Respondent of ownership of any alleged intellectual property rights in any part of software included in the UnitedLinux Software (other than Pre-Existing Technology and Enhancements);

3. Order Respondent to refrain from alleging publicly or against third parties that the use and distribution of SUSE Linux infringes upon Claimant's copyrights, as precluded by the MTA and JDC;

4. Order Respondent to pay damages in an amount to be determined for breach of the MTA and JDC by improperly asserting claims against Claimant and its licensees, and by attacking and withdrawring support for the UnitedLinux project;

5. Order Respondent to bear all costs of the arbitration proceeding, including the costs and expenses of the ICC and of the arbitration, as well as attorneys' fees, cost of lost executive time and expert's costs, if any; and

6. Award any further relief that the Tribunal deems necessary to effectuate the relief requested above.

In paragraph 2, the document says that UL members agreed that they each would have the right to commercialize the UL technology independently, "free from claims that the other members had any proprietary rights to such technology. In particular, the UnitedLinux members agreed that each member would have broad licenses to exploit and distribute Linux products that include UnitedLinux technology." When the announcement was made in November of 2002 about UnitedLinux, SCO's Linux was actively promoted as "powered by UnitedLinux". So, on what basis can SCO raise copyright infringement claims against a party to those agreements?

Then SCO pulled out of Linux distribution, it goes on, because SCO altered its business strategy "to the detriment of the agreements to which it is a party" and now it's trying to "undermine the very business that it had promised to promote," including filing litigation against SuSE's "parent and licensee Novell, alleging that Novell's distribution of SUSE Linux infringes Respondent's supposed copyrights."

SCO is being accused of not honoring a contract. We all know how sacred contracts are to SCO. You'll remember how deeply they cared about every jot and tittle in the Project Monterey contract. And remember what it tried to put DaimlerChrysler through based on SCO's interpretation of contracts? So this feels fitting. SuSE is asking the arbitration body to make SCO live up to its agreements. This is priceless.

You'll note, on page 58, that the agreements regarding UL were signed in May of 2002, just before Darl McBride hopped on his UNIX nag and began to ride as CEO. In paragraph 11, on that same page, we read this:

As discussed below, Respondent's claims are completely inconsistent with, and precluded by, the terms of the MTA and JDC. Therefore, this dispute should be resolved by ICC arbitration as laid out in the arbitration clause in said contracts.

This is the most surprising thing that has happened in the entire SCO saga, to me anyway. This is strategy way over my head. I don't feel bad, though. It appears BS&F didn't see it coming either. Plus, I hadn't read the UL contracts, obviously. Did SCO?

Now, according to the ICC rules, each party gets to nominate an arbitrator, and SuSE suggests Dr. Roberto Dallafior of Switzerland, who wrote the chapter on contract law in this book "Switzerland Business & Investment Handbook". His firm is Hess Dallafior. Here are some more things he's written, along with a picture of him. He's very good-looking. And not a million years old, either. One publication is called, "David gegen Goliath". For sure, they didn't pick his name out of a hat. No doubt they researched to get an idea of who they felt would be best equipped.

If you look on page 59, you'll see that they are supposed to say what language or languages the proceedings should be held in, and it's redacted. I love that touch. Might it be they chose, say, German? Anyone with BS&F speak German? I don't know why that part is redacted. It is possible they chose English, or English too. This document is in English, after all. If the parties don't agree, the Tribunal decides, and it will be influenced by the language of the contract, according to the ICC rules. Time will tell. But if it's in German or whatever, I'll be relying on Groklaw's translators, for sure. I note on page 60 that Novell's team now includes, for this arbitration, a Swiss firm. Likely they helped Novell choose an arbitrator.

That reminds me. I really need help transcribing all these documents. Please leave a comment stating what you are willing to do, so we don't duplicate effort, then email me in a plain text email either the text or the HTML, depending on your ability. Let me know in that same email how you wish to be credited, please.

Paragraph 17 expressly reserves the right to add further claims, or amend claims, and present further evidence in the future. There may be more up their sleeve, just in case they need it. And paragraph 46 gives us an idea of what was in the MTA and the JDC:

46. In particular the United Linux members agreed that each member would have an irrevocable, perpetual, and worldwide license to use and unlimitedly exploit any intellectual property rights of the other members in the UnitedLinux Software, which would be transferred to the LLC for this very purpose....

Then a couple of pages are redacted, apparently because of confidentiality requirements in the agreements themselves, but that sum up paragraph gives us enough to go on to grasp the slippery slope SCO now appears to be precariously standing on. The document goes on to describe UnitedLinux's launch in November of 2002, with appropriate quotes from then CEO Ransom Love, and tells how SCO continued to distribute even after the March 2003 litigation was begun against IBM, until May of 2003, when it announced it had "only recently discovered Linux included code that infringed on Respondent's alleged proprietary rights even though Respondent had been distributing Linux since 2001, and had participated in the development of UnitedLinux in 2002" and so was ceasing Linux distribution. The kernel in UnitedLinux was 2.4.19, which of course is subject to the GPL.

On page 75, we get to the heart of the matter, in paragraph 78 where it quotes SCO's Second Amended Complaint, which charges Novell with infringing SCO's copyrights by its use and distribution of SuSE Linux. But, SuSE points out, Novell is now its parent company and in the acquisition, Novell was granted an "exclusive license to all of SuSE's intellectual property rights, including any rights under agreements and licenses with other parties", which would include its rights under the MTA and JDC, the UnitedLinux agreements.

Paragraphs 81 and 82 are interesting. They point out that Caldera didn't contribute the Linux kernel to UL, but its infringement claims, although vague, appear to involve the kernel. The MTA and JDC, therefore, preclude SCO from asserting copyright infringement claims against the Linux kernel, no matter how you examine the issue, and the document does so every possible way, including the requirements of the GPL, which surely has been the MVP of the SCO litigation. In short, SCO is breaching the UL agreements by bringing such claims, and SuSE asks the Arbitral Tribunal to make them stop. Oh, and in addition they would like damages.

So, how do you like all this? Amazingly interesting, isn't it? What happens next? According to the ICC rules, as I read them, SCO must answer in 30 days, with any counterclaims, and giving any choice regarding arbitrators, language, and place of arbitration. It can ask for an extension. After an answer is filed, then SuSe gets 30 days to reply. It too can ask for an extension of time. SCO can protest the arbitration request. Then either the Tribunal decides to go ahead as a matter of law, relying on its decision that the arbitration clause is binding, or the parties end up in a local court, asking that court to decide if the arbitration clause is binding. It can decide just on the papers submitted, or there can be a hearing requested, but no matter what, after all the papers are in, it is supposed to be over in six months. No discovery. Whew. We're all sick of SCO discovery.

The number of arbitrators is decided very much like an ICANN UDRP domain name arbitration proceeding, I notice. Each party tells how many it wishes, one or three. If they can't agree, the Tribunal decides. If they agree on the number three, they each appoint one and the Tribunal appoints one. You can read about that on page 14 of the ICC rules. The decision is binding. If you think a mistake has been made, you can ask for a correction, but that's it. Talk about fast track. Not only that, but the parties can agree to go faster than the rules set out. I don't see SCO agreeing to be fast, though, do you? Keep in mind that when I say fast, I'm marking on a curve.

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