SCO's Chapter 11 Trustee Edward Cahn bragged at Friday's bankruptcy hearing that he had won all the Daubert motions and most of the motions in limine in Utah.
However, Judge Stewart has just reversed himself with regard to Novell's Motion in Limine No. 2 and No. 3 and has now granted them.
If you look at the chart we've prepared you can see that and if you do the math, you'll see that Novell was denied on six of its motions in limine, but it won on five, and in won in part and was denied in part on 8.
It also wouldn't be true to say that SCO won all its motions in limine. SCO was denied without prejudice on one, denied outright on another, denied in part and granted in part on one, granted on two, and one was taken under advisement. SCO did prevail in the three Daubert motions. Just setting the record straight.
In reversing himself on Novell's two motions in limine in his recent order [PDF], I think he made a mistake in describing Novell's press releases, however. It's fundamental to what exactly are the disputed copyrights. So I thought I'd take the time to explain.
First, you will find the copyrights in dispute on this page, under the heading Copyrights. If you check carefully, you'll see that there are no pre-APA UnixWare copyrights on the list. The only UnixWare copyright is dated for work done in 2002.
These are the copyrights that each party registered with the US Copyright Office, and they are the subject of the various public statements and press releases that form the foundation of the slander of title claims.
Now, let's see what Judge Stewart wrote about Novell's press releases:
While, as discussed below, the press releases do mention certain of Defendant’s products, they do not attempt to market those products in any way. Rather, these press releases merely challenge Plaintiff’s claims of ownership to the UNIX and UnixWare copyrights and their claims of infringement of such copyrights by Linux. But that's not accurate. Novell never mentioned UnixWare at all. He includes the press releases, so you can check that for yourself. The reason that never got mentioned is because UnixWare wasn't the core of the dispute. Here's a snip from Novell's press release from May 28, 2003 that SCO is suing over:
First, Novell challenged SCO’s assertion that it owns the copyrights and patents to UNIX System V, pointing out that the asset purchase agreement entered into between Novell and SCO in 1995 did not transfer these rights to SCO. Second, Novell sought from SCO facts to back up its assertion that certain UNIX System V code has been copied into Linux. Novell communicated these concerns to SCO via a letter (text below) from Novell® Chairman and CEO Jack Messman in response to SCO making these claims.
See any mention of UnixWare? You know why? Because SCO changed its story late in the game in the Novell litigation, with their weird tree is the branch and the branch is the tree analogy and started claiming that Unix and UnixWare were the same thing. (Incidentally, a 1994 10K of Novell's lists them as two separate products, just prior to the sale, if you are curious. So unless SCO was finagling to avoid paying Novell royalties by pretending everything was UnixWare, it's unclear where their tree story gets its roots.) But in the beginning, that wasn't the claim made. Nor do I believe it's true. I believe it was two separate code bases, which is why the long list of copyrights is Unix System V. It was about Unix System V in the beginning, and in fact in the SCO v. IBM litigation, SCO presented no UnixWare infringed code at all. I think the judge has let SCO confuse him on that issue.
“To Novell's knowledge, the 1995 agreement governing SCO’s purchase of UNIX from Novell does not convey to SCO the associated copyrights,” Messman said in the letter. “We believe it unlikely that SCO can demonstrate that it has any ownership interest whatsoever in those copyrights. Apparently you share this view, since over the last few months you have repeatedly asked Novell to transfer the copyrights to SCO, requests that Novell has rejected.”
Novell has now pointed this out to the court, in its Objections to SCO's Proposed Verdict Form [PDF]:
Also, Novell did not claim ownership to the UnixWare copyrights in any of the allegedly slanderous statements at issue. (See Novell’s Opposition to SCO’s Motion in Limine No. 1, Ex. 1A, Dkt. No. 675 (May 28, 2003 letter (referencing only “UNIX”); Order at 2-5, Dkt. No. 710 (quoting the relevant text of the five subsequent statements at issue.) Thus, even if SCO’s question were used, the reference to “UnixWare” should be taken out. I wanted to take time to highlight this so no one is confused about this issue. Here's the statement SCO put out on May 28, 2003, by the way, which you can also find here, titled "SCO Statement on Novell's Recent Actions", and you'll notice they didn't talk about UnixWare either:
SCO owns the contract rights to the UNIX® operating system. SCO has the contractual right to prevent improper donations of UNIX code, methods or concepts into Linux by any UNIX vendor.
This is such a complicated litigation, it's easy to get confused, and from what I've seen SCO likes it that way, and so it will be even easier for historians to drop a stitch, so hopefully this will be helpful to them.
Copyrights and patents are protection against strangers. Contracts are what you use against parties you have relationships with. From a legal standpoint, contracts end up being far stronger than anything you could do with copyrights.
SCO's lawsuit against IBM does not involve patents or copyrights. SCO's complaint specifically alleges breach of contract, and SCO intends to protect and enforce all of the contracts that the company has with more than 6,000 licensees.
We formed SCOsource in January 2003 to enforce our UNIX rights and we intend to aggressively continue in this successful path of operation.
Update: I just notice something in the transcript of SCO's December 22, 2003 teleconference. SCO is suing Novell for slander of title for damaging its business with two press releases in May and December of 2003. But notice what Darl McBride, then CEO of the public company at the time, told the world that day about the state of its business:
McBride: OK, thank you and thank you all for joining us today. Fiscal 2003 was a year of tremendous progress for SCO on many fronts. First, we achieved record financial results in the fourth quarter. Our revenue of 24.3 million dollars represents an increase of 57% over the fourth quarter of last year. These results are in line with our expectations. I believe that is what they call an admission, namely that they weren't really trying to get licenses in 2003, and they were pumped and optimistic as 2004 began. I wonder sometimes. Do SCO's experts read these things? And if not, why not?
Second, we achieved record financial results for our full fiscal year. We posted net income of 5.3 million dollars or 34 cents per diluted common share, reversing a net loss of 24.9 million or a $1.93 per diluted common share in fiscal 2002.
This marks the first time that SCO has generated cash and been profitable on a full-year basis.
Third, we ended up the year in a position of financial strength that represents a substantial turnaround from this time last year. Our positive financial results along with the $50 million equity financing completed in October have given us the resources and flexibility we need to pursue our strategies. At the close of the fiscal year we have 64.4 million of cash on the balance sheet.
Overall, I would characterize 2003 as a year in which we created a strong platform for SCO. A platform upon which we expect to generate long term growth in 2004 and beyond. We have taken important first steps over the last twelve months, strengthening our management team, our financial footing, our core Unix product offerings, and our intellectual property positioning. We're excited about our future at SCO, and in fact today we're announcing two important new initiatives....
As Bob mentioned in his financial review, our results demonstrated SCO's business in 2003 not only stabilized but thrived as we developed and emphasized new areas of our business, created and strengthened relationships with key partners, and worked to enforce and protect our intellectual property. We've put together a strong foundation from which we will build our business in the new year.
We have also introduced and built our SCOsource business unit to enforce our intellectual property rights. As we move into the digital age, intellectual property enforcement is a necessary and proper area of focus for companies around the world. Profitability will be sustained only to the extant intellectual property is identified, cataloged, and protected. We at SCO are pleased to be a leader in this important new area....
So to put a summary on all of this, fiscal 2003 was a pivotal and successful year for SCO. This was the first profitable year in more than 7 years for this company. We have no long term debt, we have more than 64.4 million in cash on our balance sheet, and this strong financial basis will provide SCO with the resources and flexibility to focus on its strategies for the new year....
Operator: We'll take our next question from Dion Cornett with Decatur Jones.
Cornett: Good morning, all, and congrats on the strong quarter.
McBride: Thanks, Dion.
Cornett: A couple quick questions about the guidance coming forward and trying to model that out. Now obviously it's a ... you know, it's complicated and unusual for a software company to migrate to some things you're having to with these end user agreements. But, you know I had a number of two and a half million for January. Looks like if I'm reading the guidance right, it's now zero, and I'm trying to figure out how I get a handle on what the April numbers should look like. Could you ... the easiest way to do this is if you look at the last initiative where you sent out the 1500 letters and you talked about this a little bit with Brian's question. Can you sort of break down, the best you can to the nearest 100, nearest 10 percent of those 1500 letters, what percentage of folks responded to you, and of those people that responded, how many did you meet with, and general ballpark, how many said, "Yes" and it was just a matter of some administrative stuff to get the licensing fees in, how many said, "No"?
McBride: Yes, all good questions Dion. When we rolled this thing out initially last summer, there was a lot of stuff flying around out there. We were going to send out invoices, we were going to do this, we were going to do that, it sounded like a direct mail campaign. That wasn't obviously what we were trying to do. What we did do during the last quarter was spend a lot of one-on-one time meeting with large end-users of Linux. Probably had twelve to fifteen or so direct, one-on-one meetings.
McBride: And we learned a lot through that process. I would really look Q4 as more of a modeling, as almost like a testing time that we went through here, to tell everybody where we were and we listened to where everybody else was, and essentially what comes out of that then is ... you know, we had several people sign up for the license, and these are people we don't have other deals going with in the technology industry. These are Fortune 500/Fortune 1000 level accounts that signed up.
We have another group of those people we met with that have basically said, "Fine, I'm not going to use Linux." You know, CIO's were in meetings, and they said, "Fine, we're not going to do it." And then we have another group that essentially have said, "We're looking for something. We're either going to wait until the IBM litigation is done, or we're looking for something on your copyright claims, and if you show us something there, then we'll step up and move."
So, if you take those, and you say, you know, the greatest group of those -- you know, again there were some of them that said that I'm not going to use any -- but the greatest group either licensed or said they would upon seeing something that legally they felt like they should moving on now as opposed to waiting for the IBM case. The other thing to recognize is in Q4 we only had two people involved in this. One coming from more of the legal side, and one more from a market place presence perspective/accounts perspective. We intentionally kept this thing very tight, very controlled because we wanted to not let this thing get out ahead of us.
We feel now from where we sit that we are in a mode to move this out. We announced this today, and we are going to be moving very aggressively. Whereas, last quarter we had two people working on this, starting next week when we come back from the holidays, we're going to be moving essentially dozens of resources on to this project.