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Cahn Replies to Reservations of Rights by Novell and Oracle, HP and US Trustee - Update
Friday, August 20 2010 @ 12:55 PM EDT

SCO's Chapter 11 Trustee in the bankruptcy has replied to Oracle and Novell's reservation of rights filings regarding his desire to sell off SCO's assets, whatever that means to him. He does now provide more information about that. We learn from footnote 2 that he also got informal responses from the US Trustee's Office and from HP, although later in the document he says his lawyers have resolved some of the OUST's issues and will discuss the rest at the Sale hearing. HP had concerns about "a certain release agreement" between SCO and HP, dated August 15, 2003. Interesting. I don't recall any such document.

So this is Cahn's omnibus reply to them all, with some points regarding each objection. He still wants the sale to go forward, and the hearing on this will be Monday at 3 PM, so I hope some of you can go! The schedule for the day is filed as well, with all the details.

First, Cahn has altered the proposed order to give notice of the identity of the buyer. Like that never occurred to him without folks filing what they did. And he has changed the auction date to accommodate that need to let them know such a detail in time for them to object. Right after the auction he wants to have, he'll let them all know who the highest bidder turns out to be.

As to specific objections, his lawyers are talking to Oracle's, I gather. And to Novell, he replies that a bankrupt is allowed to sell its property. He isn't planning to sell anything SCO doesn't own. Hardy har. Like where is the list that SCO will swear to on the Bible Novell agrees is the right list? There has been almost a decade of dispute over who owns what, after all. They want Novell to *trust* them now that everyone is on the same page? SCO says it will sell either a license or *a sublicense* to use the materials, emphasis on the latter, as per section 2.2 of the APA (meaning the proposed one [PDF], not the one to the 1995 APA), so that is Novell's clue.

But then it gets tricky. Cahn's position is that SCO owns "explicitly or impliedly" -- that last bit being the sticky part -- certain rights, to develop UnixWare, for example, to license or sublicense UNIX technology as per Amendment 2, in his interpretation, and the ownership and copyrights to any new code SCO itself developed after the APA. OK. How about a list on that? For real. How about a list of copyrights? So that is what Cahn proposes selling, "Debtors' rights to exploit and develop Unixware and the Software Business."

Here's the latest:

08/19/2010 - 1155 - Certificate of No Objection Re: Motion for an Order Authorizing the Engagement of King & McCleary, LLC to Perform Certain Tax Return Services (related document(s) 1140 ) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. (Fatell, Bonnie) (Entered: 08/19/2010)

08/19/2010 - 1156 - Omnibus Reply Of The Chapter 11 Trustee To Reservations Of Right And Informal Comments Regarding Motion Of The Chapter 11 Trustee For Order (1) Authorizing The Marketing, Auction And Sale Of Substantially All Of The Debtors Software Business Assets Consistent With Form Asset Purchase Agreement And Free And Clear Of Liens, Claims And Encumbrances, (2) Authorizing Assumption, Assignment, And Sale Of Certain Executory Contracts And Unexpired Leases, (3) Approving Bidding Procedures In Connection With Auction, (4) Establishing Sale Hearing Date And (5) Granting Related Relief (related document(s) 1141 , 1150 , 1151 ) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al. (Attachments: # 1 Exhibit A) (Fatell, Bonnie) (Entered: 08/19/2010)

08/19/2010 - 1157 - Notice of Agenda of Matters Scheduled for Hearing Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. Hearing scheduled for 8/23/2010 at 03:00 PM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. (Fatell, Bonnie) (Entered: 08/19/2010)

Section 2.2 of the proposed APA reads in full like this:
2.2 Grant of License. Pursuant to the License Agreement described in Section 7.2 of this Agreement, Seller shall grant to Buyer a perpetual, non-exclusive, royalty-free license to use the Licensed Properties as provided in the License Agreement.
And Section 7.2 reads:
7.2 Closing Deliverables and Conditions of Seller. the obligations of Buyer under this Agreement are subject to the following conditions being met or waived by Seller and the delivery by Seller at the Closing of each of the following (any one or more of which may be waived in whole or in part by Buyer at is sole option and which conditions are set out herein for the exclusive benefit of Buyer):
There follows a long list, like IP assignments signed by Seller in the form of Exhibit A, attached, an order from the bankruptcy court (the seller can waive *that*?), lease assignment, an assignment and assumption agreed in the form of Exhibit B, a license agreement in the form of Exhibit C, novation and/or change of name agreements, to the extent required, and any other documents the buyer asks for. There are some conditions as well, which the buyer can waive, like the delivery by the seller of the items in this section 7.2 and that seller has fulfilled all "obligations, covenants and agreements of seller required to be performed".

So, I'm looking through a glass darkly, but I begin to discern that what SCO may be proposing is to let someone else buy the license, or in this case the sublicense, so the licensee or sublicensee can do the development work that SCO no longer has engineers in its employ able to do. Is that it? And that list of things that can be waived by the buyer makes me wonder, cynic that I am, if SCO already knows the buyer most likely to succeed.

Update: Wait. If SCO plans to sell only what it owns, how can it sell assets without encumbrances? For example, will the buyer be free from this part of Amendment A to the 1995 APA?

D. Novell and SCO agree to indemnify and hold harmless the other from and against any and all losses, liabilities, judgments, and costs incurred ("Liability") if either causes the other to incur Liability under Section 10 of Amendment No. X to Software Agreement SOFT-00015 as amended, Sublicensing Agreement SUB-00015A as amended, Software Agreement SOFT-00015 Supplement No. 170 as amended, and Substitution Agreement XPER-00015B ("Amendment No. X").
And if there are no assets left, how would SCO fulfill this requirement? You'll find all those documents on our Contracts page, under the IBM header. And what about the APA itself? We recall that the APA gives Novell the authority, at its sole discretion, to direct SCO to waive rights under any SVRX License? What happens to that now? And how can the assets even be sublicensed without encumbrances, when they are positively encrusted with them, like barnacles on a rowboat? For example, under the APA, here's some language about encumbrances:
2.10. Technology. To the knowledge of Seller, as of the date hereof, Seller owns, co-owns or is licensed or otherwise entitled to use rights to all patents, trademarks, trade names, service marks, copyrights, mask work rights, trade secret rights, and other intellectual property rights and any applications therefor, and all maskworks, net lists, schematics, technology, source code, know-how, computer software programs and all other tangible information or material, that are used in the Business as currently conducted (the "Seller Intellectual Property Rights").

The Seller Disclosure Schedule lists, as of the date hereof, (i) all patents, registered copyrights, trademarks, service marks, mask work rights, and any applications therefor, included in the Seller Intellectual Property Rights; (ii) the jurisdictions in which each such Seller Intellectual Property Right has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers; and (iii) which, if any, of such products have been registered for copyright protection with the United States Copyright Office and any foreign offices. The Seller Disclosure Schedule also sets forth a list of license agreements which, to Seller's knowledge, constitutes all license agreements under which Seller licenses as licensee the intellectual property rights of third parties relating to technology or software which is incorporated in existing products of the Business for which products Seller has received revenues in excess of $2,000,000 in the twelve-month period ended July 31, 1995. To Seller's knowledge, Seller is not in material violation of any such license agreement.

With respect to the Business, Seller is not a party to nor is the Business subject to (i) any joint venture contract or arrangement or any other agreement that involves a sharing of profits with other persons other than the payment or receipt of royalties by Seller; (ii) any agreement pursuant to which Seller was obligated to make payment of royalties in the twelve-month period ended July 31, 1995 of $1,000,000 or more; or (iii) any agreement pursuant to which Seller utilizes the intellectual property rights of others in any products currently marketed by seller and which is either non-perpetual or terminable by the licensor thereunder in the event of the Acquisition and which, if terminated, reasonably would be expected to have a material adverse effect on the Business Condition of the Business.

No claims with respect to the Seller Intellectual Property Rights have been communicated in writing to Seller (i) to the effect that the manufacture, sale or use of any product of the Business as now used or offered by Seller infringes on any copyright, patent, trade secret or other intellectual property right of a third party or (ii) challenging the ownership or validity of any of the Seller Intellectual Property Rights, any or all of which claims reasonably would be expected to have a material adverse effect on the Business Condition of the Business. To the knowledge of Seller, as of the date hereof, all patents and registered trademarks, service marks and registered copyrights held by Seller in connection with the Business are valid and subsisting except for failures to be valid and subsisting that reasonably would not be expected to have a material adverse effect on the Business Condition of the Business. Seller does not know of any unauthorized use, infringement or misappropriation of any of the Seller Intellectual Property Rights by any third party that reasonably would be expected to have a material adverse effect on the Business Condition of the Business.

2.11. Title to Properties: Absence of Liens and Encumbrances.

(a) The Seller Disclosure Schedule sets forth a list of all real property owned or, as of the date hereof, leased by Seller for use in connection with the Business and the aggregate annual rental or mortgage payment or other fees payable under any such lease or loan.

(b) Seller has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of the tangible properties and assets, real, personal, and mixed, which are material to the conduct of the Business, free and clear of any liens, charges, pledges, security interests or other encumbrances, except for such of the foregoing as (A) are reflected in the Seller Financial Statements, or (B) arise out of taxes or general or special assessments not in default and payable without penalty or interest or the validity of which is being contested in good faith by appropriate proceedings, or (C) such imperfections of title and encumbrances, if any, which are not substantial in character, amount or extent, and which do not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby.

Can SCO Group make any such claim? SCO owes Novell, will owe IBM, which absolutely does claim SCO is infringing its intellectual property, and so where do all those obligations go? Who pays the piper?

And one comment I noticed raised an interesting question to ask at the hearing: did SCO make any profit from the sale of the mobility assets to Darl McBride, after it paid off all the professional fees? Another suggests that there should at least be a floor, so that the price can't be less than enough to pay off everyone.

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