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The BSDI Case -- Exhibits, Exhibits, Exhibits Until My Eyes Water
Saturday, June 21 2003 @ 08:58 AM EDT

A comment was posted:

"You might want to reexamine the opinion of Dickinson R. Debevoise

"From the BSDI-USL lawsuit"

I did. It was helpful input. If the import of the suggestion was that it would be meaningful to the present situation, I have to disagree in part and agree in part. First the differences I see.

First, the earlier BSDI case never went to trial. It's true that it never went to trial because the judge refused to grant plaintiffs a preliminary injunction, the first url above, and because in that ruling he questioned whether there were any trade secrets to protect. As would be typical in any case where it starts to look like winning might be harder than expected, the plaintiff was evidently motivated to settle the case, and it was settled. So we don't for sure know what the final judgment in this case would have been if all the evidence had been put on the table, although the judge gave us a clear hint that unless the plaintiff had more up its sleeve than the judge had already seen they were not likely to prevail. In that sense, it isn't precedent in the legal sense in the way it would have been had it gone to a full trial. Another judge could hear the same facts and come to a different conclusion.

Second, under the particular facts of that case, the defendant had freedom to use derivative works without restriction. That isn't so clear in the SCO-IBM case. In the BSDI ruling, the judge explained the defendant's rights:

The 00089 agreement permits the Regents to create derivatives of UNIX and, to the extent that the derivatives are free of proprietary information, to distribute them without restriction.
In the SCO complaint, and in their public utterances, they are claiming that derivatives still belong to them. So, do they? The answer to that lies not in the BSDI ruling but in the AT&T-IBM contract and its supplemental revisions which you can read as Exhibits A-D of SCO's original complaint, available on its site.

In the original 1985 contract, Exhibit A, it does say what SCO is claiming:

II Grant of Rights 2.01. AT&T grants to LICENSEE a personal, nontransferable and nonexclusive right to use in the United States each SOFTWARE PRODUCT identified in the one or more Supplements hereto, solely for LICENSEE'S own internal business purposes and solely on or in conjunction with DESIGNATED CPU's for such SOFTWARE PRODUCT. Such right to use includes the right to modify such SOFTWARE PRODUCT and to prepare derivative works based on such SOFTWARE PRODUCT, provided the resulting materials are treated hereunder as part of the original SOFTWARE PRODUCT.
However, in the later letter, signed by both parties and dated February of 1985, Exhibit C, it modifies the language of the contract regarding that clause:
2. Regarding Section 2.01, we agree that modifications and derivative works prepared by or for you are owned by you. However, ownership of any portion or portions of SOFTWARE PRODUCTS included in any such modification or derivative work remains with us.
What this says is that derivative works do not belong to SCO, insofar as they are free of any of their original code. In other words, if there was no System V code in the derivative work, the derivative work does not belong to SCO but to IBM. But SCO says there in fact is System V code in a derivative work which was then was placed in Linux. If true, the next question would be, now what? What SCO would like, presumably, is license fees.

However, there is a reason why IBM keeps repeating its mantra about having a fully paid up, irrevocable, perpetual license. The reason is found in Exhibit D, Amendment No. X, where Novell, SCO, and IBM agreed:

1. No Additional Royalty. Upon payment to SCO of the consideration in the section entitled "Consideration", IBM will have the irrevocable, fully paid-up, perpetual right to exercise all of its rights under the Related Agreements beginning January 1, 1996 at no additional royalty fee. However, if IBM requests delivery of additional copies of source code of the Software Product, IBM will pay the fees listed under Section 1(b) of the Soft-00015 Supplement No. 170. Notwithstanding the above, the irrevocable nature of the above rights will in no way be construed to limit Novell's or SCO's rights to enjoin or otherwise prohibit IBM from violating any and all of Novell's or SCO's rights under this Amendment No. X, the Related Agreements, or under general patent, copyright, or trademark law.
IBM paid $10,125,000 as consideration under this contract for this royalty relief. What the first part is saying is that if they paid the money, and IBM says they did, then they don't have to pay any more license fees ever again, unless they requested more code than what they already had licensed. The last part is saying that Novell and SCO still have the right to stop IBM from violating any of their rights under the contracts, amendments, etc. or under patent, copyright or trademark law.

Reading this, I understand why IBM keeps repeating what it does. As far as I can see, SCO can't get any more license fees, even if a judge agreed with them that IBM did something it shouldn't have. It can go after them for penalties for doing wrong, but not for additional license fees. Now, I am not an attorney, so this is just my opinion and in no way binding on anyone, let alone a judge. But if a supervising attorney asked me to review this contract and highlight what I saw as significant, I'd flag this wording for sure. So when IBM says what it does, I hear it saying to SCO, "Forget about any dreams of license fees from us or our customers."

This Amendment seems to deny SCO their right to claim license fees. But, then, there is another document, dated 1998, also in Exhibit D, "The Santa Cruz Operation, Inc. Reference Source Code Agreement". The problem is the document doesn't say what software it is referring to, so it's impossible to know, by an outsider, if this is talking about the code in current dispute or something else. What it says about derivative works is this:


2.01 Subject to the provisions and during the term of this Agreement, SCO grants to YOU a personal, nontransferable, nonassignable and nonexclusive limited right to use in the United States REFERENCE SOFTWARE PRODUCTS identified in one or more ORDERS hereto, solely for YOUR own business purposes and solely on or in conjunction with DESIGNATED CPUs. Such right to use does not include any right to:

(a) modify such REFERENCE SOFTWARE PRODUCT or prepare derivative works based on such REFERENCE SOFTWARE PRODUCTS ; or

(b) to distriburte to any other party REFERENCE SOFTWARE PRODUCTS; or

(c) in the case of object code portions, if any, of RSP to reverse engineer, reverse compile, disassemble or otherwise attempt to derive the source code of such portions.

So, the question is whether or not IBM signed away the freedoms it had regarding derivative works from the 1985 Amendment when it signed this 1998 agreement. I doubt it would do that, and I would guess that this is referencing something else, but I have no way of knowing. If this is in fact talking about System V code, then I can't see that IBM had rights to prepare any derivative works based on that code at all, not that SCO has rights to any such works.

Then the judge would have to consider what it all means. What is a derivative work? And so we come full circle.

So, because of these differences, specifically the lack of restraints on derivative works in the BSDI case, and because it was "an action for trademark infringement, false advertising and unfair competition", it's different from the SCO matter, which is, so far, free of copyright and trademark claims and is fundamentally based on contract claims. But there is one area of similarity, and this is probably the part that the commenter was highlighting: whether or not there are any trade secrets in UNIX to protect as a trade secret.

Again, this wasn't determined in the BSDI case, just strongly hinted at in the negative.

In summary, I find that I am unable to ascertain whether any aspect of Net2 or BSD/386, be it an individual line of code or the overall system organization, deserves protection as Plaintiff's trade secret.

That's not the same thing as saying that there are no trade secrets to protect, just saying that he didn't have enough evidence to decide that, and in a preliminary injunction, which is what you ask for at a beginning of the trial to protect you from irreparable harm if you wait until the end, one of the things you must persuade the judge is that you likely will win at trial. This judge wasn't convinced of the trade secrets proof by what he had in front of him.

So the same issue is now on the table. Are there protectable trade secrets?

In the BSDI ruling, the judge said this about trade secrets:

Plaintiff argues that these programs contain a variety of materials that Defendants could have obtained only from proprietary sources, sources subject to contractual guarantees against redistribution. If so, then Plaintiff has not lost its secrets. Trade secrets need not actually be secret, as long as the owner of the secrets controls their dissemination. For example, the owner may disclose it to employees or to others pledged to secrecy. In addition, the components of the secrets may all lie in the public domain as long as their combination does not. "[T]he fact that every ingredient is known to the industry is not controlling for the secret may consist of the method of combining them which produces a product superior to that of competitors." Sun Dial Corp. v. Hideout, 16 N.J. 252, 257 (1954)
What he is indicating here is that if the owner of the code has done all it should to release only to a "restricted group" which the ruling explains carefully, and there is no loss of control over the secret, then it's still a trade secret, even if individual pieces have been made known, so long as the method of combining all the pieces isn't known by the public and is known and knowable only by those under signed agreements to secrecy. Here is what the supplemental Agreement X says about trade secrets, and the most significant sentence is the final one:
7.06 (a) LICENSEE agrees that is shall hold SOFTWARE PRODUCTS subject to this Agreement in confidence for AT&T. LICENSEE further agrees that it shall not make any disclosure of such SOFTWARE PRODUCTS to anyone, except to employees of LICENSEE to whom such disclosure is necessary to the use for which rights are granted hereunder. LICENSEE shall appropriately notify each employee to whom any such disclosure is made that such disclosure is made in confidence and shall be kept in confidence by such employee. Nothing in this agreement shall prevent LICENSEE from developing or marketing products or services employing ideas, concepts, know-how or techniques relating to data processing embodied in SOFTWARE PRODUCTS subject to this Agreement, provided that LICENSEE shall not copy any code from such SOFTWARE PRODUCTS into any such product or in connection with any such service and employees of LICENSEE shall not refer to the physical documents and materials comprising SOFTWARE PRODUCTS subject to this Agreement when they are developing any such products or service or providing any such service. If information relating to a SOFTWARE PRODUCT subject to this Agreement at any time becomes available without restriction to the general public by acts not attributable to LICENSEE or its employees, LICENSEE's obligations under this section shall not apply to such information after such time.
So, bottom line, I don't see the BSDI case as being a get-out-of-jail and do-not-pass-go card. SCO is relying on a contract and the terms of the contract will be upheld, if the judge can ever figure out which terms in which document are the ones that apply. He's tasked with that assignment, so he's going to have to make that decision.

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