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UNIX Copyrights Owned by SCO, not Novell
February 23, 2010
In the late 1960's, AT&T developed a computer operating system known as UNIX. This operating system is now widely used in both servers and workstations, and is generally characterized by a less polished (and in many ways more powerful) user interface than typical consumer products (such as Microsoft's Windows or Apple's Mac OS).

The product was sold to Novell, Inc. ("Novell") in 1993 for $300 million after AT&T built a substantial licensing business for the product. By 1995, Novell had decided to sell its UNIX business, and found a buyer in the Santa Cruz Operation ("Santa Cruz"). Santa Cruz later transferred its interest to Caldera Systems which was the immediate predecessor to the SCO Group ("SCO"). The transfer of UNIX related assets from Novell to SCO (through Caldera and Santa Cruz) was contained in three documents between Novell and Santa Cruz:

an asset purchase agreement ("APA"), executed September 19, 1995; "Amendment No. 1" signed by the parties at the actual closing on December 6, 1995; and "Amendment No. 2" on October 16, 1996.

When SCO attempted to sue IBM for infringement of its intellectual property rights in the UNIX software, Novell directed SCO to waive its rights against IBM. SCO refused and Novell claimed publicly that it, rather than SCO, owned the copyrights relating to the UNIX operating system. SCO initiated an action against Novell for slander of title, and the District Court for the District of Utah granted summary judgment to Novell on a variety of issues, including ownership of the UNIX copyrights. SCO appealed to the Tenth Circuit Court of Appeals, resulting in the present decision, released in August 2009.

In the initial agreement between Novell and Santa Cruz, the APA set out a number of assets which were intended to be included in the purchase and assets which were to be excluded. For example, the APA included "[a]ll rights and ownership of UNIX and UnixWare" and "[t]rademarks UNIX and UnixWare as and to the extent held by Seller." However, in the list of excluded assets, the deal excluded "[a]ll copyrights and trademarks, except for the trademarks UNIX and UnixWare" as well as "[a]ll [p]atents." Therefore, under the original agreement, SCO had no right to the copyrights related to UNIX.

However, Santa Cruz and Novell later entered into an agreement labeled Amendment No. 2. This agreement amended the "excluded assets" section to read:

All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the Agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies. However, in no event shall Novell be liable to SCO for any claim brought by any third party pertaining to said copyrights and trademarks.

The court reasoned, based on California contract law, that Amendment 2 should be read together with the APA to determine the full agreement between the parties, rather than as two separate agreements. The court then turned to the Copyright act to determine if the amended APA "constituted a writing sufficient to transfer copyrights under federal law."

Under 17 U.S.C. §204(a), "[a] transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent." Therefore, even if there was an agreement between Novell and Santa Cruz to transfer copyright interests in the UNIX software, such an agreement would not be a valid transfer unless it was contained in a written record.

SCO contended that Amendment 2 was sufficient to transfer the copyright interests to Santa Cruz, while Novell argued that Amendment 2 is ambiguous and fails to identify which copyrights had been transferred, and therefore fails to meet the requirement that the conveyance be in writing.

The court disagreed with Novell, stating that the terms of section 204(a) "imposes only the requirement that a copyright transfer be in writing and signed by the parties from whom the copyright is tranfsferred; it does not in its face impose any heightened burden of clarity or particularlity." The court also looked at cases relating to contract law, where a distinction may be made between a contract being written and the terms of the contracted based on the writing. The fact of ambiguity in the writing does not negate the fact that there was a writing between the parties, but merely allows the entry of parol evidence to construe the terms of the agreement. In fact, most of the cases identified by Novell as establishing a particularity requirement in a written transfer of copyrights included an ambiguity as to whether there was a transfer of copyright, rather than an ambiguity as to which copyrights were transferred.

The court therefore concluded that, reading Amendment 2 in conjunction with the APA, an agreement had been reached to transfer copyrights and the transfer had been contained in a written instrument. Given this conclusion, the court next turned to whether the District Court had properly granted summary judgment to Novell in establishing which copyrights had been transferred. The court looked at the evidence submitted by both sides and concluded that there was sufficient evidence to support a finding that the copyrights identified had been assigned to SCO, and therefore summary judgment was invalid.

Additional issues under the contract between Novell and Santa Cruz were also identified, but concerned issues tangential to the status of the UNIX copyrights. The case was remanded to the District Court for further proceedings.

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