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Red Hat's Suit against SCO Put on Hold

Red Hat's Suit against SCO Put on Hold

The Delaware federal court where Red Hat filed suit against the SCO Group has stayed any litigation or discovery pending the outcome of SCO's $5 billion suit against IBM in Utah.

Judge Susan Robinson said that the IBM suit was all about whether Linux contains any misappropriated Unix source code and that it would be a "waste of judicial resources to have two district courts resolving the same issue, especially when the first filed suit in Utah involves the primary parties to the dispute."

In the same breath, Judge Robinson also denied SCO's motion to simply throw the Red Hat suit out as being groundless.

She agrees with Red Hat that it has a "reasonable apprehension" of eventually being sued by SCO since "There is no question that Red Hat is a Linux software developer who is engaging in the allegedly infringing activities" that SCO is claiming and since, as Robinson reckons, SCO has basically said it would sue Red Hat.

The line "There will a day of reckoning for Red Hat" that fell from the lips of SCO CEO Darl McBride didn't pass her notice no matter how SCO has subsequently attempted to construe the remark.

Because Red Hat's situation meets the two criteria - the threat of a suit and potentially unclean hands - needed for the declaratory judgment that Red Hat sued SCO to get from the court, the judge denied SCO's motion to simply throw the Red Hat suit out.

She also said something about plaintiffs - which would be Red Hat - not getting "advisory opinions on their potential liability for initiating some future activities."

Red Hat sued SCO to get a court to declare that Red Hat wasn't infringing SCO's IP or misappropriating SCO's trade secrets and that SCO's copyrights are unenforceable against Linux. It wanted SCO enjoined from calling Linux an unauthorized derivative of SVR5 and damages for SCO's disparagement, tortious interference with Red Hat's customers and unfair competition, etc, etc, etc.

Robinson told both SCO and Red Hat to send her a letter every 90 days and let her know how the IBM suit is going. "If, for any reason," she said, "that litigation is not progressing in an orderly and efficient fashion, the court may reconsider the stay."

The IBM suit is currently scheduled to go to trial a year from now.

In reaction to the Delaware decision, SCO, whose lawyers have argued against the Red Hat suit by saying it was a Utah matter, Said, "By staying the Red Hat vs SCO case, SCO can now concentrate its legal resources toward its case against IBM. We look forward

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Most Recent Comments
Thomas Frayne 04/15/04 01:32:06 PM EDT

Jensen has the right questions, but I disagree with his answers.

The list of copyrights is a disclosure, not a list of copyrights transferred to oldSCO. Nowhere in the APA, as amended is there a statement that these copyrights are transferred.

This is not a matter of common law or contract law. Copyright law and the cases based on it require a clear written signed statement that specifies which copyrights are involved to transfer copyrights. In the absence of such a statement no copyrights are transferred, and the judge will not even consider the intent of the contract in deciding that.

If SCOG wanted to argue the intent of the contract, it should have filed a breach of contract suit. However, I think that that would have failed also: Novell's interpretation (that the clear intent was not to transfer any copyrights, but to allow oldSCO to request such a transfer for needed copyrights when needed) is convincing to me, and I think would convince the judge.

All this will be clear after the judge rules following the May 11 hearing in the Novell case.

Tyler Jensen 04/14/04 07:20:22 PM EDT

I respectfully disagree with Mr. Frayne's interpretation of Amendment No. 2. The pertinent text of the amendment is as follows:=================A. With respect to Schedule 1.1(b) of the Agreement, titled "Excluded Assests", Section V, Subsection A shall be revised 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."=================I'll admit this is just about the least clear language I've ever seen in a contract. Once you untangle the language, there are two issues here:1) What copyrights and trademarks did Novell own at the time of the Agreement? That question is answered in part by the list of copyrights in Attachement E.2)What copyrights and trademarks did SCO need in order to exercise its rights with respect to the acquisition? That question also is answered in part in the Attachement E which lists 106 separate copyrights covering products in reference to the assets being purchased by SCO.There is no language in the amendment that requires SCO to request specific copyrights be transferred. There may be statutory or common law that requires SCO to formally request those copyrights and execute the process required for them to be transferred at the US Copyright office in order for the fact that they were transferred to be recorded, but I doubt that the judge would overlook the clear intent of the language of the contract because of an administrative process was not followed properly as to the official transfer with the US Copyright office.

Thomas Frayne 04/12/04 01:25:24 PM EDT

. The judge rightly stayed the Redhat case until the core issue common to both cases, whether there is any SCOG owned code in Linux that was misappropriated from SysV, is decided in the IBM case.
. SCOG is under court order to send the information necessary for this decision to IBM by next Monday, and it may take a while longer for IBM to challenge any secrecy labels so that the information will be public.
. An IBM motion to dismiss SCOG's claims and one for summary judgment on IBM's claims related to the Redhat case should be expected within 2 months. A decision on that should lead to a summary judgment in the Redhat case without the need for further discovery.

Thomas Frayne 04/12/04 01:21:52 PM EDT

No copyrights were transferred. That is the reason that Novell did not commit any tort.

Thomas Frayne 04/12/04 01:18:09 PM EDT

I disagree with the main point made by Tyler Jensen.

The original IP transfer agreement between Novell and oldSCO
excluded all copyrights.

The addendum to the IP transfer agreement between Novell and oldSCO merely adds an agreement to transfer copyrights that oldSCO requested as needed for its business. oldSCO never requested the transfer, and oldSCO's rights could not be transferred under the transfer of control to SCOG. Novell rejected requests by SCOG to transfer the copyrights.

Novell's argument that Amendment 2 did not transfer the copyrights because it did not satisfy the requirements of copyright law is completely convincing. The judge will not have to decide that Novell originally owned the copyrights. The judge will rule that SCOG did not show that the copyrights were transferred, and will dismiss the case.

It is not likely that the judge will rule that no copyrights were transferred, so SCOG might still try to establish this in another case, but it will be an uphill battle. However, I agree with Jensen that it is the most important part of this whole intellectual property war.

Tyler Jensen 04/12/04 12:39:05 PM EDT

Why is that so many comments and articles ignore the Amendment No. 2 in the Unix asset purchase from Novell which specifically amends the original agreement to exclude only the trademarks and copyrights that Novell did not own at the time of the agreement. So the real question is whether Novell owned the copyrights to the code when they sold the code to SCO. If so, then the amendment transfers ownership of the copyrights. It's that simple. An no one is claiming that Novell did not own the copyrights. In fact, Novell is asserting that they did.

Tyler Jensen 04/12/04 12:19:16 PM EDT

An interesting development. Gives SCO a breather to focus on their biggest fish while protecting them from the harassment, legitimate or otherwise, of suits like RedHat's. In a previous comment the assertion that the suit against Novell will be dismissed is rather premature and ignores entirely the addendum to the IP transfer agreement between Novell and SCO.There are other evidentiary issues with that case, such as whether Novell had a "good faith" belief that they had not transferred the copyrights. Novell need only declare that they made their tortious claims prior to discovery of the addendum or that they do not believe the addendum transferred the copyrights in question. Even if a judge declares that it does, there will be no evidence that Novell maliciously committed the tort, and therefore SCO will have a hard time collecting anything more than a declaration from the judge that the copyrights were in fact transferred via the addendum. If SCO loses there, they IBM and RedHat cases are lost in part or in whole. Thus, the Novell case, while the least interesting, becomes the most important part of this whole intellectual property war.

Thomas Frayne 04/11/04 04:42:08 PM EDT

Judge Robinson ruled that Redhat had a case against SCOG that should proceed toward trial. However, she noted that the central issue to be decided in the Redhat case, whether Linux contains any code that was misappropriated from SysV code owned by SCOG, was also an issue in the IBM case, and stayed the Redhat case until this issue was decided in the IBM case.

She did not emphasize that SCOG is under court order to send IBM the information needed to decide this issue, and that the deadline is April 19, eight days from now.

Further, Novell's motion to dismiss SCOG's suit against Novell will probably be granted within a month, and possibly on grounds that SCOG did not provide evidence that Novell transferred any copyrights to old SCO.

Finally, IBM's latest amendments to its counterclaims cover essentially all the issues that Redhat raised in its suit.

Redhat can now let IBM and Novell carry the ball, and Redhat can have its case won for it with no legal expenses.

Meanwhile, SCOG gets no benefit from the delay, since the IBM and Novell suits are now proceeding rapidly, and all the news is bad for SCOG, so further pumping the stock price will be next to impossible.