Who owns UNIX, Novell or SCO? That's up to the jury now...

In the 1960s, AT&T developed the UNIX operating system, which it sold to Novell for $300 million in 1993. Two years later, Novell decided to sell this business. Enter SCO Group. Novell and SCO struck a deal, the meaning and substance of which is at dispute.

SCO v. Linux

Fast forward 10 years. Linux is now gaining in popularity. SCO sues IBM, claiming it had incorporated its trade secrets into Linux. SCO demanded $5 billion in damages. Novell demanded SCO stop, which SCO refused. Novell then publicly announced that it, and not SCO, maintained ownership of the UNIX copyrights.

SCO v. Novell

SCO struck first and sued Novell for slander of title. Novell counterclaimed for slander of title, breach of contract, and unjust enrichment. Novell claims it continued to own the copyrights to UNIX, and licensed these rights to SCO. SCO's position is that it acquired the copyrights, leaving Novell a 95% interest in royalties as a "financing device."

That litigation proceeded to the summary judgment stage. On August 10, 2007, the District of Utah Court determined, in a 102-page order, that "Novell is the owner of the UNIX and UnixWare copyrights." SCO appealed.

Does Novell own UNIX as a matter of law?

The Court first addressed a contractual interpretation issue before getting to the question of whether SCO had been assigned the copyrights to UNIX, or if SCO merely was a licensee.

Copyright assignments must be in writing

Regarding transfers of ownership, the Copyright Act requires:

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.

17 U.S.C. § 204(a). The Court explained:

Section 204 is intended “to protect copyright holders from persons mistakenly or fraudulently claiming oral licenses [or transfers].” Eden Toys, Inc. v. Florelee Undergarment Co., Inc., 697 F.2d 27, 36 (2d Cir. 1982). As a result, Section 204 “enhances predictability and certainty of ownership—‘Congress’s paramount goal’ when it revised the [Copyright] Act in 1976.” Konigsberg Intern. Inc. v. Rice, 16 F.3d 355, 357 (9th Cir. 1994) (quoting Community for Creative Non-Violence v. Reid, 490 U.S. 730, 749 (1989)).

Novell argued that this obligation is akin to a statute of frauds, and that the writing must state with sufficient clarity the copyrights to be transferred. Because there was ambiguity in what the contracts between Novell and SCO said, the contracts themselves failed the writing requirement, and thus there was no valid copyright assignment. The Tenth Circuit was not convinced.

We think that Section 204’s writing requirement is best understood as a means of ensuring that parties intend to transfer copyrights themselves, as opposed to other categories of rights. See, e.g., Papa’s-June Music, Inc. v. McLean, 921 F. Supp. 1154, 1158–59 (S.D.N.Y. 1996) (although a writing need not explicitly mention “copyright” or “exclusive rights” to satisfy 204(a), the better practice is that it should). But when it is clear that the parties contemplated that copyrights transfer, we do not think that a linguistic ambiguity concerning which particular copyrights transferred creates an insuperable barrier invalidating the transaction.

The Court then decided that "[t]his case, involving a complicated, multi-million dollar business transaction involving ambiguous language about which the parties offer dramatically different explanations, is particularly ill-suited to summary judgment." After addressing a number of other contractual issues, the Court reversed (in-part) and remanded the matter back to the trial court.

Documents of interest:

• Trial court order granting summary judgment
• Description of SCO v. Linux lawsuits
• SCO is currently seeking Chapter 11 reorganization in bankruptcy
• Wiki page on SCO v. Novell
• The Court affirmed the award of $2.5 million in royalties owing from SCO to Novell

Affirmed-in-part, reversed-in-part.

SCO Group, Inc. v. Novell, Inc., Case No. 08-4217 (10th Cir. Aug. 24, 2009) (published)

Assignments aren't the only way to transfer ownership of patents -- operation of law also works

The owner of U.S. Patent Nos. 6,141,653; 6,336,105; 6,338,050; 7,162,458; and 7,149,724 granted a security interest in the patents to Silicon Valley Bank and to Cross Atlantic Capital Partners. Silicon Valley Bank assigned its interest to Cross Atlantic. Once the owner defaulted on its loan obligation, Cross Atlantic foreclosed and auctioned the patents off. Cross Atlantic -- the only bidder at the auction -- bought the rights, and then assigned them to Sky Technologies.

Sky then sued SAP for patent infringement. SAP challenged whether Sky had standing to sue, since there was no written assignment document assigning the rights from the owner to Cross Atlantic (and thus the chain of title was "broken"). The trial court found that the foreclosure transferred the rights to Cross Atlantic by operation of law, and thus denied SAP's motion to dismiss. SAP asked for an interlocutory appeal, which the trial court allowed.

35 U.S.C. § 261 provides, in part:

Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing.

The Federal Circuit explained the law:

In order to seek damages for infringement of a patent, a party must have standing at the inception of the lawsuit. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579 (Fed. Cir. 1991). A party that has been granted all substantial rights under the patent, “regardless of how the parties characterize the transaction that conveyed those rights,” is considered to have legal title, and therefore standing. Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1249–50 (Fed. Cir. 2000). Thus, it is the “substance of what was granted” that determines the rights in the patent, not the form. Id. at 1250; Vaupel Textilmaschinen KG v. Meccanica Europa Italia S.P.A., 944 F.2d 870, 873–76 (Fed. Cir. 1991). ...

* * *

We have previously held that patent ownership is determined by state, not federal law. Akazawa [v. Link New Technology International, Inc., 520 F.3d 1354, 1357 (Fed. Cir. 2008)] (citing Jim Arnold Corp. v. Hydrotech Sys., Inc., 109 F.3d 1567, 1572 (Fed. Cir. 1997) (“[T]he question of who owns the patent rights and on what terms typically is a question exclusively for state courts.”)). ...

* * *

Even though a transfer of patent ownership, if through an assignment, must be in writing, this court has held, “[T]here is nothing that limits assignment as the only means for transferring patent ownership. . . . [O]wnership of a patent may be changed by operation of law.” Akazawa, 520 F.3d at 1356.

Finally, the Court held:

We find that Akazawa controls in the instant case, and that the district court’s reliance on its reasoning was appropriate because transfer of patent ownership by operation of law is permissible without a writing.

Decision affirmed.

Sky Technologies, LLC v. SAP AG, Case No. 2008-1606 (Fed. Cir. Aug. 20, 2009) (precedential)