Wednesday, August 26, 2009

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:

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

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