SCO gets a partial win on appeal

NOVELL AND LINUX USERS heard some disappointing news on Monday when the US 10th Circuit Court of Appeals reversed four of the lower court's August 2007 slam-dunk summary judgment decisions in favour of Novell in the SCO v. Novell lawsuit.

The appeals court rulings

The appellate court's summary of its decisions said:

"[W]e AFFIRM the district court’s judgment with regards to the royalties due Novell under the 2003 Sun-SCO Agreement, but REVERSE the district court’s entry of summary judgment on (1) the ownership of the UNIX and UnixWare copyrights; (2) SCO’s claim seeking specific performance; (3) the scope of Novell’s rights under Section 4.16 of the APA; (4) the application of the covenant of good faith and fair dealing to Novell’s rights under Section 4.16 of the APA. On these issues, we REMAND for trial."

The appeals court underlined Utah US District Court Judge Dale Kimball's order that SCO owed Novell $2,547,817 for breach of fiduciary duty in having sold Unix SVRX and Unixware licences to Sun without Novell's permission. SCO hasn't paid Novell yet and might never do so.

As to Judge Kimball's summary judgment decisions that the appellate court reversed, the important statement is that last sentence wherein it remanded all those issues for trial.

In essence, the appeals court decided that the district court had evidence presented before it that actual controversies existed about facts sufficient to require a trial before a jury. Therefore, the appeals court concluded that Judge Kimball had erred in deciding those several issues as matters of law. In other words there might yet be a jury trial on those issues in SCO v. Novell.

What might happen next

We say there 'might' be a jury trial for two reasons.

First, SCO is still in bankruptcy court in Delaware, and Judge Kevin Gross just appointed a Chapter 11 Trustee yesterday to take over full control of the company. The Trustee, former chief US District Judge for the Eastern District of Pennsylvania Edward Cahn, will now have to decide whether to continue to pursue SCO's dream of extracting billions from its former course of disastrous, kamikaze litigation and threats against Linux users. Indeed, that decision will be one of his first major obligations, according to the bankruptcy judge's remarks in his ruling when he decided to appoint a Trustee.

The Trustee could decide that the interests of SCO's bankruptcy estate and its creditors won't be well served by pursuing the SCO v. Novell litigation, and may seek to pay Novell all or at least some of what SCO owes it and settle the matter instead, in which case there won't be a jury trial.

Second, there's also the fact that SCO is just about totally broke now, having spent most of its - or rather, Novell's - money on bankruptcy lawyers and chasing several improbable and ultimately unsuccessful financial cliffhanger schemes with a cast of shadowy players.

Along with deciding whether SCO's programme of anti-Linux litigation has merit and shows promise for benefiting the company's estate, the Trustee will also have to decide (a) whether SCO can still afford to pursue that litigation, and (b) whether SCO will be able to survive as a viable business and avoid final liquidation in Chapter 7 bankruptcy.

SCO management's approach was to pin all its hopes on its daft litigation strategy, of course, but that in itself was one of the bankruptcy judge's main reasons for directing that a Trustee be appointed, thus removing SCO's management from control.

Those two assessments by the Trustee might resolve to the same thing, that is, whether SCO can even survive. Since the Trustee's main obligation will be to decide whether the company has any hope of paying off its creditors and exiting Chapter 11 as a viable business, or not, in which case it will have to be dissolved under Chapter 7, the Trustee will have to consider the second question in deciding the first.

The Trustee arguably will be remiss in his duty to let SCO's lawsuit versus Novell go forward, if he decides that the company likely won't be around long enough to see it through to its final resolution. Given the pace of major civil lawsuits, including the inevitable appeals, that could take a few years.

If the Trustee decides either (a) that SCO can't afford to continue its litigation and see it through or (b) that the company can't climb out of Chapter 11 and survive, and therefore will have to be wound up in Chapter 7, then it also seems highly unlikely that he will elect to request a jury trial in SCO v. Novell,  not while he remains in control of the company and its interest in that lawsuit, no matter what he might think of the intrinsic merits of SCO's claims against Novell. He might try to sell off the lawsuit instead.

SCO management's options

SCO's former management may, and likely will, refuse to quietly ride off into the sunset, however. Even now that a Trustee has been appointed, SCO's management might wheedle their way into retaining at least some influence, through consulting arrangements with the Trustee or in some other manner.

Certainly they will attempt to convince the Trustee that their grandiose dreams of extorting billions of dollars from Linux users was a brilliant business strategy and the company should pursue that to find its salvation along with the untold riches they've been dreaming about all these years. The Trustee might not buy it, but they'll surely try.

Failing that - and we do believe they'll fail to seduce the Trustee into buying into their mad delusions - SCO's now former management probably won't be content to just sit idly by on the sidelines and merely watch as all their schemes to 'own' Linux evaporate like wisps of early morning fog rising off Salt Lake to vanish into the dry Utah desert air. No, they have some allies, and they might get up to more mischief.

Summary

The US 10th Circuit Court of Appeals affirmed Novell's $2.5 million judgment, but reversed Judge Kimball's summary judgment rulings and remanded the case back into US District Court for a jury trial. It's not at all clear, however, that such a jury trial will ever be held, for the reasons we've just outlined above.

As to how a jury trial in SCO v. Novell might be held after all, despite the long odds that now appear to be arrayed against that, and what SCO's chances might be for prevailing not only against Novell but also against IBM and Red Hat and in its larger campaign to 'monetise' Linux right into its bank account, we might endeavour to address all or at least some of those questions as non-lawyers, later in another article.

But for now, we'll just say that the Trustee will be the one to decide whether SCO's litigation will go forward or be dropped. He might decide to wind up the lawsuits, and maybe SCO itself, rather quickly.

On the other hand, although this long-running SCO saga certainly looks like it might be drawing to a close, at this point it's still possible that it might not be nearly over yet. µ

L'Inq
Groklaw