The Novell Letters

Friday, August 08 2003 @ 11:50 PM EDT

Contributed by: PJ

The IBM Amended Answer with Counterclaims is available on Pacer now. LWN has it up as text, for those of you who prefer text. Thanks for the tip, D. Note there could be OCR errors here and there, according to the page. And the Red Hat complaint is now available as text too.

The section I want to highlight is about two exhibits, Exhibit K and L, which are referenced in the document but not provided by Pacer or LWN, because they are paper documents filed with the court, not in the digital records.

I have the two letters now, which were faxed to me, both of them from Jack Messmen, CEO of Novell, to Darl McBride of SCO. What they say is that SCO has no contractual right to terminate IBM's AIX license, because, as earlier reported, it was a three-way contract, and one under which Novell retained the right to compel SCO to do pretty much whatever Novell wanted done respecting IBM's license rights. According to these letters, Novell told SCO not to terminate IBM's rights, and when SCO didn't comply, on June 12, Novell intervened and overruled SCO, which Novell says it had retained the right to do when it sold some, but not all, of its UNIX ownership rights. In other words, while SCO got some rights to UNIX, Novell retained veto power.

According to IBM's papers, the history goes like this: IBM bought its rights to use UNIX in the mid 1980s from AT&T Technologies, Inc. under an agreement called the AT&T Agreements, the plural being used because there were numerous amendments and further agreements by letter modifying the original agreement.

In 1993, Novell bought AT&T Technologies, Inc.'s rights under the AT&T Agreements. In 1995, Novell assigned certain (but not all) of these rights to The Santa Cruz Operation, Inc., which is now known as Tarantella, Inc., "which is not affiliated with SCO."

Next, IBM got additional rights by means of Amendment X, which was signed by IBM, Novell and Santa Cruz, the original SCO, as IBM calls them, on October 17, 1996. It was under this Amendment X that IBM spent some $10+ million to acquire the 'irrevocable, fully paid-up, perpetual right to exercise all of its rights' under the AT&T Agreements.

OK, still with me? One of the rights Novell says it retained was the right to compel SCO to waive or revoke any of SCO's rights under the contract. This little detail is the nail that everything else can hang on. Cognizant of these rights, Novell sent two, actually three, letters to Darl McBride, and two of them are the exhibits K and L.

In the first letter, Exhibit K, dated June 9, 2003, Novell's Jack Messman wrote: "IBM paid $10,125,000 for the rights under Amendment No. X. Novell believes, therefore, that SCO has no right to terminate IBM's SVRX Licenses, and that it is inappropriate, at best, for SCO to be threatening to do so."

The letter refers to Section 4.16(b) of the Asset Purchase Agreement, under which Novell said it retained the right, at their "sole discretion and direction" to require SCO to "amend, supplement, modify or waive any rights under, or. . . assign any rights to, any SVRX License to the extent so directed in any manner or respect..." The letter reminds McBride that the agreement also provides that Novell retained the right at "its sole discretion and direction" to require SCO "to amend, supplement, modify or waive any rights under, or . . . assign any rights to, any SVRX License to the extent so directed in any manner or respect" by Novell, and should SCO fail to comply, Novell retained "the rights to take any action" on SCO's behalf. Then it directs SCO to waive any right it might claim to terminate IBM's AIX licenses or to revoke any rights by June 12, 2003.

Comes June 12, and SCO has not complied, so Mr. Messman sends Darl a second letter, now Exhibit L, in which he tells SCO, in essence, that Novell noticed SCO had not taken the required actions, so Novell was exercising its right to act on SCO's behalf:

"Accordingly, pursuant to Section 4.16(b) of the Asset Purchase Agreement, Novell, on behalf of The SCO Group, hereby waives any purported right SCO may claim to terminate IBM's SVRX Licenses enumerated in Amendement X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM."

This is not just a pukey detail. Or, you could say that contract law is all pukey details, but when you find the right little detail, you win the day. You know, when lawyers find something like this, it's sooooo satisfying. I'll bet they had a party. It's worthy of a glass of champage, no doubt about it. It means that when SCO told the world that it had revoked IBM's AIX license rights, it knew that Novell was contesting their right to do it, and under the contracts referenced by Novell, they had overruled SCO's desire to terminate those rights.

IBM then used this in their legal document to accuse SCO of false and misleading statements, upon which it built many of its counterclaims. First, IBM makes reference to the various documents on which it is relying, telling the history of the contracts and amendments to the contract, followed by the section of the complaint that refers to the exhibits (thank you, LWN, for providing text, so that I don't have to type my fingers to the bone one more night):

"BACKGROUND

"A. UNIX, IBM and AIX

"8. Beginning in the mid-1980s, IBM acquired broad rights to use UNIX software pursuant to a series of agreements with AT&T Technologies, Inc. These agreements, referred to as the 'AT&T Agreements', include the Software Agreement (Agreement Number SOFT-00015) dated February 1, 1985, the Sublicensing Agreement (Agreement Number SUB-00015A) dated February 1, 1985, the Substitution Agreement (Agreement Number XPER-00015B) dated February 1, 1985. the letter agreement dated February 1, 1985, and the Software Agreement Supplement 170, as amended by a letter agreement dated on or about January 25, 1989. Copies of these agreements are attached hereto as Exhibits A through F, respectively.

"9. In connection with the proper exercise of these and other rights previously obtained by IBM with respect to UNIX, IBM began development of its own verion of a UNIX operating system, called AIX. Over the last two decades, IBM has expended tremendous resources on developing AIX, creating millions of lines of original code, incorporating it into its product lines and licensing the technology to thousands of customers worldwide. IBM continues to do so today.

"10. In 1993, Novell, Inc. ('Novell') acquired AT&T Technologies, Inc.'s rights under fhe AT&T Agreements. In 1995, Novell assigned certain (but not all) of these rights to The Santa Cruz Operation, Inc. ("Original SCO"), a California corporation now known as Tarantella, Inc., which is not affiliated with SCO.

"11. Thereafter, IBM obtained additional rights with respect to UNIX software. Pursuant to an agreement known as Amendment X, entered into by IBM, Novell and Original SCO on October 17, 1996, for example, IBM acquired the "irrevocable, fully paid-up, perpetual right to exercise all of its rights" under the AT&T Agreements. A copy of this amendment is attached hereto as Exhibit G. . . .

"H. Novell's Exercise of Rights

"32. On June 9, 2003, in response to SCO's actions, and pursuant to its obligations under Amendment X, Novell stated its belief that SCO has no right to terminate IBM's UNIX License which is perpetual and irrevocable, and Novell exercised its retained rights to UNIX to put a stop to SCO's misconduct. Under Section 4.16(b) of the Asset Purchase Agreement between Novell and Original SCO dated September 19, 1995 ('APA'), attached hereto as Exhibit J, Novell directed SCO to 'waive any purported right SCO may claim to terminate IBM's [UNIX] licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM'. A copy of Novell's June 9, 2003 letter is attached hereto as Exhibit K.

"33. When SCO failed to take the actions directed by Novell, on June 12, 2003, Novell exercised its rights under Section 4.16(b) of the APA to waive and revoke, in SCO's stead, any purported right SCO claimed to terminate IBM's licenses. A copy of Novell's June 12, 2003 letter is attached hereto as Exhibit L."


So, now it will be up to a judge to rule on this point, but where SCO sees wiggle room in all this is hard to fathom. IBM must see it Novell's way too, because they accuse SCO of false and misleading statements to the world about having "terminated" IBM's rights, despite having these letters. Making false and misleading statements about a company can get you sued. If the judge sees the contract the way Novell sees it, it gives substance to the tort counterclaims. Did I say substance? It's a touchdown. What also needs to be said here is that Novell really stood up to the plate and put its money where its mouth is. Champagne, anyone?

You know what I can't figure? How come none of the mainstream reporters are talking about this? Maybe they are and I missed it, but to me this is the headline news for the entire SCO-IBM contest regarding AIX. By the way, SVRX just means AIX, or more precisely System V UNIX and all revisions.

PS Sorry about the typo in the headline yesterday. I had to go out of town and struggled to get the story up at all. I knew everyone was chomping at the bit to see it. If I fix the typo now, your comments will likely get erased, so I'm leaving it the way it is until it gets archived. So, thank you for letting me know about it, those of you who did. I appreciate it and am letting you know why it isn't yet fixed. It will be.

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