Source: http://www.groklaw.net/articlebasic.php?story=20060921155822851
Timestamp: 2017-02-28 14:26:42
Document Index: 56708521

Matched Legal Cases: ['§ 1331', '§ 1338', '§ 1367', '§ 2201', '§ 1391', '§ 204', '§ 1', '§ 1', '§ 1', '§ 4', '§ 1', '§ 1', '§1', '§1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 4', '§ 4', '§ 4', '§ 4', '§ 4', '§ 2201', '§ 4', '§ 4', '§ 4', '§ 4', '§ 4', '§ 2201', '§ 4', '§ 4', '§ 4', '§ 2201', '§ 1', '§ 2201', '§ 1', '§ 2201', '§ 2223', '§\n1', '§ 1', '§ 1', '§ 1', '§ 2201', '§ 4', '§ 4', '§ 1', '§ 2001']

Groklaw - Novell Amends Counterclaims
Novell Amends Counterclaims
Thursday, September 21 2006 @ 03:58 PM EDT
Now this is interesting, and what a relief not to be talking about HP, eh?
Novell is seeking to add two new counterclaims. [Update: Now that I'm reading it carefully I see that in fact it's more complex than just adding. Due to discovery, Novell is also refining some of the prior counterclaims as well, and I'll be giving you a detailed breakdown of all the changes as soon as I can. As the stipulated motion puts it, "Novell has amended its
counterclaims to clarify its claims based on recent discovery, and SCO does not oppose the amendment." The two new counterclaims are 7 and 8, breach of Fiduciary Duty and Conversion.] Here are the three new documents on Pacer: Stipulation and Motion for Leave to File Amended Counterclaims
Novell Inc.'s Amended Counterclaims
I haven't read it yet myself, but I will right now, along with you. I wanted to post it quickly, so you don't all run to Pacer at once, now that I've taught you how.
Here's the prior version of Novell's counterclaims as text [or as PDF], so you can compare. I changed the title too, now that I've had a chance to eyeball the filings, because it's by stipulation, so there should be no reason the judge would not sign the proposed order. I'm working on a chart to show the differences, but in the meanwhile, Groklaw member grub did a quick side by side comparison, which I have not edited or verified, but assuming it is correct, it may help you to see where to view refinements. Here's what he wrote:
went through the two side-by-side, and here's what i came up with. hope this
helps. it's by paragraph number for easy cross referencing, and i show old# ->
new# if updated and just the new# for new paragraphs. in some cases paragraphs
were merged/split too.
83-88 new
106 -> 112 updated
109 -> 115 updated
120 -> 127+128 (looks like a straight split)
123 -> 132+133 split+updated
124 -> 134 updated
125 -> 135 updated
137-150 new
128 -> 152 updated
129 -> 153 updated
134-136 -> 158 merged+updated
141 -> 163 updated
147 -> 170 updated
148 -> 171 updated
Thanks, grub. This is handy.**************************************
NOVELL, INC., a Delaware corporation, Defendant and Counterclaim- Plaintiff.
STIPULATION AND MOTION
FOR LEAVE TO FILE AMENDED
Case No. 2:04-CV-00139
Defendant and Counterclaim-Plaintiff Novell, Inc. ("Novell"), and Plaintiff and
Counterclaim Defendant The SCO Group, Inc. ("SCO"), hereby stipulate to the filing and service
of Novell's Amended Counterclaims in the form attached hereto. Novell has amended its
counterclaims to clarify its claims based on recent discovery, and SCO does not oppose the
amendment. Pursuant to the parties' stipulation, Novell respectfully moves the Court for an
order permitting the requested amendment. SCO does not oppose the motion.
(Signed by filing attorney with written
I HEREBY CERTIFY that on this 21st day of September, 2006, I caused a true and
correct copy of the foregoing STIPULATION AND MOTION FOR LEAVE TO FILE
AMENDED COUNTERCLAIMS to be served via CM/ECF to the following:
/s/Heather M. Sneddon
corporation, Plaintiff and Counterclaim-
NOVELL, INC.'S AMENDED
Novell hereby amends those counterclaims it previously pled on April 10, 2006 against
SCO, as follows:
1. Counterclaim-plaintiff Novell, Inc. ("Novell") is a Delaware corporation that was
incorporated in 1983. Its headquarters and principal executive offices are located in Waltham,
Massachusetts. Novell's principal product development facility is located in Provo, Utah.
2. Counterclaim-defendant The SCO Group, Inc. ("SCO") is a Delaware corporation
with its principal place of business in Utah County, State of Utah.
3. This Court has original jurisdiction over SCO's Amended Complaint pursuant to
4. This Court has jurisdiction over Novell's counterclaims pursuant to 28 U.S.C.
§ 1331 (federal question), 28 U.S.C. § 1338(a) (arising under the Federal Copyright Act),
28 U.S.C. § 1367(a) (supplemental jurisdiction) and 28 U.S.C. §§ 2201(a) and 2202 (declaratory
judgment). Novell's slander of title claim involves questions of, and arises under, federal law.
This Court has supplemental jurisdiction over Novell's state law claims of breach of contract,
accounting, restitution and slander of title.
5. Venue is proper in this judicial district pursuant to 28 U.S.C. §§ 1391(b), 1391(c)
and 1400(a), in that SCO resides or may be found in this district and is subject to personal
6. UNIX is the name of a computer operating system originally developed beginning in
the late 1960s by a group of software engineers at AT&T's Bell Laboratories. Over time, AT&T
licensed its UNIX family of operating systems to universities, corporations, other entities and
7. In 1993 AT&T sold its UNIX assets, held by its subsidiary UNIX System
Laboratories ("USL"), to Novell. This transfer of assets to Novell included UNIX copyrights,
trademarks and all active UNIX licensing agreements, including contracts relating to the most
recent version of the UNIX operating system called UNIX System V. At the time there had been
several major releases of System V, including Releases 1, 2, 3 and 4, also referred to as SVR1,
SVR2, SVR3 and SVR4, or generically as SVRx.
8. Linux is the name of a computer operating system, originally developed beginning
in the early 1990s when Linus Torvalds, an undergraduate student at the University of Helsinki,
began writing the Linux kernel, or the core of the Linux operating system. He released the first
version of the Linux kernel on the Internet in 1991. Since then, thousands of software
programmers around the world have engaged in a collaborative effort to further develop Linux.
9. Linux was developed as open-source software and has become a popular alternative
to proprietary operating systems. Unlike with other major operating systems, the underlying
source code of Linux is available to the public.
10. In 1995, Novell and a company called The Santa Cruz Operation, Inc. ("Santa
Cruz") entered into negotiations over the sale of certain business assets of Novell relating to its
UNIX and UnixWare software products.
11. Santa Cruz was a California corporation that was incorporated in 1979. It was
founded as a UNIX system porting and consulting company and began to ship its first product, a
packaged version of the UNIX operating system, in 1983. In 1993 Santa Cruz completed an
initial public offering and became a publicly-listed company on the NASDAQ Stock Exchange.
12. On September 19, 1995, Novell and Santa Cruz executed an Asset Purchase
Agreement ("APA"). The APA provided each party with certain rights and obligations.
13. The parties entered into two Amendments to the APA. On December 6, 1995,
Novell and Santa Cruz executed "Amendment No. 1." Novell and Santa Cruz subsequently
14. Under the APA and its Amendments, Santa Cruz obtained a variety of assets,
including assignment of tens of thousands of contracts and licenses, various trademarks, source
code and binaries to UnixWare products, and physical assets such as furniture and personal
computers. Santa Cruz also obtained the right to develop a "Merged Product," a derivative work
15. Santa Cruz did not have the financial capacity to pay the purchase price
contemplated by Novell for these acquired assets and rights. In order to bridge the price gap and
consummate the transaction, Novell and Santa Cruz agreed that Novell would receive Santa Cruz
stock and retain certain rights as protection. For example (and as discussed further below),
Novell retained the right to receive royalty payments under SVRX licenses, prior approval rights
relating to new SVRX licenses and amended SVRX licenses, the right to direct Santa Cruz to
take certain actions relating to SVRX licenses and the right to conduct audits of the SVRX
license program. Santa Cruz assumed several related obligations.
16. One such obligation that Santa Cruz assumed under the APA was responsibility for
administering the collection of royalty payments from SVRX licenses. The APA provided that
Santa Cruz shall collect and pass through to Novell 100% of the SVRX royalties. In return,
Novell agreed to pay Santa Cruz an administrative fee of 5% of those royalty amounts. Santa
Cruz also agreed to pay additional royalties relating to other products.
17. Novell retained certain assets under the APA. Schedule 1.1(b), which lists
"Excluded Assets" under the agreement, specifies that Novell retained "all copyrights and
trademarks, except for the trademarks UNIX and UnixWare," "all patents," and "all right, title
and interest to the SVRX Royalties, less the 5% fee for administering the collection thereof."
18. Novell also retained rights to supervise Santa Cruz's administration of SVRX
licenses. Novell retained the "sole discretion" to direct Santa Cruz to amend, supplement,
modify, waive or assign any rights under or to the SVRX licenses; if Santa Cruz fails to take any
such action, the APA specifically granted Novell the right to take these actions on behalf of
Santa Cruz. Novell retained the right to veto Santa Cruz's attempts to amend SVRX licenses,
subject to two exceptions, as noted below. Novell also retained the right to veto Santa Cruz's
attempts to enter into new SVRX licenses, subject to one exception, as noted below.
19. The APA gave Novell the right to confirm Santa Cruz's compliance with its
contractual obligations under the SVRX licensing program. The APA explicitly provided that
Novell "shall be entitled to conduct periodic audits" of Santa Cruz "concerning all royalties and
payments due to Seller hereunder or under the SVRX Licenses." The APA required Santa Cruz
to "diligently seek to collect all such royalties, funds and other amounts when due" and to
"investigate and perform appropriate auditing and enforcement." The APA also required Santa
Cruz to provide Novell monthly reports detailing the SVRX royalties it received.
20. Novell and Santa Cruz were the onl y parties to the APA and its Amendments. SCO
was not a party to the APA or its Amendments. SCO was originally incorporated on August 21,
1998 as a company called Caldera Systems, a developer and provider of Linux-based business
solutions. SCO purports to be the successor in interest to Santa Cruz under the APA and its
Amendments. This dispute is about Novell's rights under the APA and whether SCO breached
its obligations as the alleged successor of Santa Cruz.
21. The APA transferred certain assets from Novell to Santa Cruz. However, as
specified by Section V.A of Schedule 1.1(b) to the APA, certain assets were excluded from the
transfer. Among the "Excluded Assets" from the APA asset transfer were "[a]ll copyrights and
trademarks, except for the trademarks UNIX and UnixWare."
22. The APA as executed on September 19, 1995 therefore does not transfer any
23. Novell and Santa Cruz later executed Amendment No. 2 to the APA. Amendment
No. 2 modifies Section V.A of Schedule 1.1(b) to provide that Excluded Assets include:
Agreement required for SCO to exercise its rights with
24. Neither Amendment No. 2 nor the APA as modified by Amendment No. 2 were
intended to, nor do they actually, transfer ownership of the UNIX or UnixWare copyrights
owned by Novell at the time of the APA and its Amendments ("UNIX Copyrights").
25. Neither Amendment No. 2 nor the APA as modified by Amendment No. 2 qualify as
"an instrument of conveyance, or a note or memorandum of the transfer" under 17 U.S.C.
§ 204(a) for at least the following reasons:
a. Amendment No. 2 merely amends the schedule of excluded assets and
therefore does not, itself, constitute a transfer of any asset.
b. Neither Amendment No. 2 nor the modified APA identifies "the copyrights and trademarks owned by [Novell] as of the date of the
Agreement required for Santa Cruz to exercise its rights with respect to the
c. Neither Amendment No. 2 nor the modified APA contains any language
suggesting a contemporaneous transfer of any copyright. To the contrary,
the APA provides only that certain assets "will" be transferred.
d. Neither Amendment No. 2 nor the modified APA provides a date for any
purported transfer of copyrights.
27. By and during early 2003, SCO repeatedly asked Novell to transfer the UNIX
Copyrights to SCO. In doing so, SCO conceded that title to the UNIX Copyrights remains
exclusively with Novell. Novell rejected all of SCO's requests.
28. During the second quarter of its fiscal year 2000, Santa Cruz restructured its
business into three divisions: the Server Software division, the Professional Services division
and the Tarantella division. The Server Software division included Santa Cruz's UNIX-related
29. On August 1, 2000, Santa Cruz entered into an agreement with Caldera Systems,
under which Caldera Systems acquired Santa Cruz's Server Software and Professional Services
divisions. With the acquisition, Caldera Systems planned to add Santa Cruz's UNIX server
solutions and services to its Linux business.
30. On May 7, 2001, pursuant to an amendment to the agreement between Santa Cruz
and Caldera Systems, Caldera International ("Caldera") was formed as a holding company to
own Caldera Systems, including the assets, liabilities and operations of Santa Cruz's Server
Software and Professional Services divisions.
31. Prior to Caldera's acquisition of Santa Cruz's Server Software and Professional
Services divisions, substantially all of Caldera's revenue was derived from sales of Linux
products and services. However, Caldera had been unsuccessful in creating a profitable Linux
32. After the acquisition of Santa Cruz's Server Software and Professional Services
divisions, most of Caldera's total revenue came from UNIX products and services, ranging from
90 to 95% of Caldera's revenue during fiscal years 2001 and 2002. But Caldera's revenue from
the sale of UNIX-based products declined in the fiscal quarters following the acquisition.
Caldera experienced significant decreases in actual and forecasted revenue of the acquired Santa
Cruz operations.
33. Caldera incurred substantial financial losses during its fiscal years 2000, 2001 and
2002. Caldera suffered losses from operations totaling $32 million in 2000, $133 million in
2001 and $24 million in 2002.
34. In June 2002, Caldera hired Darl McBride as its President and Chief Executive
Officer. Mr. McBride was responsible for the company's strategic direction and planning.
35. On our about the time of Mr. McBride's arrival at Caldera, Caldera began to pursue
a new business strategy for the company, launching a rebranding effort of its products and
services as well as its corporate image.
36. On August 26, 2002, Caldera announced that it would change its name to The SCO
Group, Inc. ("SCO"), pending shareholder approval. On or about that time, Caldera then began
doing business as SCO. Caldera soon thereafter changed its trading symbol on the NASDAQ
Stock Exchange from "CALD" to "SCOX." Caldera's name change was formalized on May 16,
2003, when Caldera's shareholders approved an amendment to Caldera's certificate of
incorporation that changed the company's name to SCO.
37. As part of Caldera's rebranding efforts and shift in business strategy, Caldera
purportedly initiated a review of its intellectual property rights. This effort culminated in the
launching of a licensing initiative, which it called SCOsource, in January 2003. SCOsource, as
described in further detail below, was an effort by Caldera to expand the revenue base of a
company that had never before been profitable.
G. SCO's Requests to Novell To Participate in a Licensing Scheme and To Transfer the
UNIX Copyrights
38. In late 2002, SCO repeatedly contacted Novell in connection with SCO's soon-to-be-announced SCOsource campaign. SCO requested copies of certain documentation
concerning rights to UNIX, including the agreement between Novell and Santa Cruz. SCO also
expressed its interest in a campaign to assert UNIX infringement claims against users of Linux.
SCO asked Novell to partner with SCO in a Linux licensing program, under which SCO
contemplated extracting a license fee from Linux end users to use the UNIX intellectual property
purportedly contained in Linux. Novell refused to participate.
39. In aid of its scheme, SCO requested that Novell transfer its UNIX Copyrights to
SCO and thereby acknowledged that it did not own the UNIX Copyrights. SCO contacted
Novell on multiple occasions by and during early 2003. For example, SCO's CEO, Darl
McBride, repeatedly contacted Novell and asked Novell to amend the Novell-Santa Cruz
agreement to give SCO the UNIX Copyrights. Novell rejected all of these requests.
40. Notwithstanding Novell's rejections, SCO embarked on an aggressive campaign in
which it falsely asserted ownership over these same copyrights via public statements, a series of
letters to Linux end users, several lawsuits against Linux distributors and end users, and a
licensing program purporting to offer SCO's Intellectual Property Licenses for Linux .
41. SCO's misleading and wrongful public assertions of ownership include the
a. On March 7, 2003, SCO stated in a press release, "In 1995, SCO
purchased the rights and ownership of UNIX and UnixWare that had been
intellectual property that pertained to UNIX-related business. . . . `SCO is
in the enviable position of owning the UNIX operating system,' said Darl
McBride, president and CEO, SCO."
b. On May 14, 2003, SCO stated in a press release, "[SCO], the owner of the
UNIX operating system, today warned that Linux is an unauthorized
derivative of UNIX and that legal liability for the use of Linux may extend
to commercial users."
c. On June 6, 2003, SCO stated in a press release, "[SCO], the owner of the
UNIX® operating system, today confirmed its previously stated ownership
of UNIX copyrights. As SCO has consistently maintained, all rights to the
UNIX and UnixWare technology, including the copyrights, were
transferred to SCO as part of the Asset Purchase Agreement between
Novell and SCO dated September 19, 1995. Any question of whether the
UNIX copyrights were transferred to SCO under the Asset Purchase
Agreement was clarified in Amendment No. 2 to the Asset Purchase
Agreement dated October 16, 1996.
`This amendment simpl y confirms SCO's long stated position that it owns
all copyrights associated with the UNIX and UnixWare businesses,' said
Chris Sontag, senior vice president and general manager, SCOsource
intellectual property division, SCO.
'SCO is the owner of the UNIX operating system, as well as all of the
UNIX contracts, claims and copyrights necessary to conduct that
business,' said Sontag. 'None of the litigation we are currently involved
with asserts claims based on copyrights. Because others have called into
question SCO's ownership of the UNIX and UnixWare copyrights, we are
satisfied that we have now proven without a doubt that SCO owns those
copyrights.'"
d. During at least June and July, 2003, SCO wrongfully registered copyrights
in UNIX and Unix Ware releases owned by Novell. These registrations
related to UNIX System V release 3.0, UNIX System V release 3.1, UNIX
System V release 3.2, UNIX System V release 3.2/386, UNIX System V
release 4.0, UNIX System V release 4.1, UNIX System V release 4.1ES,
UNIX System V release 4.2, UNIX System V release 4.2MP, and
UnixWare 7.1.3.
e. On January 13, 2004, SCO stated, "[SCO] today reiterated its ownership
of UNIX intellectual property, source code, claims and copyrights and has
made all of the documents surrounding the companies' ownership of
UNIX and UnixWare available for public viewing at
www.sco.com/novell."
f. On January 28, 2004, in its Form 10-K filed with the United States
Securities and Exchange Commission, SCO stated, "We own the UNIX
operating system and are a provider of UNIX-based products and services.
We acquired our rights to the UNIX source code and derivative works and
other intellectual property rights when we purchased substantially all of
the assets and operations of the server and professional services groups of
The Santa Cruz Operation, Inc., in May 2001. The Santa Cruz Operation
(now known as Tarantella, Inc.) had previously acquired such UNIX
source code and other intellectual property rights from Novell in
September 1995, which were initially developed by AT&T Bell Labs.
Through this process, we acquired all UNIX source code, source code
license agreements with thousands of UNIX vendors, all UNIX
copyrights, all claims for violation of the above mentioned UNIX licenses
and copyrights and other claims, and the control over UNIX derivative
42. As part of SCO's scheme to claim ownership of the UNIX copyrights, SCO has
falsely claimed that Novell acquiesced to SCO's claims. For example, on July 21, 2003, Darl
McBride stated in a public interview:
Interviewer: Well, Novell would say that you actually
McBride: Yeah, well, the Novell thing, they, they
43. Novell has not acquiesced to SCO's claims, as recited in SCO's own Amended
Complaint. (Amended Complaint ¶ 19(d)-(e).) To the contrary, Novell was vigorously
contesting those claims in private correspondence with SCO at the very same time SCO was
publicly claiming otherwise. For example:
a. On May 12, 2003, SCO's CEO Darl McBride sent Novell a letter asserting
that it owned the UNIX copyrights and that Linux end users were
again disputing its claim to ownership of the copyrights. In his August 4, 2003, letter, LaSala stated, "We dispute SCO's claim to ownership of these copyrights."
44. In September and October 2003, Novell attempted to protect its rightful ownership of the UNIX Copyrights, and to correct SCO's erroneous registrations claiming ownership, by filing its own copyright registration. 12
I. SCO's Scheme To Extract Licensing Fees from Novell, the Linux Community and
45. A significant aspect of SCO's rebranding efforts and new business strategy was its
adoption of a scheme to extract "licenses" from the UNIX and Linux communities based on
claims to own intellectual property specifically reserved to Novell, i.e., the UNIX Copyrights.
SCO proceeded on its own in this scheme after Novell rebuffed SCO's overtures to participate.
46. On January 22, 2003, SCO publicly announced its licensing scheme as part of its
"SCOsource" program. In connection with this announcement, SCO's CEO, Darl McBride,
commented that "SCO owns much of the core UNIX intellectual property, and has full rights to
license this technology and enforce the associated patents and copyrights."
47. Under the SCOsource licensing program, SCO seeks to enter into license
agreements with UNIX vendors and offers Intellectual Property Licenses to Linux end users
("Intellectual Property Licenses"). The purported purpose of these licenses is to allow UNIX
vendors to use SCO's UNIX intellectual propert y and to permit Linux end users to "properly
compensate us for our UNIX intellectual property as currently found in Linux." One term of
SCO's Intellectual Property Licenses for Linux is that licensees "will be held harmless against
past and future copyright violations based on their use of SCO's intellectual property . . . in
Linux distributions . . . ."
48. SCO charges a sizeable licensing fee for SCO's Intellectual Propert y Licenses for
Linux. For example, for a server with 8 CPUs, the initial licensing fee is $4,999, with $1,079
payable every year after that.
49. As part of its SCOsource initiative, SCO filed a lawsuit against IBM on March 7,
2003, asserting, among other things, UNIX Copyrights that SCO does not own. SCO has alleged
that it owns the UNIX Copyrights and that IBM's contributions to Linux and use of Linux
infringe these copyrights.
50. As part of the SCOsource program, SCO entered into at least two license
agreements. These licenses related to the use of UNIX technology by the licensees. The first of
these licenses was with Sun Microsystems, Inc. ("Sun"). The second license was with Microsoft
Corporation ("Microsoft") and purportedly covers Microsoft's UNIX compatibility products. On
information and belief, through these licenses SCO broadened the rights of Sun and Microsoft to
use SVRX code.
51. The Sun and Microsoft licenses resulted in significant revenue for SCO and
produced the first profitable quarter in SCO's history. During the fiscal quarter ended April 30,
2003, SCO recognized $8,250,000 in revenue from these two new licenses. In addition, these
licenses accounted for $25,846,000 of SCO's revenue in fiscal year 2003.
52. As part of the SCOsource program, in May 2003, SCO sent letters to 1,500 of the
world's largest corporations threatening suit based on its alleged ownership of the UNIX
Copyrights ("End User Letters"). On May 12, 2003, SCO sent one of these letters to IBM, and
sent another letter to Novell. On information and belief, all of the End User Letters were nearly
identical in content to the IBM and Novell letters.
53. In the End User Letters, SCO made the false and misleading statement that "SCO
holds the rights to the UNIX operating system software originally licensed by AT&T to
approximately 6,000 companies and institutions worldwide (the `UNIX Licenses')."
54. In the End User Letters, SCO also made the unsupported assertion that "We [SCO]
have evidence that portions of UNIX System V software code have been copied into Linux and
that additional other portions of UNIX System V software code have been modified and copied
into Linux, seemingly for the purposes of obfuscating their original source."
55. After setting forth these alleged facts in the End User Letters, SCO erroneously
concluded that "Linux infringes on our UNIX intellectual property and other rights." According
to SCO, end users of Linux were liable for this alleged infringement whether or not they
participated in any contribution of UNIX System V software code into Linux.
56. As set forth in detail above, besides sending the End User Letters, SCO has made
numerous public statements that it owns the UNIX Copyrights and that end users of Linux are
liable for infringement of those copyrights. For instance, contrary to the express terms of the
APA, SCO has stated on its website that "only SCO is in a position to license the use of this
infringing intellectual property." The Court itself has noted SCO's "barrage of public statements
about pursuing alleged infringers of its alleged intellectual property." The SCO Group Inc. v.
Int'l Bus. Machs., Case No. 2:03CV294 DAK, Memorandum Decision and Order at 5 (Feb. 9,
57. Shortly after the inception of its letter writing campaign, SCO brought suit against
Autozone and Daimler Chrysler, both Linux end users. In these lawsuits, SCO has made
substantially the same allegations as set forth in its letters. In the Autozone lawsuit, SCO has
alleged that "[Autozone] uses one or more versions of the Linux operating system that infringe
on SCO's exclusive rights in its proprietary UNIX System V operating system technology." In
the Daimler-Chrysler lawsuit, SCO has alleged that Daimler-Chrysler's use of the Linux
operating system violates the UNIX license between Daimler-Chrysler and SCO.
58. Novell has established a Linux Indemnification Program under which it currently
offers indemnification for copyright infringement claims made by third parties against
qualifying, registered Novell customers of specified SUSE LINUX Enterprise products.
59. SCO has continued to pursue its SCO source initiative with other industry
participants that it believes will lead to additional licensing agreements. On information and
belief, via this campaign, SCO has convinced several Linux end users to participate in its
licensing program, obtain purported licenses to use "SCO's intellectual property contained in
Linux," and thereby avoid suit by SCO. In fiscal year 2004, SCO generated additional revenue
from sales of its SCOsource Intellectual Property Licenses.
60. SCO's misguided campaign has led SCO to breach various obligations that Santa
Cruz assumed under the APA and its Amendments.
62. SCO or Santa Cruz has received adequate consideration for its duties under the APA
63. Section 1.2(b) of the APA gives Novell broad audit rights relating to the
administration of the SVRX licensing program. It reads in pertinent part:
[Novell] shall be entitled to conduct periodic audits of
[SCO] concerning all royalties and payments due to
[Novell] hereunder or under the SVRX Licenses, provided
that [Novell] shall conduct such audits after reasonable
notice to [SCO] and during normal business hours and shall
not be entitled to more than two (2) such audits per year.
64. Further, section 1.2(f) of the APA obligates SCO to provide Novell monthly reports
detailing the SVRX royalties that SCO received.
65. On July 11, 2003 Novell notified SCO that it intended to conduct an audit beginning
on August 18, 2003 covering the period beginning January 1, 1998 through June 30, 2003.
66. By reply correspondence dated July 17, 2003, SCO accepted Novell's right to an
audit. Novell's audit began during the week of August 25, 2003.
67. As part of Novell's aforementioned audit rights, on November 21, 2003, Novell
sought the following categories of information and documentation relating to:
a. Any amendments and modifications to SVRX licenses, and in particular
the amendments to the Sun and Microsoft SVRX licenses. Novell
specifically requested (1) "copies of the Sun and Microsoft amendments to
verify SCO's compliance" with the APA and (2) "a detailed explanation
of SCO's position" if SCO contends that either of the two exceptions to
the prohibition on unilateral amendments by SCO were applicable.
b. Any buy-out of SVRX licenses, and in particular any information
concerning any buy-out of Sun's and Microsoft's royalty obligations
under their SVRX licenses. Novell specifically requested that SCO
identify any potential buy-out transactions so that Novell could verify
SCO's compliance with the APA.
c. Any new SVRX licenses, and in particular SCO's Intellectual Propert y
Licenses for Linux. Novell specifically requested (1) "copies of all SCO
Intellectual Property Licenses for Linux, and any other agreements
connected with attempts by SCO to enter into new SVRX Licenses, so
Novell can verify SCO's compliance" with the APA and (2) "a detailed
explanation of SCO's position" if SCO contends that the exception to the
prohibition on new SVRX licenses by SCO was applicable.
d. Any SVRX to UnixWare Conversions. Novell specifically requested that
SCO (1) identify and provide documentation for any allegedly valid
conversions and (2) "explain in detail" how the alleged conversion
complies with the APA and (3) provide "a detailed explanation of SCO's
position" if SCO contends that any of the exceptions to the prohibition on
conversion by SCO were triggered.
68. Novell renewed its November 21, 2003 demand on December 29, 2003 and again on
69. On February 5, 2004, SCO conveyed its refusal to provide the information identified
in Paragraph 68.
70. On March 1, 2004, Novell again contacted SCO for the above categories of
information: "In order to complete our audit, we need the Sun, Microsoft and any other
Intellectual Property Licenses for Linux. Stated more categorically, we need all agreements in
which SCO purported to grant rights with respect to Unix System V." Novell noted that SCO's
Intellectual Property Licenses for Linux appeared to be SVRX Licenses since they purported to
grant rights relating to UNIX System V or UnixWare.
71. Novell again sent a letter to SCO on April 2, 2004 urging a response.
We have communicated with SCO several times about our
concerns with SCO's handling of UNIX licenses, including
the license with Sun. In these communications, we have
noted that our audit rights under the Asset Purchase
Agreement require SCO to provide Novell with copies of
any UNIX agreements (including amendments) SCO has
reached with Sun. We have sent you letters twice on this
issue (in March and April 2004), and have not received an
Accordingly, we must once again insist that you provide us
with copies of any agreements with Sun (including
amendments) that relate to UNIX. We would appreciate a
response by Friday, December 3, 2004.
73. Despite Novell's repeated pre-litigation requests, SCO did not provide Novell with
copies of the Sun and Microsoft licenses, or amendments, or with copies of SCO's Intellectual
Property Licenses for Linux or other agreements connected with attempts by SCO to enter into
new or amended SVRX licenses. SCO also never provided any explanation why SCO was not
obligated under the APA to seek Novell's consent to amend or otherwise enter into new SVRX
agreements. As a result, prior to this litigation Novell was unable to verify whether SCO had
complied with the APA, as Novell is entitled under the APA. Only through discovery in this
litigation was Novell first able to obtain copies of certain aforementioned licenses and thereby
conclude that SCO did not comply with its obligations under the APA.
74. Sections 1.2(b) and 4.16(a) of the APA create an agency relationship between SCO
and Novell, obligating SCO to remit 100% of "all royalties, fees and other amounts due under all
SVRX Licenses" to Novell. "SVRX Licenses" are in turn defined to include "[a]ll contracts
relating to" the various UNIX System releases and auxiliary products enumerated at Schedule
1.1(a)(VI) and Attachment A to Amendment No. 1. Under the APA, Novell has "all right, title
75. SCO has failed to remit to Novell all royalties owed under §§ 1.2(b) and 4.16(a) of
76. As SCO admitted in its February 5, 2004 letter to Novell, SCO has entered into
"new" agreements with Sun and Microsoft.
77. On information and belief, these new agreements are "contracts relating to" the
various UNIX System releases and auxiliary products enumerated at Schedule 1.1(a)(VI) and
Attachment A to Amendment No. 1. The new agreements are therefore SVRX Licenses under
78. SCO has not remitted any royalties from its new SVRX Licenses with Sun or
79. In addition, SCO has entered into Intellectual Property Licenses with a variety of
parties. For example, on March 1, 2004, SCO announced an intellectual property licensing
agreement with "EV1Servers.Net" that purportedly grants that company a site license to use
SCO's intellectual property on all Linux servers managed by EV1Servers.Net in its hosting
80. On information and belief, SCO's Intellectual Property Licenses are "contracts
1.1(a)(VI) and Attachment A to Amendment No. 1. The Intellectual Property Licenses are
therefore SVRX Licenses under the APA. SCO has not remitted any royalties from these SVRX
81. Among other changes to the APA, Amendment No. 1 added § 1.2(e), which
provides that SCO has a right to retain all "source code right to use fees attributable to new
SVRX Licenses approved by [Novell] pursuant to Section 4.16(b)."
82. SCO has neither sought nor obtained Novell's approval to enter into any new SVRX
license. Therefore, none of SCO's new SVRX Licenses fall within § 1.2(e)'s exception to
SCO's general duty to remit 100% of SVRX royalties to Novell.
Breach of Obligation Concerning Potential Buy-Out Transactions
83. In Amendment No. 2, Novell and Santa Cruz agreed to a procedure that would
licensee's royalty obligations." In § B, they agreed that: (1) they "will" provide written
notification to each other upon becoming aware of any potential buy-out transaction; (2) "any
meetings and/or negotiations with the licensee will be attended by both parties, unless agreed
otherwise"; (3) "any written proposal to be presented to the licensee, including drafts and final
versions of any proposed amendments to the SVRX licenses, will be consented to by both parties
prior to its delivery to the licensee, unless agreed otherwise"; and (4) "prior to either parties'
unilateral determination as to the suitability of any potential buy-out transaction, the parties will
meet face to face and analyze the potential merits and disadvantages of the transaction."
84. Through Amendment No. 2, the parties also agreed that no potential buy-out
transaction "will be concluded unless the execution copy of the amendment is consented to in
writing by both parties, and either party will have the unilateral right to withhold its consent
should it judge, for any reason whatsoever, the transaction to be contrary to its economic
interests and/or its business plans and strategy."
85. On March 17, 1994, Novell and Sun entered into a Software License and
Distribution Agreement, effective January 1, 1994 ("the 1994 Sun Agreement"). Through this
agreement, Novell granted Sun an "irrevocable, perpetual, world-wide, royalty-free, paid-up
right and license" concerning certain UNIX System V technology that Sun had previously
licensed through SVRX licenses with Novell and its predecessors.
86. SCO has acknowledged that the 1994 Sun Agreement was a buy-out agreement. In
a letter to Novell dated February 5, 2004, SCO contended that "Sun Microsystems bought out its
license from Novell in 1994."
87. The 2003 Sun Agreement purported "to amend and restate" the 1994 buy-out
agreement between Novell and Sun and, thus, was a potential transaction with an SVRX licensee
that concerns a buy-out of the licensee's royalty obligations. The 2003 agreement relicensed
SVRX technology that was the subject of the 1994 agreement. It also purported to license
additional SVRX technology.
88. SCO did not secure Novell's approval prior to concluding its transaction with Sun in
2003. Nor did SCO consult with Novell or provide any advance notification to Novell
concerning this potential buy-out transaction with Sun.
89. Section 4.16(b) of the APA reads in pertinent part:
In addition, at [Novell's] sole discretion and direction,
[SCO] shall amend, supplement, modify or waive any
rights under, or shall assign any rights to, any SVRX
License to the extent so directed in any manner or respect
by [Novell].
90. SCO has threatened to cancel or terminate various parties' SVRX licenses and has
purported to cancel or terminate certain parties' SVRX licenses. For example, on March 6,
2003, SCO sent a letter to IBM threatening to cancel or terminate IBM's SVRX license. On
May 29, 2003, SCO sent a similar letter to Sequent Computer Systems ("Sequent").
91. SCO subsequently purported to cancel or terminate IBM's SVRX licenses as of June
13, 2003. On August 11, 2003, SCO sent a letter to Sequent similarly purporting to terminate
Sequent's SVRX licenses.
92. SCO did not obtain Novell's prior written consent to cancel or terminate either
SVRX license. Accordingly, on June 9, 2003, and again on October 7, 2003, Novell directed
SCO to waive any purported right SCO claimed to have to terminate IBM's SVRX licenses. On
February 6, 2004, Novell similarly directed SCO to waive certain of its purported rights under
the IBM and Sequent SVRX licenses.
93. Following SCO's failure to take the actions identified in the preceding paragraphs,
Novell elected to take actions on SCO's behalf, as Novell is empowered to do by § 4.16(b).
Section 4.16(b) of the APA provides in pertinent part:
concerning the SVRX Licenses as required herein, [Novell]
shall be authorized, and hereby is granted, the rights to take
any action on [SCO's] own behalf.
94. After SCO conveyed its refusal on February 11, 2004 to waive its purported rights
against Sequent, Novell on the same day waived SCO's purported right to revoke any rights
under Sequent's SVRX licenses. Similarly, on October 11, 2003, Novell waived certain of
SCO's purported rights under IBM's SVRX licenses.
95. SCO refuses to acknowledge Novell's right to take such actions on its own behalf.
96. Under Section 4.16(b) of the APA, SCO shall not amend or modify any SVRX
license "without the prior written consent of [Novell]." As modified by Amendment 1, Section
4.16(b) of the APA provides further that:
Notwithstanding the foregoing, [SCO] shall have the right
to enter into amendments of the SVRX Licenses (i) as may
be incidentally involved through its rights to sell and
license UnixWare software or the Merged Product .. or
future versions of the Merged Product, or (ii) to allow a
licensee under a particular SVRX License to use the source
code of the relevant SVRX product(s) on additional CPU's
or to receive an additional distribution, from [SCO], of
such source code.
In addition, [SCO] shall not, and shall have no right to,
enter into new SVRX Licenses except in the situation
specified in (i) of the preceding sentence as otherwise
approved in writing in advance by [Novell] on a case by
97. On information and belief, SCO has entered into new SVRX Licenses with Sun,
Microsoft and others (through, for example, SCO's Intellectual Property Licenses with Linux
end users or UNIX vendors), or otherwise amended the Sun and Microsoft SVRX licenses.
98. SCO never sought advance approval from Novell to enter into these new SVRX
Licenses or amendments thereof. SCO also never explained why under the APA it was not
obligated to obtain Novell's advance approval.
99. Under the APA, SCO also had no authority to enter into the Sun and Microsoft
SVRX Licenses, or the Intellectual Property Licenses with Linux end users and UNIX vendors.
100. Novell incorporates by reference all prior paragraphs as if they were set forth here in
101. SCO made its public statements claiming ownership of the UNIX Copyrights, and
improperly registered its claim to UNIX Copyrights, with knowledge that title to these
copyrights remains with Novell.
102. SCO made such statements maliciously, in bad faith, and with intentional disregard
103. SCO made such statements with the intent to cause customers and potential
customers of Novell not to do business with Novell, to slander and impugn the ownership rights
of Novell in UNIX and UnixWare, and to attempt, in bad faith, to block Novell's ability to
exercise its copyrights therein.
104. SCO's slander of Novell's title has resulted in special damages including, inter alia,
Novell's costs and fees in preparing and filing copyright registrations and declarations correcting
SCO's erroneous registrations claiming ownership of Novell's intellectual property and in
prosecuting this action.
105. Novell incorporates by reference all prior paragraphs as if they were set forth here in
106. Pursuant to its audit rights under the APA, Novell requested certain information
from SCO to verify SCO's compliance with the APA, including:
the amendments to the Sun and Microsoft SVRX licenses, including a
copy of these amendments and a detailed explanation of SCO's position if
SCO contends that either of the two exceptions to the prohibition on
unilateral amendments by SCO was applicable;
b. Any buy-out or potential buy-out of SVRX licenses, and in particular any
information concerning any buy-out of Sun and Microsoft's royalty
obligations under their SVRX licenses;
c. Any new SVRX licenses, and in particular SCO's new SVRX agreements
with Sun and Microsoft and SCO's Intellectual Property Licenses with
Linux end users or UNIX vendors, including copies of these agreements
and a detailed explanation of SCO's position if SCO contends that the
exception to the prohibition on new SVRX Licenses by SCO was
d. Any SVRX to UnixWare Conversions, including documentation for any
allegedly valid conversions, a detailed explanation of how the alleged
conversion complies with the APA and a detailed explanation of SCO's
position if SCO contends that any of the exceptions to the prohibition on
107. Under the APA, SCO was obligated to provide this information. SCO substantially
and materially breached §§ 1.2(b) and 1.2(f) of the APA by refusing to do so during the course of
Novell's audit of the SVRX licensing program. Novell was forced to initiate suit against SCO to
obtain this previously requested information.
108. On information and belief, SCO's breaches of §§ 1.2(b) and 1.2(f) of the APA have
caused Novell damage in an amount to be later proven. In addition, these breaches have caused
Novell special damages, including, inter alia, the costs associated with making repeated requests
for information necessary to confirm SCO's compliance with its contractual obligations to
administer SVRX licensing program, conducting further reviews of the limited information
provided by SCO, attempting to estimate royalties owing based upon incomplete information
provided, and initiating and maintaining suit against SCO due to SCO's breaches.
109. The legal remedies available to Novell for future failures by SCO to comply with its
audit obligations under §§1.2(b) and 1.2(f) of the APA may be inadequate. Therefore, Novell
seeks an order from this Court compelling SCO's specific performance of its aforementioned
audit obligations under §§1.2(b) and 1.2(f).
110. Novell incorporates by reference all prior paragraphs as if they were set forth here in
111. SCO has substantially and materially breached §§ 1.2(b) and 4.16(a) of the APA by
failing to remit all royalties owed to Novell, including any royalties SCO obtained from its new
SVRX Licenses with Sun or Microsoft or from its Intellectual Property Licenses with Linux end
users or UNIX vendors.
112. On information and belief, SCO's breaches of §§ 1.2(b) & 4.16(a) of the APA have
caused Novell damage in an amount to be later proven. These breaches have caused Novell
special damages, including, inter alia, the costs associated with attempting to ascertain from
SCO the royalty amounts due to Novell and the unpaid royalty amounts and initiating and
maintaining suit against SCO due to SCO's breaches.
113. The legal remedies available to Novell for future failures by SCO to comply with its
royalty obligations under §§ 1.2(b) & 4.16(a) of the APA may be inadequate. Therefore, Novell
seeks an order from this Court compelling SCO's specific performance of its remittance
obligations under §§ 1.2(b) & 4.16(a) of the APA.
114. In addition, Novell seeks an order from this Court imposing a constructive trust on
revenues received by SCO from its new SVRX Licenses with Sun and Microsoft, its Intellectual
Property Licenses with Linux end users and UNIX vendors, and any other new or amended
SVRX Licenses, as defined by the APA, executed by SCO without Novell's approval. Creation
of this trust is necessary to protect Novell from SCO's wrongful retention of monies owing
Novell due to SCO's failure to perform its remittance obligations under §§ 1.2(b) & 4.16(a) of
the APA. As set forth above, Novell owns "all right, title and interest" to these royalties, less
SCO's 5% administrative fee.
115. This trust should be imposed for the additional reason that SCO is quickly
dissipating its assets. On information and belief, SCO's revenues are declining, its operational
losses are increasing and its cash is dwindling quickly. As of April 30, 2006, SCO had just
$9,524,000 in cash and cash equivalents, just a fraction of the revenue it purportedly generated as
a result of the Sun and Microsoft licenses.
116. Novell also seeks an order from the Court attaching SCO's assets pending
adjudication of this claim because SCO is quickly dissipating its assets.
Asset Purchase Agreement, § B of Amendment No. 2)
117. Novell incorporates by reference all prior paragraphs as if they were set forth here in
118. Under § 4.16(b) of the APA, Novell has the right, at its sole discretion, to direct
SCO to waive any rights under any SVRX Licenses. In the event that SCO fails to take any such
action at Novell's direction, § 4.16(b) gives Novell the right to take any action on SCO's own
behalf. SCO refused to perform its corresponding duties under § 4.16(b) and substantially and
materially breached § 4.16(b) by:
a. Purporting to cancel or terminate SVRX licenses, including the IBM and
Sequent SVRX licenses, and then refusing to waive these purported rights
as directed by Novell; and
b. Refusing to recognize actions taken by Novell on SCO's behalf pursuant
to § 4.16(b), including Novell's waiver of SCO's purported claims against
119. Novell seeks a declaration pursuant to 28 U.S.C. § 2201 that:
a. Under § 4.16(b) of the APA, Novell is entitled, at its sole discretion, to
direct SCO to waive its purported claims against IBM, Sequent and other
SVRX licensees; and
b. Under § 4.16(b) of the APA, Novell is entitled to waive on SCO's behalf
SCO's purported claims against IBM, Sequent and other SVRX licensees,
when SCO refuses to act as directed by Novell; and
c. SCO is obligated to recognize Novell's waiver of SCO's purported claims
against IBM and Sequent.
120. Under § 4.16(b) of the APA, SCO is obligated to seek Novell's prior approval to
enter into new SVRX Licenses or amendments of SVRX Licenses, subject to limited exception.
SCO did not perform its corresponding duties under § 4.16(b) and substantially and materially
breached § 4.16(b) by:
a. Purporting to enter into new SVRX licenses without Novell's prior
approval, including agreements with Sun, Microsoft and other licensees of
SCO's Intellectual Property Licenses, without demonstrating that either of
two limited exceptions was applicable; and
b. Purporting to enter into amendments of SVRX Licenses without Novell's
licensees of SCO's Intellectual Property Licenses, without demonstrating
that a limited exception was applicable.
121. Novell seeks a declaration pursuant to 28 U.S.C. § 2201 that:
a. Under § 4.16(b) of the APA, SCO was obligated to seek Novell's prior
approval to enter into new SVRX licenses or amendments to SVRX
licenses, including SCO's agreements with Sun, Microsoft and other
licensees of SCO's Intellectual Property Licenses; and
b. Under § 4.16(b) of the APA, SCO is obligated to seek Novell's prior
licenses, unless SCO can demonstrate to Novell that any exceptions to the
prohibitions against new licenses and amendments by SCO are applicable.
122. Under § B of Amendment No. 2 to the APA, SCO is obligated to consult Novell and
obtain Novell's approval before concluding any potential buy-out transaction with an SVRX
licensee. SCO did not perform its corresponding duties under § B of Amendment No. 2 and
substantially and materially breached § 4.16(b) by entering into the 2003 Agreement with Sun
without consulting Novell or securing Novell's prior approval.
123. Novell pleads in the alternative for a declaration pursuant to 28 U.S.C. § 2201 that
SCO had no authority to enter into the Sun and Microsoft SVRX Licenses, as well as the
124. Novell incorporates by reference all prior paragraphs as if they were set forth here in
125. The APA incorporates a covenant of good faith and fair dealing whereby each party
agrees to work with the other to fulfill the purposes of the contract.
126. The APA granted Novell broad audit rights to verify SCO's compliance with the
APA, as well as rights to approve (subject to limited exception) new SVRX licenses and
amendments to SVRX licenses. The APA also granted Novell the right to direct SCO to amend,
supplement, modify or waive any rights under any SVRX license, and to act on SCO's behalf if
SCO fails to take such direction.
127. Under the APA, SCO was obligated to administer the SVRX License Program,
subject to the additional duties provided in §§ 1.2(b), 1.2(f) and 4.16.
128. SCO failed to abide by these obligations under the APA and therefore substantially
and materially breached the APA's covenant of good faith and fair dealing.
129. Novell seeks a declaration pursuant to 28 U.S.C. § 2201 that SCO is obligated under
the APA to:
a. Comply with Novell's exercise of its audit rights under §§ 1.2(b) and 1.2(f) by providing information requested concerning new SVRX licenses and amendments to SVRX licenses; b. Seek Novell’s prior approval before entering into new SVRX licenses or amendments to SVRX licenses, or otherwise demonstrate that an exception to the prohibition against new licenses or amendments by SCO is applicable; 29
c. Amend, supplement, modify or waive any rights under any SVRX License
to the extent so directed in any manner or respect by Novell in its sole
d. Accept actions taken by Novell on SCO's behalf when SCO fails to take
such action in (c) above as directed by Novell.
130. Novell further seeks a declaration pursuant to 28 U.S.C. § 2201 that Novell is the
equitable owner of the SVRX Royalties, and that SCO is obligated under the APA to remit to
Novell all royalties, fees and other amounts arising out of the 2003 Sun and Microsoft licenses,
SCO's Intellectual Property Licenses, and any additional past or future SVRX Licenses as
defined in the APA.
(Constructive Trust/Restitution/Unjust Enrichment)
131. Novell incorporates by reference all prior paragraphs as if they were set forth here in
132. Novell holds "all right, title and interest," including equitable interest, to the SVRX
Royalties as defined in the APA.
133. SCO has wrongfully retained in part or in full portions of all SVRX Royalties to
which Novell was entitled under the APA.
134. In addition, SCO has wrongfully retained a 5% administrative fee for administering
the SVRX License Program but having failed to fulfill its administrative auditing duties under
135. Novell seeks restitution of all monies constituting SCO's unjust enrichment,
including all monies held by SCO in constructive trust for Novell pursuant to California Civil
Code §§ 2223 and 2224.
136. Novell seeks an order from this Court imposing a constructive trust on revenues
SCO unjustly received by failing to perform its administrative auditing and remittance
obligations under the APA.
137. Novell incorporates by reference all prior paragraphs as if they were set forth here in
138. The APA creates an agency relationship between Novell and SCO whereby Santa
Cruz assumed fiduciary duties to diligently collect, administer, and deliver to Novell all SVRX
Royalties, which was defined to include "all royalties, fees and other amounts due under all
SVRX Licenses." As Novell's agent, SCO has a fiduciary duty to Novell. This fiduciary duty
includes a duty to "to collect and pass through to [Novell] one hundred percent (100%) of the
SVRX Royalties," to "administer the collection of all royalties, fees and other amounts due under
all SVRX Licenses," to "diligently seek to collect all such royalties, funds and other amounts
when due" and to promptly remit to Novell all SVRX Royalties within a time period prescribed
by the APA. The fiduciary duty of loyalty flowing from the agency relationship also prohibits
SCO from profiting at Novell's expense.
139. From all times after execution of the APA to present, including during 2003, SCO
has owed Novell fiduciary duties as a result of the APA's agency provisions.
140. SCO breached its fiduciary duties to Novell by failing to account for and pass
through all royalties, fees and other amounts received from the 2003 Sun and Microsoft SVRX
Licenses, SCO's Intellectual Property Licenses, and any additional past or future SVRX Licenses
as defined in the APA. SCO also did not report to Novell on the royalties, fees and other
amounts due under those agreements, as required by the APA.
141. SCO further breached its fiduciary duties by failing to faithfully comply with the
audit provisions of the APA. SCO failed to keep Novell fully informed as to all matters pertinent
to Novell's interest in the SVRX Royalties. Instead, SCO hid the terms of the 2003 Sun and
Microsoft SVRX Licenses and other SVRX Licenses from Novell for as long as it possibly
142. SCO's breaches of fiduciary duty have caused Novell damage in an amount to be
later proven. In addition, these breaches have caused Novell special damages, including, inter
alia, the costs associated with making repeated requests for information necessary to confirm
SCO's compliance with its contractual obligations to administer SVRX licensing program,
conducting further reviews of the limited information provided by SCO, attempting to estimate
royalties owing based upon incomplete information provided, and initiating and maintaining suit
against SCO for its breaches.
143. Novell also seeks an order from this Court imposing a constructive trust on revenues
144. Novell incorporates by reference all prior paragraphs as if they were set forth here in
145. Novell holds "all right, title and interest" to the SVRX Royalties, as set forth in §§
1.2 and 4.16 of the APA.
146. In 2003, SCO entered into SVRX Licenses with Sun Microsystems and Microsoft.
SCO received millions of dollars worth of SVRX Royalties, as defined by the APA, from these
licenses. SCO has also entered into other SVRX Licenses as defined in the APA, including but
not limited to SCO's Intellectual Propert y Licenses.
147. SCO converted Novell's property by intentionally and maliciously failing to remit
any monies flowing from the 2003 Sun and Microsoft Agreements to Novell and other SVRX
Licenses as defined by the APA. This wrongful exercise of dominion over the Sun and
Microsoft SVRX Royalties, as well as the royalties, fees and other amounts arising from these
other SVRX Licenses, resulted in damage to Novell in an amount to be later proven.
148. SCO's conversion also has caused Novell special damages including, inter alia, the
costs associated with making repeated requests for information necessary to confirm SCO's
compliance with its contractual obligations to administer SVRX licensing program, attempting to
estimate royalties owing based upon incomplete information provided, and initiating and
maintaining suit against SCO for its breaches.
149. Novell seeks an order from this Court imposing a constructive trust on the SVRX
Royalties wrongfully withheld by SCO. In the alternative, Novell seeks a writ of replevin,
ordering the immediate return of the wrongfully withheld royalties.
150. SCO's wrongful conversion was done maliciously, with the intent of harming
Novell for its own financial gain. Accordingly, Novell seeks an award of punitive damages
against SCO in an amount to be proven at trial.
151. Novell incorporates by reference all prior paragraphs as if they were set forth here in
152. Under the agency relationship between Novell and SCO created by the APA, SCO
assumes fiduciary duties to diligently collect, administer, and deliver to Novell all SVRX
Royalties and to account for these royalties. In particular, SCO agreed to collect and pass
through to Novell 100% of the SVRX royalties as defined and described in Section 4.16 of the
APA, while Novell agreed to pay an administrative fee of 5% of the SVRX Royalties. SCO was
also responsible for making additional royalties and payments to Novell.
153. Under section 1.2(b) of the APA, Novell was entitled to "periodic audits" of SCO
concerning "all royalties and payments due to [Novell] . . . ." Under section 4.16(a), SCO was
required to "diligently seek to collect all [SVRX] royalties . . . and [to] investigate and perform
appropriate auditing and enforcement under [the SVRX] licenses." SCO was also required to
provide regular audit reports to Novell on the SVRX royalties and the other royalties under
section 1.2(f) of the APA, including a breakdown of these royalties based on facts peculiar to the
knowledge of SCO acting as Novell's administrative agent.
154. Under the APA, the amounts due Novell were determined and verified on the basis
of the audits required under the APA. The right to an accounting of the royalties and payments
due to Novell under the SVRX licenses and other provisions of the APA was inherent in the
155. SCO has failed to fulfill its duties under the audit provisions of the APA, and
substantially and materially breached those provisions.
156. Between the time the APA was concluded and the present, there have been hundreds
of customers responsible for making royalty payments to SCO under the SVRX Licenses or
under other agreements relating to royalty bearing products. SCO was obligated under the APA
to receive and administer these royalty payments and share them with Novell.
157. Under the APA, royalty payments under the SVRX licenses or other agreements
relating to royalty bearing products were to be paid to Novell through SCO. The amount of
royalties was calculated through a specified formula.
158. On information and belief, SCO has entered into new and/or amendments of the
SVRX licenses with Sun and Microsoft, as well as with Linux end users under SCO's
Intellectual Property Licenses. SCO failed to seek approval to enter into these licenses, and
explain why it was not obligated to obtain Novell's advance approval. During the course of
Novell's audit of SCO's compliance with the SVRX licensing program, SCO also failed to report
these licenses, to provide the relevant documentation as requested by Novell, and to account for
or pass through to Novell the sums SCO collected from these licenses. These failures constitute
a substantial and material breach of the APA, as well as a breach of SCO's fiduciary duties.
159. Given the large number of customers currently responsible for making royalty
payments to SCO under the SVRX licenses or under other agreements relating to royalty bearing
products, the complexity of the formulas by which these royalty payments are calculated, the fact
that SCO receives directly all these royalty payments without immediate notice to Novell, and
the fact that SCO has failed to fully account for the sums collected from these licenses as
required by the APA (including, but not limited to, the SVRX licenses that SCO executed with
Sun and Microsoft in 2003), it is impracticable for Novell to name a fixed sum that is owing with
160. Novell therefore seeks an accounting for monies owed to Novell under the APA.
161. For actual and special damages, in an amount to be proven at trial, caused by SCO's
slander of Novell's title to the UNIX Copyrights;
162. For punitive damages in an amount to be proven at trial for SCO's malicious and
willful conduct in slandering Novell's title to the UNIX Copyrights as alleged herein;
163. For preliminary and permanent injunctive relief requiring SCO to withdraw its
improperly registered claims to UNIX Copyrights;
164. For actual and special damages, in an amount to be proven at trial, caused by SCO's
breaches of §§ 1.2(b), 1.2(f) and 4.16 of the APA;
165. For specific performance of future compliance with SCO's audit obligations under
§§ 1.2(b) and 1.2(f) of the APA;
166. For specific performance of future compliance with SCO's royalty obligations under
§§ 1.2(b) and 4.16(a) of the APA;
167. For an order imposing a constructive trust on the revenues remitted to SCO under
new or amended SVRX Licenses;
168. For an order attaching SCO's assets pending adjudication of Novell's contract
169. For a writ of replevin, ordering the immediate return of the royalties wrongfully
withheld by SCO;
170. For declaratory relief pursuant to 28 U.S.C. § 2201 establishing Novell's rights and
SCO's obligations under § 4.16(b) and Amendment No. 2, as well as SCO's authority to
undertake certain actions under § 4.16(b) and Amendment No. 2;
171. For preliminary and permanent injunctive relief enforcing Novell's contractual
rights under the APA, including injunctive relief barring SCO from taking actions inconsistent
with or in violation of §§ 1.2(b), 1.2(f), 4.16(a) and 4.16(b);
172. For declaratory relief pursuant to 28 U.S.C. § 2001 establishing Novell's rights and
SCO's obligations under the covenant of good faith and fair dealing in the APA;
173. For an order of restitution of all monies constituting SCO's unjust enrichment;
174. For an accounting of the royalties remitted to SCO under the SVRX licenses and the
monies owing to Novell under the APA;
175. For punitive damages in an amount to be proven at trial for SCO's malicious and
willful conduct in converting monies flowing from the 2003 Sun and Microsoft Agreements;
176. For pre-judgment interest on any monetary recovery;
177. For Novell's reasonable expenses and costs incurred, including without limitation
attorneys' fees, in defending against SCO's Second Amended Complaint; and
178. For such other and further relief as the Court deems just and proper.
Counterclaim-plaintiff Novell hereby demands a trial by jury of any and all issues triable