The SCO litigation with Novell is finally over: a jury recently decided that SCO does not own the copyright in Unix.  The decision was not a surprise, given the district court’s earlier decision granting a summary judgement reaching the same conclusion. However, a decision in favor of SCO would have reopened the issue of whether Linux includes code from UNIX.  This decision does not deal with the suits against IBM and other UNIX licensees (which are based on contract), but it prevents SCO from suing third parties who use Linux but are not UNIX licensees.

This decision provides the opportunity to review the SCO litigation and its mistakes: the SCO litigation is likely to become an example of how not to enforce intellectual property rights.  Ironically, the principals at SCO had purchased rights in another software program and had successfully obtained a significant settlement in litigation. SCO made the following errors:

1.     SCO did not have ownership of the necessary intellectual property rights: the agreement between SCO and Novell was limited to contractual rights. These contractual rights were very limited and Novell prohibited SCO from “amend[ing], waiv[ing] or modify[ing]” any rights under the Asset Purchase Agreement (”APA”). Novell also retained the right to instruct SCO to amend, supplement, modify or waive the rights in the  APA and if SCO does not comply, Novell can exercise such rights directly.

2.    SCO had not done sufficient due diligence on its rights and was requesting Novell to transfer the rights even as SCO was suing IBM.  In fact, the agreement providing SCO with the potential right to own the copyrights in UNIX software (the famous Amendment 2) was not discovered until months after the litigation by SCO had commenced.

3.    SCO sued the wrong party: IBM. IBM has one of the highest investments in Linux and has millions of dollars to spend on defending Linux and thousands of patents to supplement this defense. This strategy was very odd.

As I have mentioned in the past, the SCO debacle will be remembered for many years for poor planning and poor execution.

The Wall Street Journal reported today that the SCO Group Inc. (”SCO”) raised $100M to go private and exit bankruptcy. The funding came from the private equity firm Stephen Norris Capital Partners and partners in the Middle East. The Journal reports that Stephen Norris Capital Partners and their partners will have a controlling interest in SCO. http://online.wsj.com/article/SB120301098306668879.html?mod=rss_whats_news_technology

The announcement is puzzling because SCO’s principal assets were its UNIX rights (the scope of which are unclear). Yet, a court decision in August rejected all of SCO’s claims to enforce copyrights in Linux that it claimed to own. The court rejected both SCO’s contract claims for breach of the UNIX license agreements against existing UNIX licensees, such as IBM, and for copyright infringement of UNIX copyright by users of Linux (the court found that Novell owned the copyright in UNIX software and had not assigned it to SCO. In my 25 years of practice, the SCO decision was one of three most dramatic failures of an intellectual property strategy. The decision also made clear that SCO knew about these problems when they launched their litigation against IBM because they tried to get Novell to confirm the transfer of the copyrights. Apparently, we have not heard the end of this story.

The year 2007 has been the most active year for legal developments in the history of free and open source (“FOSS”). In fact, you would have been hard pressed in past years to enumerate even five important legal developments. However 2007 permits the creation of a traditional “top ten” list. My list of the top ten FOSS legal developments in 2007 follows:

1. Publication of GPLv3. The GPLv2 continues to be the most widely used FOSS license, yet the law relating to software has developed significantly since the publication of the original publication of the GPLv2 in 1991. The first revision of the GPLv2 had a number of drafts over an 18 month period. However the new GPLv3 license is much more comprehensive than GPLv2 and addresses the new issues which have arisen in software law in the last 15 years.

2. SCO’s Attack on Linux Collapses. SCO filed lawsuits claiming that Linux infringed SCO’s copyrights in UNIX. These suits suffered a fatal blow when the court in the Novell litigation found that SCO did not own the copyrights in UNIX. The ownership of the copyrights is essential to prosecute cases for copyright infringement. The melt down of SCO’s strategy was complete when it filed for bankruptcy soon after this loss.

3. First Legal Opinion on Enforcing a FOSS License. In August, the district court in San Francisco surprised many lawyers by ruling that the remedies for breach of the Artistic License were in contract, not copyright. Most lawyers believe that the failure to comply with the major terms of an open source license means that the licensee is a copyright infringer and, thus, can obtain “injunctive relief” (which means that the court orders a party to cease their violation). On the other hand, if the remedy is limited to contract remedies, then the standard remedy would be limited to monetary damages. Such damages are of limited value to open source licensors. The district court decision has been appealed.

4. First US Lawsuit to Enforce GPLv2. The Software Freedom Law Center filed the first lawsuit to enforce the GPL for the BusyBox software in August. Subsequently, it filed three other lawsuits. Although the first three lawsuits were against small companies, the most recent lawsuit was against Verizon. These lawsuits represent a new approach for the SFLC which, in the past, has preferred negotiation to litigation. SFLC has settled two of the lawsuits. Each of the settlements has required that the defendants pay damages, another new development. These suits may be the first of many.

5. First Patent Infringement Lawsuit by Patent Trolls against FOSS Vendors. IP Innovation LLC (and Technology Licensing Corporation) filed suit against Red Hat and Novell in what may be the first volley in a patent war against a FOSS vendor. Acacia is a well known patent troll which has been buying patents for some time and works through multiple subsidiaries. The FOSS industry provides a tempting target because of its rapid growth. These suits could slow the expansion of FOSS because many potential licensees express concern about potential liability for infringement of third party rights by FOSS.

6. First Patent Lawsuit by a Commercial Competitor against a FOSS Vendor. Network Appliances, Inc. (“NetApps”) sued Sun Microsystems, Inc. (“Sun”) for patent infringement by Sun’s ZFS file system in its Solaris operating system. The ZFS file system posed a challenge to NetApps products because it permits the connection of less expensive storage devices to the operating system.

7. Microsoft Obtains Approval of Two Licenses by OSI. Microsoft Corporation continues its schizophrenic approach to FOSS by simultaneously asserting that the Linux operating system violates Microsoft’s patents and submitting two licenses for approval by OSI. In October, the OSI Board approved the Microsoft Public License (Ms-PL) and the Microsoft Reciprocal License (Ms-RL) as consistent with the Open Source Definition.

8. German Court Finds that Skype Violates GPLv2 The enforcement of the GPLv2 in Germany continues with a Munich court finding that Skype had violated GPLv2 by not including the source code with the binary version of the software (instead, Skype had included a “flyer” with a URL describing where to find the source code version). The suit was brought by Harald Welte, who has been the plaintiff in virtually all of the German enforcement actions for GPLv2. Harald runs gpl-violations.org, an organization which he founded to track down and prosecute violators of the GPL.

9. New License Options. Two of the most controversial issues in FOSS licensing, network use and attribution, were addressed in new licenses adopted this year. A “network use” provision imposes a requirement that when a program makes functions available through a computer network, the user may obtain the source code of the program. Essentially, it extends the trigger requiring providing a copy of the source code from “distribution” of the object code (as required under the GPLv2) to include making the functions available over a computer network. An “attribution” provision requires that certain phrases or images referring to the developing company be included in the program. This provision was very controversial on the License Discuss email list for OSI. The Free Software Foundation published the Affero General Public License in the fall which expanded the scope of the GPLv3 to include a “network use” provision. A limited form of attribution was included in the GPLv3. And OSI approved the Common Public Attribution License which included both the “network use” and “attribution” provisions.

10. Creation of Linux Foundation. The Open Source Development Labs and the Free Standards Group merged to form the Linux Foundation. The FOSS industry is unusual because of the extent to which it depends on non profit entities for guidance. These entities include the OSI, Free Software Foundation, Mozilla Foundation, Apache Foundation and Eclipse Foundation. This merger provides a much stronger platform to promote Linux and open standards.