SCO Will Try Again

The internet is alive with the sound of screaming this week, as everyone and their brother rushes to announce the Tenth Circuit Court of Appeals ruling on SCO's appeal of the U.S. District Court's decision in its case against Novell. To hear some tell it, SCO has emerged triumphant, Novell is vanquished, darkness shall reign in the whole of the land, and male pattern baldness will engulf us all.

Reports of the Court of Appeals ruling have been wide and varied in their interpretations. While your editor is missing the hair on the back of his head, it is most surely not a result of mass SCO-ruling induced baldness, nor will anyone be forced to read this via candlelight due to the blackening out of the sun. While we've not yet had the opportunity to review the full decision in depth — it's fifty-four pages of beautiful legalese, if you're feeling adventurous and/or suicidal — there are a few things that are clear.

First, it is true: The Court of Appeals reversed some of the District Court's findings. They did not decide SCO was right, they did not rule that Novell was wrong, they didn't answer any of the material questions of the case, and they didn't sentence Judge Kimball to death. What they did do was to hold that certain issues the District Court ruled on should not have been decided by the Court on its own. Some background on the process is helpful in understanding just what went on.

One of the most important distinctions between courts in the United States (and many other countries as well) is the distinction between trial courts and appellate courts. While both are courts, and both are run by judges in black robes — or if they're really special, like the Supremes, Justices — they don't provide the same function. Trial courts take evidence, determine facts, and rule on points of law relevant to the matter at hand. Their scope is quite wide — they generally will hear and rule on any aspect of the case that presents itself, regardless of how it comes up.

Appellate courts don't take evidence — there are no witnesses when the Supreme Court sits — they don't determine facts, and they don't hear a wide scope of matters. The appellate court hears only questions of law specifically brought to it by the parties, and then only if it relates to a matter originally raised at trial. They base their decision entirely on the arguments presented by the parties in the form of legal briefs (and oral arguments, if there are any) and the certified record sent by the trial court. Their only function is to determine whether the law was correctly applied — they don't decide who was right or wrong, or whether or not Colonel Mustard was in the library with the candlestick, only whether the trial court followed the law and ensured that everyone else knew what it says.

Even more important than the distinction between trial and appellate courts is the distinction between judges and juries. Extremely simplified, there are three things taking place during trial (often they are enumerated as such in the court's orders): determining facts, drawing conclusions from the law, and issuing a judgment. Determining facts is the exclusive province of the jury: once the jury has determined a state of facts, it is binding on the court. The judge's responsibility is to determine matters of law, to properly instruct the jury in the applicable law, and once the jury has returned its findings, to issue a judgment in accordance with those findings and the law from which they flow. (The jury may be involved in the judgment process as well, by recommending a sentence or an amount for damages, but it is the judge's role to make the final decision.)

When there is no jury, then the judge becomes the finder of fact and the concluder of law. Additionally, if the court can be convinced that there is no reasonable chance for one side to successfully prevail on a matter of fact, it can issue a summary judgment that decides the issue without actually holding a trial or empaneling a jury. These decisions are highly popular and highly unpopular at the same time. The courts favor them because trials are expensive and take inordinate amounts of time, time that the overwhelmed court system just doesn't have. They are unpopular, however, particularly on appeal, because they bypass the trial process — having ones day in court — and if used where the facts are not overwhelmingly clear, deny the parties their right to a fair trial.

In SCO v. Novell, Judge Kimball issued a series of summary judgments determining various matters in contention before the trial took place. (In fact, it wasn't long after his ruling that SCO filed for bankruptcy.) Among the the matters decided by summary judgment was the issue of who owns the Unix copyrights that SCO claims it never sold to Novell. The court determined, without a trial and without a jury, that Novell owned the copyrights, and when the remainder of the matter was tried, it was tried in light of that determination. SCO, obviously, wasn't pleased, and appealed the matter to the Court of Appeals, arguing that the summary judgment was inappropriate.

Inappropriate is an important word here — if perhaps not the one the court itself would have used — because the Court of Appeals ruling did not decide that the judgment was incorrect in itself, that is, that Novell doesn't own the copyrights and SCO does. What the court decided was that it was inappropriate for Judge Kimball to issue a summary judgment on the matter — the Court of Appeals felt that, based on the record before it, that matter was too complex to meet the standard for a summary judgment. As such, the court reversed the summary judgment and remanded the matter — that is, they sent it back to the trial court with the order to hold a jury trial and let the jury decide who owns the copyrights.

That's it — no great victory, no sweeping darkness, no mass vanishing of follicles. Just the decision that Judge Kimball shouldn't have decided for himself and the instruction to ask a jury. Interestingly enough, the court upheld the other matter SCO appealed — the $2.5 million judgment against it. So, now all that remains is to hold that trial, and Big Bad Darl — McBride, CEO of SCO — is vowing to fight to the death against the "knock off of our Unix." Except...

Darl seems to have forgotten that he's a corporate eunuch at this point — his business card may say "C.E.O." but he lacks any P.O.W.E.R. That's because he and his cohorts thought the Bankruptcy Court system was a good way to avoid paying their creditors until they could come up with a new evil plan — unfortunately, while they they were working on their evil plan, they failed to come up with a reorganization plan, and landed themselves in hot water with the Bankruptcy Court. As we reported a few weeks ago, SCO's management is no longer in control of the company, as the Bankruptcy Court has ordered that a trustee be appointed to run SCO's affairs.

Having a trustee appointed isn't like getting a receptionist — he or she doesn't sit at the front door and answer your calls while you come up with new ways to destroy the company. The trustee becomes the management, and gets to decide how to run the company, including whether or not to continue suicidal suing. The Court of Appeals ruling says that a new trial should be held, but that is contingent on a) SCO (i.e., the trustee) pursing the matter, and b) the Bankruptcy Court allowing it. As those who have been following the SCO case for some time will remember, when a party is in bankruptcy, there is an automatic stay on all litigation — the only way any court can hear any matter related to the party is with permission of the Bankruptcy Court. No permission, no trial.

At this point, there are at least three significant bars to SCO seeing anything resembling a victory. First, the trustee will have to be convinced that the lawsuit a) actually has any merit to it whatsoever, and b) could actually be won. (All the Court of Appeals ruled was that a jury should make the decision, not that SCO has a chance of purple cows giving Pepsi.) The trustee's job isn't at all to do what SCO's management wants, and isn't just to do what's in the best interests of SCO actually emerging solvent from bankruptcy — it's also to protect the creditor's ability to recover what they are owed. That means the trustee won't be going on a fishing expedition with the Novell/IBM cases — if it's not got a good chance of winning, the trustee won't waste the estate's resources on it.

Second, the Bankruptcy Court will have to be convinced to lift the stay on the litigation. Even if SCO manages to drug, brainwash, and/or torture the trustee into going on with the cases, they'll have to talk the Bankruptcy Court judge into it too — a judge who has figured them out and is tired of their antics. Lifting the automatic stay on litigation is what might be termed an extraordinary remedy — the judge isn't going to do it just because he's grumpy that his cornflakes were soggy at breakfast.

Finally, the biggest hurdle for SCO is what the whole appeal was about: the jury. Twelve ordinary people, with little or no legal training, potentially without any understanding of technology at all, are going to have to be convinced that the hundreds and hundreds of pages of sale agreements don't include selling the Unix copyrights in question. Judge Kimball was described as having great trouble clarifying all the details, so getting it across to a jury isn't going to be easy. It'll be particularly difficult if, like last time, Darl swears things on the stand that other executives have denied — minutes before, under oath. And as we said almost a year ago, if it does go back to trial, Novell has a whole host of issues it can reinstate.

For now, we're firmly planted in our seats waiting to see what happens — though we may run out for a toupée at some point. As for the Court of Appeals ruling, to quote ourselves: Final order? Yes. Final chapter? Not even close.

______________________

Justin Ryan is a Contributing Editor for Linux Journal.

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Who sold what to whom...

Anonymous's picture

The transaction of sale of Unix in this article is incorrect.

What SCO has to prove to a jury is this:

1) That Novell sold to SCO the copyrights to Unix, although all the contracts specifically excluded them.
2) That Novell sold to SCO the copyrights to Unix, although Novell's board of directors' meeting minutes state that they were not.
3) That Novell sold to SCO the copyrights to Unix, although the attorneys who were negotiators and drafters of the documents stated that they were not.

And SCO's evidence will be a group of people who had no direct interaction with the negotiations themselves, who "assumed" that the copyrights were included.

Automatic stay

Matthew Flaschen's picture

The automatic stay only applies to claims /against/ SCO. See http://www.law.cornell.edu/uscode/usc_sec_11_00000362----000-.html and note the mentions of "against the debtor" and "against property of the estate". That said, I'm not sure how the appeals court ruling maps to the parties' exact claims. You may be right that an additional relief from stay is required.

Thanks

Anonymouse's picture

Just want to thank you for this article. It's well written and informative, with just enough humor to keep me reading until the end without nodding off.

Hmmmm

Anonymous's picture

Correct me if I am wrong, and this might even be a red herring of sorts, but did'nt Novell purchase Unix (the one in question) from AT&T and not SCO and Novell sold it to SCO when they were running into trouble financially.

You have the right direction

Donald A. Sime's picture

You have the right direction for the transaction but you forgot to phrase it in the form of a question.
ie
... did Novell sell it to SCO when they were running into trouble financially.

Considering that Darl and Co. are no longer in control...

Anonymous's picture

The Chapter 11 Trustee has been assigned to their filing. This means SCOX' management is no longer fully in control of their operations- the Trustee is. HE has final say on anything getting done by the company as of right now.

Unless they can convince that man, an outsider, that there's a chance and they have a real case, it is actually rather moot as to what was decided by the Appellate Court.

Now, this doesn't get into all that the Appellate Court did was vacate the Summary Judgment and remand it back for Jury Trial. It means SCOX gets to have their day in Court...if the Trustee thinks they should proceed with it all and they have the cash in hand to even DO it.

I don't think he will come to that conclusion. They owe 3 Million Dollars to Novell no matter what comes of that trial for deciding if they had Copyright or not. The APA is clear on that much and the Appelate Court said the same on their decision. SCOX now has to cough up that $3 mil in some manner or lose the 11 status they have right now. This doesn't get into discussions of the viability of their claims or their ability to even litigate any of their cases they've got on their plate.

All this decision means is that SCOX now has more pain on their hands than previously. All it did was buy the delay they sought, and have been seeking for a long while now since IBM didn't fold and it started showing that they didn't actually HAVE any cases for the filings they made. But the delays weren't the saving grace they thought it would be. There's no silver bullet to be made out of silver linings in those dark, dark storm clouds that are on their horizon. They were doomed from the moment they pulled the trigger on this lawsuit with IBM when they knew they had no case to speak of. All they've been doing is making things worse for themselves and delaying the inevitable- and possibly racking up criminal charges against themselves in the process.

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