Linux is apparently saved whether it deserves to be or not.

SCO Thursday lost its bid to get the jury verdict awarding Novell the Unix copyrights overturned along with its bid to get the copyrights despite the jury decision. It also lost its right to sue IBM for copying Unix code into Linux.

Unless it decides to appeal, one of its lawyers said, it’s all over for SCO. And it’s not clear if SCO has the financial staying power to last through an appeal. The legal bill for another appeal is already paid; it’s SCO basic viability that’s in question. Of course, it doesn’t have to be an operating company to get an appellate decision.

Deciding what to do next ultimately rests with the bankruptcy trustee, the retired district court judge currently in charge of SCO, and he was out-of-pocket Thursday. SCO’s general counsel Ryan Tibbets said the company’s lead outside lawyer was also out-of-pocket and anyway “you can’t come up with a strategy in three hours.”

SCO has 30 days to make a move.

After a federal jury found in March that the Unix copyrights never transferred to the Santa Cruz Operation and so never transferred to its descendent SCO, SCO filed two post-trial motions with the Utah district court that heard the case. One – and it was a long shot – asked the judge who presided over the case to overturn the jury’s verdict as a matter of law. The second – a little less of a long shot – asked for a new trial on the grounds that it wasn’t clear Novell should have won.

The judge denied both motions. He simply found Novell’s rendering of events, its evidence and its witnesses – which he details – overwhelmingly more credible and dismissed out of hand SCO’s contention that the “verdict cannot be squared with the overwhelming evidence and the law.”

It was also agreed by SCO and Novell before the trial began that in the event SCO lost the judge would decide whether to award SCO the copyrights anyway because it should have gotten them under the muffled intent of the infamous amended Asset Purchase Agreement (APA).

SCO kinda had its hopes pinned on this move but the judge also denied this maneuver, which is called specific performance in legal circles, because SCO didn’t need them to exercise its limited rights and because the intent was absent- “Novell purposefully retained those copyrights,” he said.

More importantly, along with it he decided that Novell had every right to waive SCO’s contract claims against IBM so barring a miracle IBM will never stand trial.

It’s just what IBM had in mind when it told Novell back in 2003 that Novell had the discretion under the APA to do so although the judge finds that Novell acted “to protect its own interests and those of the open source community and…not…because of influence by IBM or any ill-will toward SCO.”

In his decision the judge wrote that “The court finds that Amendment No 2 was not intended to confirm that the Unix and UnixWare copyrights were transferred to SCO under the APA, as argued by SCO. Rather, the court finds that Novell made a conscious decision to retain the copyrights in the APA and that intent was reflected throughout the negotiating and drafting of Amendment No 2. The court finds that Amendment No 2 was only meant to confirm that SCO had the right to use the Unix technology. The court finds the testimony of Novell’s witnesses, especially Ms Amadia and Mr Tolonen, to be credible. The court finds SCO’s witnesses to be less credible for a number of reasons, including the fact that many were not directly involved in the negotiation and drafting of Amendment No 2. Additionally, as previously stated, many have a financial interest in this litigation.”

Meanwhile, Novell has filed a notice of appeal in its 2004 WordPerfect antitrust case against Microsoft after Microsoft got the thing dismissed. Any claims went along with the software to Caldera.

With its copyright and slander-of-title case lost to Novell, it says it still means to bring its suspended contract and unfair competition case against IBM if the judge who presided over the Novell case – and who may have been as surprised as the Novell lawyers at the verdict – decides that Novell has no business blocking it.

Back eons ago Novell stepped into the SCO v IBM lawsuit – or at least tried to – and told SCO it couldn’t sue IBM or lift IBM’s license to distribute AIX, IBM’s version of Unix.

Judge Stewart – he’s the guy who ran the copyright trial – now gets to decide whether Novell’s so-called waiver holds any water and how far it extends.

Briefs from both SCO and Novell are expected to land on his desk on April 19. He’ll have a think and then decide. There probably won’t be a hearing.

If it can cross that hurdle, SCO will still have to fight to get its Monterey charges against IBM recognized. Judge Kimball – the guy whose summary judgment awarded Novell the Unix copyrights in 2007 – barred them from the case when he wouldn’t admit SCO’s third amended complaint. SCO’s got an aging right-to-amend motion floating around out there somewhere.

Then it’s got to try to get its multibillion-dollar AIX/Dynix case, which was gutted by Magistrate Judge Brook Wells, patched back together again – it’s got a reconsideration motion pending too – otherwise it’ll have to go with the stump of a case.

Both sets of claims contend that IBM looted Unix for the sake of Linux and the AIX case includes a destruction of evidence charge that could prove highly entertaining and potentially profitable for SCO if it ever gets heard.

Anyway, Judge Kimball’s summary judgment was of course overturned by the 10th Circuit Court of Appeals last year, which is how Judge Stewart gets to make the decisions that could potentially put SCO, now older and poorer, kinda back where it was before the Novell distraction.

If the waiver ruling goes in SCO’s favor, it’s unclear who exactly would get to decide the right-to-amend and reconsideration motions, Judge Stewart or Judge Tina Campbell, who drew the IBM case when Kimball’s summary judgment was overturned. It’s possible Judge Stewart could take the IBM case because of his Novell learning curve.

Anyhow, even if Stewart does give SCO what it wants SCO’s bigger problem is simply surviving.

See, there’s the little matter of the $3 million, $3.5 million that SCO owes Novell from the money that it collected from Sun Microsystems, a sum Novell will now doubtlessly press for along with Chapter 7 liquidation. That means the scene flips back to the bankruptcy court in Delaware. If bankruptcy Judge Kevin Gross keeps SCO in what amounts to protective custody for the duration – and that’s a mighty long time – then SCO might get to pursue its IBM quest – the lawyers are all paid up – but if he doesn’t then SCO could be road kill.

Of course, Novell doesn’t have any dibs on SCO’s business (yes, Virginia, there’s still some business there) and remaining assets. The consortium of investors that just put $2 million in the company does. They would get paid first and if there’s no money left in the till then they get the assets including the IP and the right to chase SCO’s claims.

Ah, but there’s another course the lawyers could take right now – one that would drive the Linux hoards utterly nuts – and that’s to ask Judge Stewart to scotch the jury verdict on the grounds that they got it wrong and award SCO the copyrights anyhow.

And there’s another way of getting to the same place and that’s by demanding what they call in legal circles specific performance. The jury was given four if-yes-go ahead-if-no-stop-right-there questions to answer. It never got past the first one: “Did the amended Asset Purchase Agreement between Novell and the Santa Cruz Operation transfer copyrights.” The jury said no.

However, according to the testimony at the trial the copyrights were meant to transfer and – since the jury said they didn’t – SCO’s got a specific performance claim. It’s already scheduled to ask Judge Stewart, also on April 19, that they transfer now to compensate for the oversight. That’s another decision – besides the waiver business – that he reserved to himself alone in the run-up to the trial.

Whether Judge Stewart will in fact rule in SCO’s favor is another thing. But with the copyrights in hand SCO could do what it can’t do now thanks to the jury verdict and that’s demand a Linux tax from all the Linux installations out there and refill its coffers – or at least that’s the theory.

Plus ça change, plus c’est la même chose.

Of course Novell would undoubtedly appeal. Or maybe owned and operated by Elliott Associates, the hedge fund that’s trying to buy it, a less Linux-sensitive Novell offers SCO a few million gratefully accepted by SCO’s trustee Judge Kahn to go away once and for all.

Since Novell acknowledged that it was for sale when it rejected Elliott’s $2 billion bid as “inadequate,” it’s assumed to be dialing for dollars looking for other possible buyers and perhaps, if there’s any interest, cutting NDAs. At least Elliott assumes it. And Elliott has expectations of looking at the books too and possibly refining its bid. The stock market apparently expects it. Novell’s stock price is back over Elliott’s $5.75-a-share offer – and it can’t be just glee over SCO.

Darl McBride may not be the only person willing to press SCO’s Linux claims.

They could also be there protecting their assets.

The spectators have probably observed that Novell appears to be down to catching out either the judge or SCO’s lawyers in a mistake so it can appeal. It’s already asked the judge to declare a mistrial because SCO told the jury that Novell continues to publicly cling to the idea it owns Unix despite the 10th Circuit overturning that decision and saying a jury should decide (speaks to damages).

McBride testified this week that Novell’s claims to own Unix led to a drop in SCO’s stock price as well as a loss of revenues and Linux licensing deals such as a $30 million arrangement that was in the works with HP and a $50 million one with Google. It’s unclear what the one that was being negotiated with Dell would have been worth.

McBride said that when he confronted Novell CEO Jack Messman, Messman ducked the issue of whether IBM was behind Novell’s ownership claims – to protect IBM against SCO’s charges of pilfering Unix code for the sake of Linux – and refused to discuss the subject without his lawyer being present. IBM did after all give Novell $50 million to buy SUSE after SCO sued IBM.

Novell claims SCO’s losses were its own fault since it alienated the Linux community, which, however, one would be hard pressed to see as being decisive Wall Street punters or controlling the legal opinion of Fortune-something companies.

Novell’s position so far depends on a Novell lawyer saying he and a couple of other Novell attorneys exceeded their instructions and excluded the Unix copyrights from the Santa Cruz purchase agreement without telling anybody. SCO maintains that deficit was later corrected by an amendment, a point Novell initially conceded in a press release then retracted.

An observer in the courtroom with a SCO bias said Novell’s case consists of the amendment not existing and the 10th Circuit Court of Appeals not overturning the summary judgment saying Novell owns the copyright.

SCO experts testified that SCO was damaged to the tune of $130 million-$215 million plus punitive damages. SCO has conceded what is called a “higher standard” or constitutional proof, meaning the jury has to decide that Novell exhibited “reckless disregard” in claiming ownership.

Novell hammered at one of the witnesses, a lady accounting professor, part of Wednesday and all day Thursday and insisted on bringing up the summary judgment – even reading parts of it into the record – despite the judge’s previous warnings that he would instruct the jury to disregard what Novell said and tell them that decision was overturned because it was wrong and that it was their job to make a decision, which is exactly what he did – three times. It is unclear what Novell gained in courting his ire.

In the interests of full disclosure, we should say that this paper is being called to testify that then Novell vice-chairman Chris Stone said in an interview on May 27, 2003 that Novell would assert its ownership claims the following day and pointed out that that was the same day that SCO was due to report its earnings, a point that would have escaped us if he hadn’t mentioned it and laughed. We put out a story, Novell made the claims and SCO’s stock took a dive. The point is malice. And it was not the only time Novell timed an ownership claim to a SCO earnings call. Chris Stone was also supposed to appear last we heard.

So far it’s been SCO’s show; Novell’s case is expected to kick off next week then go to the jury. If left to its own devices there could be a verdict this time next week. Usually in such cases the defense starts off trying to prove it has no liability. Novell’s first witness, however, is supposed to speak to damages.

By the way, the bankruptcy court in Delaware has cleared it for SCO to get maybe up to $2 million from its former chairman and friends as a “super-priority credit facility” in case it needs it to survive and press its litigation claims, support the remains of its Unix business and sell off other assets. The hearing on McBride’s bid to buy SCO’s mobility business was moved from March 15 to April 7.

Meanwhile, Novell has asked the Supreme Court to hear its claim that copyrights need an itemized bill of sale signed by the owner – or at least something in writing – to transfer. As with most appeals to the Supremes, it’s a long shot.

Oh, yes, yes, conventional wisdom holds that SCO’s gonna lose and Novell’s gonna be vindicated and that any doubts about the purity and originality of the Linux operating system will finally be laid to rest. Except so far it’s Novell that’s been doing the losing.

Novell has filed maybe two dozen pre-trial motions in the past few weeks trying to put a dent this way and that in SCO’s case and so far it’s failed on every count.

SCO’s whole case has survived pretty much intact – (amazing what a change in courtroom can do) – including – and this is important – its expert witnesses, who are supposed to testify that SCO was damaged to the tune of $130 million to $200 million and change. And that’s supposed to be a conservative estimate. That’s also before punitive damages.

Who in their right mind bets against a jury in a country where damages are awarded to a woman who sticks a hot cup of coffee between her legs, spills it, scalds herself and sues the vendor for making the coffee too hot?

Why suddenly so eager? Why now? Elliott said it’s been amassing Novell stock since January 4 when it was cheaper. Why not then?

Wouldn’t it make more sense to wait out the three-week trial? If Novell loses, its stock will get hammered. Then would-be buyer Elliott Associates could get it on the cheap – except of course for the payment to SCO and any appeals. If Novell wins, well, any tickle to its stock price isn’t likely to last very long. Heck, it’s probably already built into the stock price.

And it’s not as if Elliott wasn’t aware of SCO. Back when SCO started litigating against IBM and Novell, it was known to sit in on the conference calls.

Then too Elliott’s offer of $5.75 a share, a height Novell hasn’t seen since the summer of 2008, is tied to the $991.3 million that Novell had in the bank at the end of January, a stockpile that could be depleted if SCO prevails.

In its offer letter to the Novell board Tuesday Elliott took Novell’s bank account out of the equation and said Novell is really only worth its “enterprise value,” its market cap less cash on hand, or roughly $2.30 a share but it’s willing to pay $5.75 a share – either a 21% premium over Novell’s closing price before its bid or a 49% premium to the enterprise value that the Street puts on the company depending on how you look at it – since it’s going to get the rest back – although, it complains, a lot of it is overseas and hard to repatriate without paying the IRS.

Well, it may be even harder and more expensive to repatriate from a jury verdict.

The timing is just so odd maybe the conspiracy theorists are right and Elliott is somebody’s cat’s-paw.

Imagine, say, that Elliott was designated long ago as the back door in the Alamo in case things went bad for Novell – and therefore for IBM – in the SCO litigation. IBM has never had any real objections to paying SCO off it just didn’t want to be seen doing it. Neither IBM nor Novell could be blamed – and held in disrepute by the Linux mob – if Elliott up and made the necessary arrangements. Probably nobody would even ask where the money came from. With $16 billion under management it’s hard to keep track of every dime.

Heck, who’s to say that with 141 million shares of Novell trading hands Wednesday – practically half Novell’s shares outstanding – and another 38 million Thursday – when Novell’s average volume is five million a day – that Elliott or its proxies don’t already own a lot more than the 8.5% of Novell they started with on Tuesday. Offer on the table or no – and even paying a premium on a premium – it’s been know to happen. Monday draws nigh and things are gonna be said in that courtroom – if anybody’s paying attention – that a lot of people don’t want to hear.

But, of course, nobody is paying attention so folks may feel comfortable letting the decision go the jury room door, a playbook used in the Compuware case.

On the other hand, imagine that the iron fist in the velvet glove is somebody like – oh, say, Larry Ellison who’s now got Solaris to protect. Wonder what he could do with a Linux tax. Bet he’d love to levy it.

He expects to get fired because he’s adamantly opposed to winding SCO down, laying off its people and settling the company’s litigation against Novell and IBM for chump change, which is the way he sees things going if the Chapter 11 trustee put in charge of SCO keeps going down the path he appears to be going down – despite the fact that the trustee told McBride when he got there that he thinks there is “significant value in the litigation.”

What’s got McBride’s hackles up is that after the favorable 10th Circuit ruling overturning the summary judgment that Novell owns Unix McBride brought a major Wall Street investor new to the scene to the table, complete with term sheet, to invest up to $25 million in SCO, keep it functioning and let it get to the jury trial it’s been hankering after all these years.

The only problem is this opportunity fell on deaf ears. Not so much as a return phone call to the would-be investor from the trustee, McBride says.

So here’s what’s gonna happen.

If McBride gets fired and the trustee comes through with a reasonable settlement all well and good, he said. IBM can have the company and declare victory. However, if the best the trustee can do is a quick settlement in the range of tens of millions, then the shareholders will revolt and McBride is prepared to lead them to the bankruptcy court in Delaware and plead for the opportunity for their case to be heard by a jury in the district court in Utah where the Novell case is currently headed anyway.

Mock trials – whether done by SCO or reportedly by IBM and Novell – all indicate SCO would win and be declared the owner of Unix, reopening the IBM case and the charge that Big Blue ripped off SCO’s IP and stuck it in Linux and reopening the SCOsource tax on Linux. The third-party calculations of the damages SCO suffered all reportedly put the number somewhere between $2.5 billion and $7 billion.

That’s why serious people with serious money and equally serious lawyers of their own who look at the case are reportedly willing to underwrite SCO and roll the dice.

McBride is figuring on coming up with a counter-proposal to lay before the bankruptcy judge to get SCO its day in court and keep the shareholders’ right intact.

Novell Tuesday asked the 10th Circuit Court of Appeals to rehear en banc its decision overturning the Utah summary judgment awarding ownership of Unix to Novell and sending SCO’s suit against Novell back to Utah for trial.

En banc would mean all of the God knows how many judges on the circuit’s bench not just the three who heard it the first time through, a situation usually reserved for unusually complex cases or cases of unusual significance.

Novell’s nine-page petition attempts to invest the case with grave significance but what are the odds that the 10th Circuit will throw out a unanimous 54-page decision by three of its jurists written by one of the finest mind on the bench, Michael McConnell, a constitutional law scholar who just stepped down to be director of the Constitutional Law Center at Stanford Law School? Figures suggest it’s a rare thing indeed and rarer still to win.

Anyway, this is first-year law school kinda of stuff. Judge McConnell found that the Utah district court ignored a dispute over facts that should have been sent to jury to decide, not resolved by an “inappropriate,” “improper” and “premature” summary judgment. You can’t have a summary judgment when there are conflicting facts.

Novell doubtless knows it’s a long shot but figures it’s one worth taking if it can gum up the works for SCO by putting doubts in any would-be investors head and delay the court-ordered trial in Utah.

Novell’s petition claims the “case raises a question of exceptional importance regarding the interpretation of the Copyright Act: Does Section 204(a) require a writing that specifies the subject matter and essential terms of the copyright transfer with reasonable certainty, as held by courts in the Ninth Circuit and supported by the decisions of other federal and state courts?”

It says the 10th Circuit’s August 24 decision “holds that a writing is sufficient if it merely shows an intent to transfer some copyrights, even if the identity of the copyrights is unclear. On that basis, the Panel reversed summary judgment for Defendant Novell and remanded for trial to determine which copyrights, if any, were transferred. The Panel decision, which will become the law of this Circuit if not revised on rehearing, would require a trial whenever a party can show some evidence of intent to transfer copyright ownership, even though, as here, there is no basis in the alleged instrument of transfer to determine with reasonable certainty which, if any, copyrights were to be transferred.”

It figures the court “should grant this petition to consider whether the Panel Opinion properly interprets Section 204(a) in light of Congress’ declared purpose of enhancing predictability and certainty of copyright ownership, or whether this Circuit should instead join other courts in holding that Section 204(a) requires a written instrument of conveyance or memorandum of transfer that specifies the subject matter and essential terms of the transfer with reasonable certainty. The Panel Opinion is contrary to the legislative intent and the weight of authority, and errs in reversing summary judgment for Novell and remanding for trial even under the Panel’s interpretation of Section 204(a).”

SCO’s got all of Novell’s old management on its side saying they intended to sell the Santa Cruz Operation, the old SCO, the Unix copyrights, evidence Utah ignored.

The 10th Circuit’s decision also overturned Novell’s waiver of SCO’s termination of IBM’s right to distribute AIX and Novell’s order to SCO to abandon its breach-of-contract and copyright suit against IBM and Sequent.

Meanwhile, SCO is offering a free one-year subscription with the purchase of its new OpenServer 5.0.7V virtualized operating system optimized for VMware. The deal is available until October 2.

The trustee is Edward Cahn, retired chief judge of the Eastern District of Pennsylvania.

He’s 76, a Phi Beta Kappa graduate of Lehigh, went to Yale Law School, is Tresonlini lecturer in law at Lehigh and currently “of counsel” at Blank Rome, a big Philadelphia law firm.

His specialties include antitrust, alternative dispute resolution, arbitration, mediation, litigation, complex litigation, corporate shareholder actions and securities litigation.

Meanwhile, SCO’s stock was up 188.89% immediately after the court decision that Novell owns Unix was overturned Monday to close at all of 26 cents a share, up 17 cents.

Tuesday it closed up ~35% to 35 cents after flirting briefly with 44 cents then fell back to 27 cents Thursday.

On August 11, 2007, the day after a Utah court handed down a summary judgment that Novell owned Unix SCO’s stock cratered losing $21 million in market cap.

Although it’s up now, it’s still $3.2 million shy of August 11, 2007’s $9 million.

In a conference call Tuesday SCO expressed hope that it would now be able to go ahead with its reorganization plan and emerge from bankruptcy court to continue its litigation with a new set of judges in both its claims against Novell and IBM.

Following the appeals court’s decision Monday, the sitting judge recused himself from both cases.

SCO also wants the appeals court to reverse Utah’s decision that SCO owes Novell a piece of the royalties it got from Sun Microsystems, a judgment that would have SCO write a check to Novell for $2.55 million.

SCO’s lawyers say the Utah court was wrong on all points as a matter of law and had no business issuing a summary judgment in the first place rather than let the case go to trial.

They say the court insisted on reading the Asset Purchase Agreement (APA) that transferred Unix and its copyrights from Novell to SCO’s predecessor company, the Santa Cruz Operation, for $250 million in 1995 in isolation from the Amendment that supposedly clarified the transfer of the copyrights and construed ambiguities in Novell’s favor when – according to the California law governing the deal – they should have been drawn in favor of SCO.

The brief argues that the expression “all rights and ownership of Unix and UnixWare” that appears in the APA means copyrights too – the core IP on which the Unix licensing business depended. Anything less would have been sheer folly; buying a software business means buying the copyrights.

When Novell replies, it’s going to have to grapple with issues like why it licensed the technology back from Santa Cruz in 1995 if it still owned the copyrights; how it is that Novell sent SCO its Unix copyright registrations; why Novell changed the copyright notices on existing Unix and UnixWare source code to read Santa Cruz; why Novell sent out a press release saying the “Unix IP” had been acquired; why it notified customers that its “ownership interest in Unix” had transferred; or why when Santa Cruz caught Novell selling IBM royalty buy-out rights in 1996 Novell never mentioned it still owned the copyright but plodded through six months of negotiations and ultimately paid Santa Cruz $1.5 million for a release from its claims.

Without ever saying so outright, the 70-page brief makes a strong case for judicial bias.

The Utah court, for instance, dismissed out of hand the evidence offered by all the top-ranking folks at both Novell and the Santa Cruz Operation including their respective CEOs that – whatever the ambiguities of the APA – the intent was to sell Santa Cruz the copyrights.

SCO also points out that the district court nodded off at times like when it said the copyright exclusion made sense because “Santa Cruz indisputably did not acquire ownership of Novell’s Unix-related patent.” Honey, Novell didn’t have any Unix-related patents.

The district court, which according to the rules had no business weighing evidence, decided that the testimony of a dozen or more SCO witnesses was “less reliable given the passage of years and witnesses’ mistaken beliefs” but didn’t apply the same standard to the declarations of two Novell lawyers who claimed that they – unbeknownst to any of the parties – made changes in the deal that gave Santa Cruz only an “implied license” to the IP, an expression that appears nowhere else outside their statements.

Implied licenses, by the way, can only be non-exclusive and might fly in cases of commissioned works but the APA clearly gave Santa Cruz the right to sue and according to case law holders of a non-exclusive license lack standing to sue. But more to the point, SCO says that copyright exclusion the Novell lawyers claim to have secretly inserted was inserted into an “inoperative version of the Excluded Assets Schedule” not the revised APA.

Bottom line, SCO says that if you buy the Utah court’s interpretation of things then “Novell retained the unlimited right to destroy the economic value of the business it had sold and for which it had received more than $250 million of consideration.”

And so SCO argues that Santa Cruz didn’t pay “for rights that Novell could abrogate at its whim by, among other things, allowing licensees to violate contract and intellectual property rights. Whether Novell was motivated to exercise its purported waiver rights due to IBM’s $50 million payment [to Novell to buy SUSE] or for some other reason, it is clear that the action damaged SCO, interfered with its rights to manage the Unix business that it had purchased under the APA and thus cannot be accepted, beyond factual dispute, as a good faith exercise of discretion.”

SCO, which is currently also trying to put together a reorganization plan to get out of Chapter 11, is asking Denver to hear oral arguments during its normal course of business in May or else convene a special panel in June. It says it’s willing to file its reply brief to Novell’s retort early.