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March 31, 2003

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IP Attorney John Ferrell and MozillaQuest Magazine's Mike Angelo Discuss the Lawsuit

SCO-Caldera v IBM:

IBM Moves Lawsuit from State to Federal Court

Linux and the SCO-Caldera v IBM Lawsuit

By Mike Angelo -- 31 March 2003 (C)

Article Index

SCO-Caldera v. IBM:

SCO-Caldera & the GNU/Linux Community:

Note: Until 2001, the Santa Cruz Operation (SCO), a UNIX company, and Caldera International (CALD), a Linux company, were two different companies. In 2001, Caldera acquired SCO. Then in 2002 Caldera changed its business name to the SCO Group. However, the corporate name remains Caldera International.

Many people still think of the SCO Group's Linux operations as Caldera. In order to make sure that readers would know and realize throughout the article that what is now the SCO Group is also the company once called Caldera, the SCO Group is often referred to as SCO-Caldera in this article.

IBM has filed a petition to remove SCO's Caldera v IBM lawsuit from the Salt Lake County court (a Utah state trial court) to the United States District Court for the District of Utah (a federal trial court). SCO-Caldera spokesperson, Blake Stowell told MozillaQuest Magazine that SCO would not oppose the removal to federal court.

This move does not address the merits of the case. It is merely a legal positioning move typical in cases where the defendant (IBM) is a resident or corporation of a different state than is the plaintiff (SCO-Caldera). As mentioned in our discussion below with legal expert John S. Ferrell, the removal of the Caldera v IBM lawsuit to federal court likely is aimed to take some of the hometown advantage away from SCO-Caldera.

For you legal buffs, removal of actions from state courts to federal courts is addressed by Federal Rule of Civil Procedure (F.R.C.P.) 81 (c). Our previous Caldera v IBM article, IBM Replies to Some SCO Allegations but Hides Lots Too at page 2, discussed the option available to IBM for seeking sanctions under Utah Rule of Civil Procedure 11. The comparable rule in federal practice is F.R.C.P. 11.

We had a very interesting e-mail discussion about the Caldera v IBM Complaint and the removal of the Caldera v IBM lawsuit to the United States District Court for the District of Utah with John S. Ferrell. He is an intellectual property attorney and a partner in the Palo Alto, California based Carr and Ferrell law firm He also is Chairman of Carr & Ferrell's Intellectual Property Practice Group. (Link in Resources section on page 2)

Let's look at the Complaint discussion first and then let that flow into the removal to federal court issues.

Caldera v. IBM Complaint Discussion

MozillaQuest Magazine: It sounds as though this lawsuit is not a suit alleging copyright infringement, patent infringement, or trademark infringement (the standard three prongs of the intellectual property complex). Rather, it appears the Caldera v IBM action is more in the nature of a contract or tort action. Is this correct?

John S Ferrell: You are absolutely correct. So far this is strictly a Trade Secret/Breach of contract case. The four causes of action raised by SCO are:

(1) Misappropriation of Trade Secret

Misappropriation can be either the wrongful acquisition of a trade secret or the breach of confidence in a trade secret. SCO's claim is that the Unix trade secrets although rightfully obtained were wrongfully disclosed to Linux developers. IBM's defense in this cause of action likely will be that the technology disclosed in support of Linux was either 1) not a trade secret because it was previously known or disclosed by others, or 2) owned by IBM as technology embodied in other or earlier IBM operating systems.

Under the Utah Civil Code, Misappropriation of Trade secret may entitle the injured party damages of up to twice the proven damages in instances where willful and malicious misappropriation exists.

(2) Unfair competition

(3) Interference with contract

(4) Breach of contact

MozillaQuest Magazine: It appears that the gravamen of SCO-Caldera's lawsuit involves IBM's support of Linux and the Linux community. Is this correct?

John S Ferrell: Yes, IBM is allegedly piece by piece turning elements of its AIX implementation of UNIX over to the Linux development community. This ultimately will devalue the OS [operating system] manufacturers, such as SCO and Microsoft, and allow hardware computer manufacturers like IBM to direct and differentiate the market.

MozillaQuest Magazine: Not sure what you mean by differentiate the market. Perhaps you could explain/elaborate that a little more?

John S Ferrell: My point here is that OS manufacturers have the most to lose by IBM's actions.

MozillaQuest Magazine: Because the hardware manufacturers will sell their computers no matter which OS is installed on the machine?

John S Ferrell: Yes. IBM's business model over the past decade has been to move to eService and continue it's big box development and manufacturing. Since IBM does not have an OS monopoly, it is in their best interest to have an OS that they can deliver and service for free.

MozillaQuest Magazine: It seems interesting that SCO-Caldera did not raise any claims under copyright infringement. Do you have any thoughts about why SCO-Caldera did not raise any copyright infringement claims?

John S Ferrell: Copyright claims would almost certainly require removal to federal court. Initially, SCO appeared to want this case in local state court. Note that the complaint alleges that IBM is a Delaware corporation, just like SCO. This apparently is incorrect, thus giving rise to diversity jurisdiction and grounds for removal to federal court.

Removal from State to Federal Court

MozillaQuest Magazine: Isn't removing a State case to the United States District Court pretty much standard procedure where the parties are located in different states?

John S Ferrell: Yes, where the amount in controversy is greater than $75,000.

MozillaQuest Magazine: Might the removal to the United States District Court for the District of Utah be forum shopping?

John S Ferrell: It is forum shopping to the extent that IBM might perceive that it will receive more impartial treatment in federal as opposed to state court. The practical reason for such a removal is that Utah state courts, as many state courts, are very political and are often thought to favor local residents and companies. State judges are elected officials and run for reelection regularly, federal judges have a job for life. It doesn't help IBM that SCO is a struggling underdog software company, in a community that takes a lot of pride in its contribution to computer and software technology.

MozillaQuest Magazine: In part might removing Caldera v. IBM to the District Court be a matter of convenience for the IBM attorneys in that they likely already are familiar with U.S. District Court Rules and practice -- and also already are familiar with the applicable federal case law -- so therefore, they will not have to learn the Utah Court Rules, practice, and case law?

John S Ferrell: Being "home-towned" in a judicially small state like Utah is a significant disadvantage for any out of state company. It's not just a matter of knowing the local law, but it's a matter of knowing the judges, leaders, educators, and clergy that constitute the political realities of practicing law in Utah. The same is true for most state courts, whether seated in Baton Rouge or Bismarck. The Federal court system is designed to provide a more balanced forum for interstate disputes.

MozillaQuest Magazine: Does it appear to you that all of the causes of action set forth in the Caldera v. IBM Complaint fall under the jurisdiction of the federal court, or might the case have to be released to the state court after the federal court adjudication for further proceedings related to state claims?

John S Ferrell: The two main legal reasons for requesting removal from state court to federal court are (1) diversity jurisdiction -- the parties are from different states in a case worth more than $75,000 and (2) the case involves a federal issue such as patent or copyright infringement. Because SCO and IBM are registered as corporations in two different states (Delaware and New York) and the amount in controversy is more than $75,000, either company may seek to have this dispute resolved in federal court. All causes of action arising in this dispute may be resolved in the federal court.

MozillaQuest Magazine: Is this one of those cases where the District Court will conduct the proceedings under the applicable state law, instantly Utah law, or under federal law?

John S Ferrell: For violations of state law which occurred in Utah, breach of SCO's NDA [Non-disclosure Agreement] with IBM for example, Utah law will be applied by the federal court. In all federal causes of action, copyright, patent and any claims of federal unfair competition (Lanham Act), the relevant sections of the U.S. Code will apply.

See Summary and Conclusion on Page 2 ----->

Continued on Page 2 ----->

Please see the first two parts of our series about SCO-Caldera's IP claims plus its intentions to enforce and license its intellectual property rights.

SCO-Caldera & the GNU/Linux Community: The SCOsource IP Matter

SCO-Caldera & the GNU/Linux Community: Part 2, Under the Iceberg's Tip

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SCO-Caldera & the GNU/Linux Community: Part 2, Under the Iceberg's Tip

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