SCO Group, Inc. v. Novell, Inc.

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit

TENTH CIRCUIT August 30, 2011

Elisabeth A. Shumaker
Clerk of Court
THE SCO GROUP, INC., a Delaware
corporation,

Plaintiff/Counterclaim Defendant - No. 10-4122
Appellant, (D.C. No. 2:04-CV-00139-TS)
(D. Utah)
v.

NOVELL, INC., a Delaware corporation,

Defendant/Counterclaim Plaintiff -
Appellee.

ORDER AND JUDGMENT*

Before O'BRIEN, SEYMOUR, and HOLMES, Circuit Judges.

This contract interpretation case is the second appeal arising out of a dispute

between SCO Group, Inc. and Novell, Inc. over copyright ownership of early versions of

the UNIX operating system and the scope of Novell’s rights in licenses issued to its

former customers prior to its partial sale of UNIX to SCO. In the first appeal, we

*
This order and judgment is an unpublished decision, not binding precedent. 10th
Cir. R. 32.1(A). Citation to unpublished decisions is not prohibited. Fed. R. App. 32.1.
It is appropriate as it relates to law of the case, issue preclusion and claim preclusion.
Unpublished decisions may also be cited for their persuasive value. 10th Cir. R. 32.1(A).
Citation to an order and judgment must be accompanied by an appropriate parenthetical
notation B (unpublished). Id.
reversed a summary judgment in favor of Novell because questions of material fact

remained on these issues. See SCO Group v. Novell, 578 F.3d 1201 (10th Cir. 2009)

(Novell I), cert. dismissed, 131 S. Ct. 51 (2010). On remand, after a two-week trial, a

jury determined Novell owned the copyrights. Separately, the district judge concluded

Novell retained rights in the licenses which included the right to prevent SCO from

terminating a UNIX license issued before the transfer. SCO challenges both

determinations and claims evidentiary errors also require reversal. We affirm.

I. FACTUAL BACKGROUND

A. Novell’s Purchase of UNIX from AT&T

In the late 1960’s, AT&T developed UNIX, a computer operating system, and

began licensing UNIX source code to its customers. These customers, in turn, would

modify the source code to create customized platforms for internal use as well as for sale

to end users. In 1993, Novell purchased the UNIX program development and licensing

business from AT&T for over $300 million. It continued to license older versions of

UNIX source code (referred to as SVRX, with X being the number of the licensed

release) and developed its own customized UNIX platform, UnixWare. Two years later,

Novell decided to sell the business.1

B. Novell’s Sale to SCO

Originally, Novell envisioned selling the entire UNIX business to a company that

would develop a version of UNIX integrated with Novell’s network software capable of

1
For convenience we refer to the buyer as SCO; in fact, the actual purchaser was
Santa Cruz, a predecessor company to SCO.

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competing with operating systems like Microsoft’s NT. SCO was a good candidate

because, although smaller than some of the other potential buyers, it did not have its own

hardware business and would be more likely to agree to develop a broadly functional

version of UNIX for use on all types of hardware.2 Because it was a small company,

however, SCO was unable to finance the purchase of the entire business. Novell altered

its original vision and structured a deal SCO could afford by means of an Asset Purchase

Agreement (APA). 3

The parties signed the APA in September 1995 but the transaction did not close4

until December of that year. The original version of the APA did not include copyrights

in the list of transferred assets. In fact, it specifically excluded “[a]ll copyrights and

trademarks, except for the trademarks UNIX and UnixWare” from the sale. (R. Vol. IX

at 3166). Before closing, the parties signed Amendment No. 1 to the APA. Amendment

No. 1 made numerous changes to the original document but did not alter the language

excluding copyrights from the sale.5 The parties amended the APA again in October

2
Many of the companies developing UNIX-based systems tailor the software to be
most efficient on their own hardware systems. Novell did not want to sell to a company
likely to promote its own hardware at the expense of UNIX’s market reach.
3
SCO contends the changes to the transfer were mere financing accommodations
while Novell argues the deal was completely restructured and valuable assets, including
the copyrights, were held back because of SCO’s inability to pay cash for the full
business.
4
The APA did not transfer the assets and the parties continued to work on the deal
until they signed closing documents in December. (See Appellant’s Br. at 5.)
5
The document signed at closing was not a new agreement but merely executed
the transaction laid out in the APA with the incorporation of later changes. See Novell I,
578 F.3d at 1211.

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1996, nearly a year after the close of the transaction. Relevant here, Amendment No. 2

modified the language regarding assets to exclude, “[a]ll copyrights and trademarks,

except for the copyrights and trademarks owned by Novell as of the date of the

Agreement required for SCO to exercise its rights with respect to the acquisition of

UNIX and UnixWare technologies.” (Id. at 3219) (emphasis added).

Under the original APA, Novell retained the right to the royalties collected by

SCO on SVRX licenses with a 5% administrative fee to be paid to SCO after collection.

The APA restricted SCO’s rights with respect to the licenses as follows:

[SCO] shall not, and shall not have the authority to, amend, modify or
waive any right under or assign any SVRX License without the prior
written consent of [Novell]. 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]. In the event that [SCO]
shall fail to take any such action 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. [SCO] shall not, and shall have no
right to, enter into future licenses or amendments of the SVRX Licenses,
except as may be incidentally involved through its rights to sell and license
the Assets or the Merged Product . . . or future versions of the Merged
Product.

(Id. at 3134) This language was not altered by the amendments.

1. SCO’s Attempts to Assert Ownership Rights in UNIX

By 2002, the UNIX business was not as profitable as SCO had hoped. To raise

revenues, SCO sought to aggressively “market” UNIX licenses to users of Linux, a

competing platform, on the theory that Linux incorporated portions of the UNIX code. 6

6
Linux is an open-source platform in which the underlying source code is free and
available for anyone to develop. The SCO Source division was formed on the theory

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SCO asked Novell to clarify the two companies’ respective interests in the UNIX

copyrights and invited Novell to participate in the aggressive pursuit of Linux users under

SCO’s newly formed SCO Source licensing division. Novell declined the offer. 7

Subsequently, SCO sent warning letters to Linux users (including Novell) asserting rights

to part of the Linux code. The letters informed Linux users SCO had sued IBM8 for

violating its UNIX license by contributing proprietary code to Linux and it was “prepared

to take all actions necessary to stop the ongoing violation of [its] intellectual property or

other rights.” (R. Vol. XI at 4213.) SCO also attempted to terminate IBM’s UNIX

license. Novell reacted by publicly asserting ownership of the UNIX copyrights and,

pursuant to the waiver provision of the APA, directed SCO to waive its right to terminate

IBM’s UNIX license. When SCO did not comply, Novell executed documents waiving

whatever rights SCO had under the IBM licensing agreements.

II. PROCEDURAL BACKGROUND

Claiming it owned the copyrights to UNIX and Novell had no right under the APA

to waive its claims against IBM, SCO sued Novell for slander of title and sought to

compel Novell to transfer ownership of the copyrights to it. Novell counterclaimed

alleging slander of title, breach of contract, and unjust enrichment. (R. Vol. I at 96)

current versions of Linux illegally incorporate portions of the UNIX code and Linux
users therefore need UNIX licenses in order to use the Linux operating system without
infringing on UNIX copyrights.
7
Shortly after the dispute began, Novell announced plans to acquire SUSE, a
Linux platform, anticipating that the market was turning toward the open source software.
Novell was planning the acquisition at the time SCO contacted it to request help with
SCO’s inventive licensing theory.
8
IBM had a longstanding UNIX license it purchased originally from AT&T.

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 Both parties amended their pleadings to add claims and then filed cross motions

for summary judgment. The district court entered a summary judgment in favor of

Novell. We reversed and remanded for trial on: (1) the ownership of the UNIX and

UnixWare copyrights; (2) SCO’s specific performance claim; (3) the scope of Novell’s

rights under the APA to direct SCO to waive its claims against IBM for alleged breach of

its UNIX license; and (4) the application of the covenant of good faith and fair dealing as

it related to Novell’s claimed rights to waiver under the APA. Novell I, 578 F.3d at 1227.

The parties stipulated to trying SCO’s slander of title claim to a jury but left to the

judge the resolution of SCO’s request for specific performance, the scope of Novell’s

waiver rights under the APA, and whether, under the circumstances, Novell had breached

the covenant of good faith and fair dealing by exercising its waiver rights.

At the close of the evidence, the judge denied both parties’ motions for judgment

as a matter of law.9 The jury found Novell had not transferred the copyrights to SCO,

which resolved SCO’s slander of title claim in Novell’s favor.

SCO renewed its request for judgment as a matter of law and moved for a new

trial. The judge denied both motions and also 1) denied SCO’s request for specific

performance, 2) decided the parties’ contract gave Novell the right to direct SCO to

waive its licensing claims against IBM, and 3) concluded Novell had not breached the

implied covenant of good faith and fair dealing.

9
The court eventually granted SCO’s motion for judgment on Novell’s slander of
title counterclaim but that decision is not at issue in this appeal.

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 III. DISCUSSION

SCO argues the district court erred in denying its Rule 50 motion and motion for

new trial on its slander of title claim. It challenges the court’s findings of fact and

conclusions of law on its specific performance and breach of the covenant of good faith

and fair dealing claims. It also argues erroneous evidentiary rulings prejudiced its case.

A. Evidentiary Issues

SCO challenges several of the district court’s evidentiary rulings. Our review is

for abuse of discretion. Bryant v. Farmers Ins. Exch., 432 F.3d 1114, 1122 (10th Cir.

2005).

1. Admission of Summary Judgment Rulings

In a motion in limine, SCO sought to exclude Novell from introducing into

evidence the summary judgment rulings we reversed in Novell I. The judge granted the

motion before trial. But, at trial, SCO argued the period of Novell’s purported slander

extended to the present day. It did so despite admonishment from the court that such

arguments were “unwise and inappropriate” and warning that if SCO continued its

inquiry the court may “revisit” its ruling. (R. Vol. VII at 2363.) Even so, SCO’s counsel

elicited testimony from its damages expert based on calculated damages including those

SCO allegedly incurred after the district court had issued its summary judgment rulings

in Novell’s favor and prior to this Court’s reversal. Novell sought permission to cross-

examine the expert with quotes from the district court’s June 4, 2004 and June 9, 2004

summary judgment rulings to show the jury the expert’s calculations failed to take into

account the effect of the rulings on SCO’s slander claim and purported damages . The

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court granted Novell’s request but issued a limiting instruction contemporaneous with the

discussion of the June 4th ruling, stating:

Now, ladies and gentlemen, I want to give you an instruction right now . . .
. I want you to listen to this very carefully.

In light of the testimony that is being elicited on prior court decisions in this
matter, I want you to listen to this. You will hear evidence about prior
court rulings in this case. And it may lead you to wonder why are we being
asked to serve as jurors at this point in time in light of those prior decisions.
You have to be aware that SCO appealed the ruling by the District Court,
this decision and perhaps another decision that you may yet have reference
to, to the Tenth Circuit Court of Appeals. The Tenth Circuit Court of
Appeals in a unanimous decision reversed the District Court as to the issues
before you in this case and concluded that those issues were to be decided
by a jury.

And so it is important for you to understand that reference to these prior
decisions does not in any way affect the decisions that you will be making
in this case because they were reversed and found to have been in error in a
unanimous decision. Thank you.

(Id. at 2549). After Novell’s counsel referenced the summary judgment ruling, the court

again instructed the jury “to the extent that language . . . pertains to the issues in this case,

you are to disregard it.” (Id. at 2550). SCO argues the court abused its discretion in

admitting the rulings as they were irrelevant and “highly prejudicial.”10 (Appellant Br. at

p. 56). We see no abuse of discretion.

We accord “deference to a district court's familiarity with the details of the case

10
Although neither party cited to the rule in its brief, SCO objected at trial under
Rule 403 of the Federal Rule of Evidence:
Although relevant, evidence may be excluded if its probative value is
substantially outweighed by the danger of unfair prejudice, confusion of the
issues, or misleading the jury, or by considerations of undue delay, waste of
time, or needless presentation of cumulative evidence.

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and its greater experience in evidentiary matters. This is particularly true with respect to

Rule 403 since it requires an on-the-spot balancing of probative value and prejudice,

potentially to exclude as unduly prejudicial some evidence that already has been found to

be factually relevant.” Frederick v. Swift Transp. Co., 616 F.3d 1074, 1083 (10th Cir.

2010) (citation and quotation omitted).

The prior court rulings were relevant because the jury was instructed to consider

slanderous only those statements uttered with constitutional malice, i.e., with “(1)

knowledge that it was false; or (2) reckless disregard of whether it was true or false.” (R.

Vol. VI at 1952). SCO’s expert’s damages calculation included damages for slander

continuing even after summary judgment was entered against it (concluding Novell

owned the copyrights). Therefore, Novell’s subsequent claims to ownership from the

date the summary judgment was entered in its favor until the summary judgment was

reversed could not, as a matter of law, have been slanderous, i.e., made with knowledge

of or with reckless disregard of their falsity, Novell had a court ruling in its favor on the

issue. The rulings were relevant to limit the period of the claimed slander as well as to

refute SCO’s claim that its damages were caused by Novell, as opposed to other events,

during that period.

The evidentiary ruling most probably was prejudicial to SCO, as it claims.

However, it was probably just as prejudicial to Novell. Its claim to own the copyrights

and have the right to waive SCO’s claims against IBM – the very matters at issue – had

been resolved in its favor but the decision was later “found to have been in error.” (R.

Vol. VII at 2549). Moreover, the risk of prejudice was significantly reduced by the

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court’s ardent limiting instruction informing the jury the rulings should have no effect on

its decision and that the rulings had been found to be erroneous. See United States v.

Jones, 530 F.3d 1292, 1299 (10th Cir. 2008) (“We presume that juries follow limiting

instructions.”) Given the extreme care taken by the district court to avoid presentation of

this evidence to the jury, the opportunities for SCO to assist the court in avoiding such

necessity, and the careful instruction of the jury following its admission, there was no

abuse of discretion in permitting this limited use of the earlier rulings.

2. Reference to Original Agreement without Reference to Amendment 2

SCO contends the district court abused its discretion when it permitted certain

witnesses to testify about the original APA language without allowing SCO to cross-

examine those witnesses regarding the changes implemented by Amendment 2.11 We

reject its argument.

In Novell I, we decided the contract documents must be construed together and

extrinsic evidence regarding the parties’ intent over the entire course of the transaction,

including the drafting and negotiation of the original language, was admissible as

relevant to the interpretation of the combined instrument. 578 F.3d at 1211. But the

specific fact witnesses of whom SCO complains had no firsthand knowledge of

Amendment 2. For example, one witness referenced by SCO in its argument is Robert

Frankenberg, chief executive officer and later chairman of the board at Novell.

Frankenberg testified regarding his involvement in the APA and the closing documents,

11
Once again, SCO cites no law in support of its argument but appears to be
claiming the evidence was improper under Fed. R. Evid. 403 as misleading to the jury.

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but was no longer with Novell when the second amendment to the APA was negotiated.

It would have been inappropriate to question fact witnesses lacking personal knowledge

about the meaning or even the existence of the amendment. See Zokari v. Gates, 561

F.3d 1076, 1089 (10th Cir. 2009) (“A witness may not testify to a matter unless evidence

is introduced sufficient to support a finding that the witness has personal knowledge of

the matter.”) (quoting Fed. R. Evid. 602). If SCO felt Novell was de-emphasizing the

controlling nature of Amendment 2, self-help was a sufficient remedy. SCO was free to

(and did throughout the trial) emphasize to the jury that Amendment 2 contained the

operative language. There was no abuse of discretion.

3. Admission of Article Referring to SCO as “The Most Hated Company in
Tech”

Over SCO’s objection, the district court allowed Novell to show the jury a slide

containing a quote from a BusinessWeek article referring to SCO as “The Most Hated

Company in Tech.” (R. Vol. VIII at 2815; R. Vol. XIV at 5091). The slide was part of

the examination of Novell’s damages expert who criticized the failure of SCO’s damages

expert to consider the toll SCO’s own actions had taken on its potential market. In

particular, SCO’s expert did not account for the effect of SCO’s “business plan . . .

founded on litigation . . . .” (R. Vol. VIII at 2815.) The article was used to highlight

SCO’s tactic of demanding from Linux users a form of royalty payment under threats of

infringement suits and demonstrate how the tactic incurred alienation of SCO in the

“open source” market and was a possible cause of the damage to SCO during the period it

alleged to have been slandered.

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 SCO argues the slide was impermissible hearsay. We need not dwell on its

technical hearsay arguments because any possible error was harmless.

Because hearsay determinations are particularly fact and case specific, our
review of those decisions is especially deferential. Further, this court
applies a harmless error standard when reviewing trial courts’ rulings on
hearsay objections resting solely on the Federal Rules of Evidence. A
harmless error is one that does not have a substantial influence on the
outcome of the trial; nor does it leave one in grave doubt as to whether it
had such effect.

United States v. Collins, 575 F.3d 1069, 1073 (10th Cir. 2009) (quotation and citation

omitted).

The language of which SCO complains is one line of text briefly before the jury

during a three-week trial. In addition, there was repeated testimony and argument over

the course of the trial pointing out the unpopularity of the SCO Source program. The

admission of this single piece of evidence did not undermine the jury’s decision.

B. Judgment as a Matter of Law (Rule 50)

SCO argues the court erred in denying its Rule 50 motion because the evidence

showed ownership of the copyrights was “required for SCO to exercise its rights with

respect to the acquisition of UNIX . . . technologies” and the copyrights were therefore

transferred under the language of Amendment 2 to the contract.12 The question of

whether the copyrights were required for SCO to exercise its rights depends entirely upon

what portion of the UNIX business the APA transferred. SCO contended at trial, and

12
SCO argues at length that the language of Amendment 2 is controlling. It
appears SCO maintains the district court and jury ignored the words “required for SCO to
exercise its rights with respect to the acquisition of UNIX and UnixWare technologies” in
reaching their results. (Appellant Br. at 26.) However, as we explain below, it is clear
the district court and jury interpreted the language of the APA as amended.

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continues to argue, it had to have the copyrights to protect the UNIX technologies.

Novell argued, and continues to argue, the copyrights were not transferred to SCO in the

APA and they were not necessary for SCO to exercise its rights in the business because

the “business” SCO purchased was limited to: (1) the right to create its own product

based on UNIX (which it was then free to copyright and protect) and (2) the power to act

as Novell’s agent in licensing and marketing (with certain restrictions) established UNIX

technologies.

We review de novo the district court’s ruling on a Rule 50 motion for judgment as

a matter of law, drawing all reasonable inferences in favor of the nonmoving party. We

reverse the denial of such a motion only if we conclude “the evidence points but one way

and is susceptible to no reasonable inferences supporting the party opposing the motion.”

Wagner v. Live Nation Motor Sports, Inc., 586 F.3d 1237, 1243-44 (10th Cir. 2009), cert.

denied, 130 S. Ct. 2405 (2010). We do not “weigh evidence, judge witness credibility, or

challenge the factual conclusions of the jury.”13 Id. at 1244.

In support of its arguments, SCO points to extensive evidence supporting its

interpretation of the APA. However, the question for purposes of the Rule 50 analysis is

not whether SCO presented compelling evidence but whether the “evidence points but

13
In reviewing the district court’s grant of summary judgment, we were required
to “view the evidence and draw reasonable inferences therefrom in the light most
favorable to [SCO].” Novell I, 578 F.3d at 1208. Here, we are required to do just the
opposite and view all evidence and draw all inferences in the light most favorable to
Novell. Insofar as SCO is arguing the APA may only be interpreted one way as a matter
of law, we rejected that argument when we reversed summary judgment because there
were triable issues of fact and competing conclusions to be drawn from the evidence. Id.
at 1217. We will not revisit it here.

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one way.” It does not. The copyrights do not appear on the detailed list of assets to be

transferred in the APA and, indeed, the original language in the APA specifically

excluded all copyrights from the assets being transferred.14 Moreover, Novell’s Board of

Directors adopted a resolution approving the sale, which specifically mentioned the

copyrights were to be retained by Novell. According to SCO’s witnesses the “all

copyrights” language ran contrary to SCO’s intent. But such intent is not demonstrated

by the plain language of the APA before it was amended. Moreover, the unexpressed

intent of one contracting party is irrelevant. Mutual intent governs.

As to Amendment 2, both parties presented evidence about its intent and meaning.

SCO’s witnesses testified the amendment was to remedy the error resulting in Novell

retaining the copyrights in the original transaction. Novell’s witnesses testified

Amendment 2 was to allay SCO’s fears about violating Novell’s intellectual property

rights in the everyday operation of the transferred portion of the business but was never

intended to transfer the copyrights to older versions of UNIX. In fact, the Novell

witnesses involved in the negotiation of Amendment 2 testified that SCO’s first draft of

the Amendment included language explicitly transferring the copyrights, which Novell’s

negotiators removed15 because the copyrights had been excluded from the transfer in

14
No document explicitly transfers the UNIX copyrights. The final sale was
executed pursuant to the terms of the APA, which contains only the ambiguous language
at issue here.
15
The proposed language, which Novell rejected, excluded from transfer “[a]ll
copyrights and trademarks, except for the copyrights and trademarks owned by Novell as
of the date of this Amendment No. 2, which pertain to the UNIX and UnixWare
technologies and which SCO has acquired hereunder.” (R. Vol. XIII at 4753)

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order to protect Novell’s royalty streams in the existing UNIX licenses.

SCO contends uncontroverted evidence shows the UNIX copyrights were

“required” for SCO to run the business. This argument assumes the entire business was

transferred. Novell presented sufficient evidence at trial showing only two things were

sold in the transaction—(1) the UNIX licensing business, which SCO would continue on

behalf of Novell in exchange for 5% of total royalties while Novell retained the

copyrights and 95% of the royalty stream and (2) UnixWare and the license to use the

underlying UNIX source code. Novell admits copyright ownership would be required to

protect existing UNIX licenses. However, it presented testimony and documentary

evidence showing SCO was merely to act as Novell’s agent in managing the existing

licenses and collecting royalties while Novell retained ownership and ultimate control of

that aspect of the UNIX business. The APA itself expressly gives Novell the right to

direct SCO’s behavior regarding such licenses. SCO also argues the copyrights were

required to protect the UNIX source code. However, as Novell showed at trial, SCO was

able to protect the products it developed by copyrighting additions to the existing code

and the copyrights to earlier versions were not required for SCO to carry out its

responsibilities under the APA as Novell’s licensing agent.

There was ample evidence to support Novell’s contention that the copyrights were

not transferred in the sale and not necessary to the operation of the business transferred.

The district court properly denied SCO’s motion for judgment as a matter of law under

(emphasis added).

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Fed. R. Civ. P. 50(b).

IV. MOTION FOR NEW TRIAL

We review the district court’s denial of the motion for a new trial for an abuse of

discretion. Henning v. Union Pac. R.R. Co., 530 F.3d 1206, 1216 (10th Cir. 2008). “The

inquiry focuses on whether the verdict is clearly, decidedly or overwhelmingly against

the weight of the evidence.” Black v. Hieb’s Enter., Inc., 805 F.2d 360, 363 (10th Cir.

1986). SCO devotes one paragraph of its brief to this issue. For previously discussed

reasons, the denial of SCO’s request for a new trial was not an abuse of discretion.

Ample evidence in the record supported the jury’s verdict and Novell’s position.

V. SPECIFIC PERFORMANCE

SCO sought to compel Novell to transfer ownership of the copyrights to it.

Specific performance is an exercise of the equitable discretion of the district court and we

review the court’s decision for an abuse of discretion. Koch v. Koch, 903 F.2d 1333,

1335-36 (10th Cir. 1990).

The jury rejected SCO’s argument that Amendment 2 transferred the Unix and

UnixWare copyrights because they were required for SCO to exercise its rights in the

newly acquired technologies. Because the jury determined SCO had no claim to the

copyrights, the court did not abuse its discretion in denying SCO’s request for specific

performance.

VI. NOVELL’S ABILITY TO WAIVE SCO’S RIGHTS UNDER EARLY UNIX
LICENSING AGREEMENTS

We determined the APA was ambiguous regarding the scope of Novell’s waiver

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rights and remanded to the district court for trial on the issue. Novell I, 578 F.3d at 1224.

“Once a provision is found to be ambiguous, the resolution of its proper meaning is a

question of fact, subject to review on a clearly erroneous standard.” Nunn v. Chem.

Waste Mgmt., Inc., 856 F.2d 1464, 1467 (10th Cir. 1988) (citations and quotations

omitted). At the start of the trial the parties agreed to submit the issue for decision by the

judge rather than the jury.

The APA gives Novell the ability to waive any claim of right SCO might make

with regard to “SVRX Licenses.”16 (R. Vol. IX at 3134.) The dispute was centered on

the particular agreements to be included in that term. As testimony showed at trial, there

are three parts to the UNIX licensing scheme. UNIX customers must sign a software

licensing agreement setting forth the terms on which they are permitted to use and/or

modify licensed products. This umbrella agreement contains general terms governing the

use of licensed intellectual property but does not specify what products are being

licensed. Customers developing software for resale using UNIX source code must also

sign a software sublicensing agreement, which governs such use. Finally, all customers

must enter into a product supplement, which lists each licensed product and specific

information (including royalties due) related to each.

SCO argues the APA waiver language does not allow Novell to interfere with its

ability to terminate IBM’s software licensing agreement because the waiver language was

only intended to apply to the product supplement; the other agreements are not “SVRX

16
As stated above, SVRX refers to the versions of Unix transferred from AT&T to
Novell prior to the development of UnixWare.

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licenses” under the APA. SCO points out that the language dictating Novell’s SVRX

royalties is contained only in the product supplement. The software licensing and

sublicensing agreements do not explicitly refer to the licensed SVRX version. SCO

contends Novell exceeded the scope of its rights under the APA by directing SCO to

waive (and later by waiving) its rights under IBM’s general software licensing

agreements.

However, the APA’s language is not so restrictive. As the district court noted, the

contract language does not distinguish between the three types of agreements. The

district court reasoned:

Novell retained a significant financial interest . . . [which] Section 4.16 of
the APA was designed to protect . . . . The somewhat hierarchical structure
of the three types of agreements leads to the conclusion that Novell must
retain rights over the software and sublicensing agreements as well . . . . If
Novell did not have the authority over the software agreements, SCO could
easily cancel that agreement, necessarily cancelling both the sublicensing
and product supplement agreements, and thereby deprive Novell of all
revenue.

(Id.) 17 It was not clear error for the district court to determine “SVRX licenses” referred

to all of the integrated licensing agreements.18

17
SCO argues the district court’s reasoning is impermissible under language in
Novell I. Our opinion there focused on problems with Novell’s interpretation of the
waiver provision in the context of summary judgment because we disagreed with the
district court’s conclusion no rational trier of fact could accept SCO’s interpretation.
However, we ultimately concluded only that “the [waiver] language . . . [was not] so
clear as to preclude SCO's interpretation of the scope of Novell's waiver rights.” Novell I,
578 F.3d at 1224. Novell I did not bar the district court from accepting Novell’s
interpretation as correct after weighing all the evidence.
18
A witness who specialized in dealing with the contracts testified they were
integrated agreements that worked together. The district court specifically noted that
testimony.

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 VII. IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

SCO argues the district court erred in entering judgment in Novell’s favor on its

good faith and fair dealing claim (Novell breached the implied covenant by waiving

SCO’s rights under the licensing agreements). Interpretation of a contract, including the

implied covenant of good faith and fair dealing, is a question of law, which we review de

novo. See Flood v. Clearone Commc’n, Inc., 618 F.3d 1110, 1117-18 (10th Cir. 2010);

Del Taco, Inc. v. Univ. Real Estate P’ship V, 3 Cal. Rptr. 3d 311, 315 (Cal. Ct. App.

2003). As noted in our previous opinion, under California law, the covenant of good

faith and fair dealing does not apply to an express grant of authority like the one at issue

here unless: 1) the covenant would aid in the interpretation of a contradictory and

ambiguous contract, or 2) the granted authority would render an agreement unenforceable

and illusory. Novell I, 578 F.3d at 1227.

SCO argues the contract is either contradictory or illusory without the good faith

restriction because giving Novell unconstrained rights to control the licenses would leave

SCO helpless to protect the underlying source code. However, the jury found SCO did

not own the copyrights to the earlier versions of the UNIX code. The district court found

the parties intended for SCO to serve as Novell’s agent with respect to the old SVRX

licenses and the only portion of the UNIX business transferred outright under the APA

was the ability to exploit and further develop the newer UnixWare system. SCO was able

to protect that business because it was able to copyright its own improvements to the

system. The only reason to protect the earlier UNIX code would be to protect the

existing SVRX licenses, and the court concluded Novell retained ultimate control over

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that portion of the business under the APA. The district court’s conclusion on this point

is consistent with the jury verdict on copyright ownership and is supported by evidence in

the record.

AFFIRMED.

Entered by the Court:

Terrence L. O’Brien
United States Circuit Judge

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