Analyzing an allegedly ambiguous contract in a complicated, multi-million dollar dispute over source code copyrights for the Unix operating system, the U.S. Court of Appeals for the Tenth Circuit reiterated that “powerful arguments” are insufficient to warrant summary judgment and remanded for a trial. The SCO Group, Inc. v. Novell, Inc., Case No. 08-4217 (10th Cir., Aug. 24, 2009) (McConnell, J.).

In 2003, SCO sued IBM for copyright infringement for use of Unix source code in the Linux operating system. Due to 1995 and 1996 contracts for transfer of certain Unix assets between SCO’s predecessor and Novell, SCO claimed ownership of the copyrights asserted against IBM. When Novell publicly claimed it maintained ownership of the copyrights in dispute, SCO then sued Novell for slander of title. In 2007, the district court granted summary judgment affirming Novell’s copyright ownership.

The Tenth Circuit weighed Novell’s argument for strict, plain language contract construction against SCO’s argument that extrinsic evidence should be considered due to vague contract language. Applying California law, the court first determined that the two contracts should be considered as a unified document for purposes of assessing any ambiguities. As a result, extrinsic evidence of the business negotiators’ intent is relevant to the interpretation of the combined instrument. Next, the court stepped through the extensive extrinsic evidence offered by the parties to interpret the contract. Ultimately, the court found that the admissible evidence presented by Novell was not “so one-sided as to warrant summary judgment.”

Practice Note: This case underscores the risks parties take when executing intellectual property transfer agreements that define the assets using broad product categories, rather than detailing the rights by explicit registration identification or at least by distinct product description.