TENTH COUNTERCLAIM

Declaratory Judgment of Noninfringement of Copyrights

168. IBM repeats and realleges the averments in paragraphs 1 through 167 with the same force and effect as though they were set forth fully herein.

169. As discussed above, SCO purports to hold copyrights relating to UNIX software.

170. SCO has sued IBM claiming that IBM has infringed, induced the infringement of, and contributed to the infringement of, SCO's purported UNIX copyrights by, among other things, continuing to "reproduce, prepare derivative works of, and distribute copyrighted UNIX materials through its activities relating to Linux.

171. IBM does not believe that its activities relating to Linux, including any use, reproduction and improvement of Linux, infringe, induce the infringement of, or contribute to the infringement of valid, enforceable copyrights owned by SCO.

172. An actual controversy exists between SCO and IBM as to the noninfringement of SCO' s copyrights and the validity of any purported SCO copyrights concerning UNIX.

173. IBM is entitled to a declaratory judgment pursuant to 28 U. C. 9 2201 that IBM does not infringe, induce the infringement of, or contribute to the infringement of any SCO copyright through its Linux activities, including its use, reproduction and improvement of Linux, and that some or all of SCO' s purported copyrights in UNIX are invalid and unenforceable.

With this language, the motion for PSJ will fail if there is a reasonable possibility that discovery will reveal an action that violated a condition of the license agreement. This is a two part requirement, because the term violated must be a condition and not covenant.

Graham v. James, 144 F.3d (2d Cir. 1998)

Generally, "[i]f the [licensee's] improper conduct constitutes a breach of a covenant undertaken by the [licensee] . . . and if such covenant constitutes an enforcible contractual obligation, then the [licensor] will have a cause of action for breach of contract," not copyright infringement. 3 Nimmer on Copyright , supra , § 10.15[A], at 10-120. However, "[i]f the nature of a licensee's violation consists of a failure to satisfy a condition to the license . . ., it follows that the rights dependant upon satisfaction of such condition have not been effectively licensed, and therefore, any use by the licensee is without authority from the licensor and may therefore, constitute an infringement of copyright." Id. at 10-121 (citations omitted); see also Fantastic Fakes, Inc. v. Pickwick Int'l, Inc. , 661 F.2d 479, 483-84 (5th Cir. 1981). A condition has been defined as "any fact or event which qualifies a duty to perform." Costello Publ'g Co. v. Rotelle , 670 F.2d 1035, 1045 n.15 (D.C. Cir. 1981) (citing Corbin, Conditions in the Law of Contract , 28 Yale L.J. 739 (1919)).

and

Graham v. James, 144 F.3d (2d Cir. 1998)

The construction of the licensing agreement is governed by New York law. See Bartsch v. Metro-Goldwyn-Mayer, Inc. , 391 F.2d 150, 153 (2d Cir. 1968). Generally speaking, New York respects a presumption that terms of a contract are covenants rather than conditions. See Grand Union Co. v. Cord Meyer Dev. Co. , 761 F.2d 141, 147 (2d Cir. 1985) ("In the absence of more compelling evidence that the parties intended to create a condition, the negotiation provision must be construed as a promise or covenant."); Warth v. Greif , 106 N.Y.S. 163, 165 (2d Dep't 1907) ("The law favors covenants, rather than conditions precedent."), aff'd , 193 N.Y. 661 (1908).

Graham v. James, 144 F.3d (2d Cir. 1998)

Even assuming Graham materially breached the licensing agreement and that James was entitled to rescission, such rescission did not occur automatically without some affirmative steps on James's part. 22A N.Y. Jur. 2d Contracts § 497 (1996) ("The failure of a party to perform his part of a contract does not per se rescind it. The other party must manifest his intention to rescind within a reasonable time."); see also Jacob Maxwell, Inc. , 110 F.3d at 753 ("Such a breach would do no more than entitle [the composer] to rescind the agreement and revoke its permission to play the song in the future, actions [the composer] did not take during the relevant period. One party's breach does not automatically cause [rescission] of a bilateral contract.") (emphasis omitted).

There is, however, another legal principle involved, that of pre-emption. If the right asserted concerns "copyrightable subject matter" and is equivalent to one granted under section 106 of the copyright act, then the claim is pre-empted by the act. (This doesn't automatically mean that there is a case under the act, because the pre-emption applies to the subject matter even if the material isn't actually copyrightable, since the courts have held that section 102 (a) defines the subject matter and section 102 (b) then excludes conceptual areas such as ideas and methods of operation. The bizarre result is that if you give someone an idea in writing subject to a verbal agreement not to disclose, you have a valid contract if the idea has value as a consideration, but you have no way to enforce it!)

With regard to the SCO v. IBM case, IBM first of all needed to clarify which terms of the agreements were conditions and which were covenants. SCO have managed to obfuscate the issue, but any violations of covenants by IBM should have no effect on counterclaim 10. Let's look at some provisions of SOFT-00015:

1. Confidentiallity - If what are disclosed are ideas, concepts, methods, trade secrets, confidential information or anything other than protected expression, this is not pre-empted; it is most certainly an enforceable contractual provision; and there is no evidence of explicit intent to create a condition. So unless actual expression was disclosed, the disclosure isn't infringement.

2. Internal use - To the extent that this defines a location or medium or a set of these, then it's a condition, like serial rights in print. If it's a manner of use, it's probably a covenant. If IBM hired Linus and gave him access to the SOFTWARE PRODUCT to improve Linux, the de facto nature of the relationship would probably make this claim one of infringement, despite his status as a subcontractor. If IBM made such use itself, then the claim would probably be breach of contract.

3. Modifications - Any claim concerning a modification that is not a derivative work has to be contractual, since there is no equivalent under the copyright act.

4. "Treated as" - SCO's recursive definition of SOFTWARE PRODUCT is also a contractual claim and not a condition.

5. Derivative works - the kind of derivative works that are permitted and the scope of their publication are clearly conditions, but the circumstances of their creation probably aren't, unless they involved unauthorized copying and distribution. Trying to circumvent the distinction by applying similar terms to the copying or distribution doesn't change this. Likewise any issues of the intent of the creation or the purpose of the derivative work are contractual.

TENTH COUNTERCLAIM, (deweaseled)

Declaratory Judgment of Noninfringement of Copyrights

168. IBM repeats and realleges the averments in paragraphs 1 through 167 with the same force and effect as though they were set forth fully herein.

169. As discussed above, SCO purports to hold copyrights relating to UNIX software.

170. SCO has sued IBM claiming that IBM has infringed, induced the infringement of, and contributed to the infringement of, SCO's purported UNIX copyrights by continuing to "reproduce, prepare derivative works of, and distribute copyrighted UNIX materials.

171. IBM does not believe that its donation of AIX source code to Linux; its reproduction, distribution and preparation of derivative works of Linux; or its improvement of Linux, infringe, induce the infringement of, or contribute to the infringement of valid, enforceable copyrights owned by SCO.

172. An actual controversy exists between SCO and IBM as to the noninfringement of SCO' s copyrights and the validity of any purported SCO copyrights concerning UNIX.

173. IBM is entitled to a declaratory judgment pursuant to 28 U. C. 9 2201 that IBM does not infringe, induce the infringement of, or contribute to the infringement of any SCO copyright through the activities of paragraph 171, that some or all of SCO' s purported copyrights in UNIX are invalid and unenforceable.

A more interesting approach would be a declaratory judgement that various SCO claims under certain interpretations were covenants and not conditions and thus could not give rise to any infringement regardless of their validity. If this is purely a matter of law, then it needn't wait on any discovery. It doesn't dispose of any SCO claims except as they are formally incorrect. That said, it still does a good job of trashing their case. I'd love to see them try it. It's not even clear that Judge Kimballs order against motions for summary judgement would apply to a motion that was by definition concerned purely with matters of law.