Judge Dale Kimball’s 102 page opinion Friday in the SCO Group, Inc. v. Novell, Inc. (available here), has been widely reported on. It is a surprisingly easy read: Bravo Judge Kimball (and his clerks). My comments are limited to the copyright aspects of the case. Because those aspects are, however, intertwined with the parties’ contracts, it is not surprising that much of the court’s discussion of copyright law turned on the intersection of copyright and contract law.
One frequently encounters in judicial opinions the statement that copyright contracts are to be construed by ordinary contract principles. This statement is at usually unhelpful and sometimes wrong. Those advocating such an approach do not identify how to decide whether to apply federal or state law, nor do they attempt to identify which state aids to construction are contemplated. In some cases, state law cannot be applied. For example, while a number of states permit use of parol evidence to supply missing terms even where the contract is ambiguous, in copyright cases Section 201(b) indicates that any agreement between an employer for hire and a employee for hire transferring rights to the employee must expressly convey the rights in question. Similarly, states may not excuse or circumvent express requirements found in the Copyright Act, such as the Section 204 writing requirement for exclusive licenses or the writing requirement for specially commissioned works for hire, nor may they impose additional requirements for conveying such interests.
There are a few areas where state contract law will apply: whether there has been a “meeting of the minds,” whether consideration has been provided, and whether a particular provision is a condition precedent or a covenant. One issue in SCO concerning the intersection between copyright and copyright law was the difference between covenants and conditions. It is common for courts to say that if there is a material breach of a condition of the license, the copyright owner has the option of suing for copyright infringement or breach of contract.
The D.C. Circuit has defined a “condition” as “any fact or event which qualifies a duty to perform.” Some courts have held that payment is a condition precedent to a license; some regard payment as a covenant, not a condition; while yet others have held that withholding royalty payments supports rescission of the contract. The condition-covenant dichotomy does, however, suffer from some imprecision. Sometimes “condition” is used interchangeably with “term,” as when a contract provision is headed “Terms and Conditions.” Other times, condition is used in contrast with “promise.”
In SCO, SCO argued that license restrictions were covenants. The court dodged the issue in a confusing digression on preemption, ultimately holding that SCO could have both a contract claim and a copyright claim; the contract claim was based on allegations of Novell’s copying, preparation of derivative works, and sublicensing of Linux products containing allegedly unauthorized material owned by SCO. In essence, Novell was alleged to have exceeded the scope of its license.
The principal part of the court’s opinion dealt with what was transferred originally (or later by amendment to the original deal) by Novell. This issue turned on specific contractual language, but there against the backdrop of Section 204(a) which requires express transfer of copyright to be enumerated. SCO argued that “in a non-consumer setting .. a transfer of all right, title and interest to computer programs and software can only mean the transfer of the copyrights as well as the actual computer program or disks.” The issue is a common one: whether the rights or title referred to refers to the physical embodiment of intellectual property or to the intangible intellectual property (or both). Here the court did an excellent job on the facts and in distinguishing other cases: as the court pointed out, in this case there was a specific provision detailing which rights were transferred, and thus whether the copyright was transferred turned on construction of that specific provision. Fortunately for the rest of us, the court held the copyright in the UNIX code were not transferred