24/7 Wall St.

A federal judge ruled yesterday that Novell (NOVL) is the owner of the critical copyrights for the Unix operating system. Another company SCO Group (SCOX) had claimed these rights. As The New York Times writes: "The ruling could remove the cloud over open-source software like Linux, an operating system loosely modeled on the proprietary Unix." SCO had sued IBM (IBM) over intellectual property rights for Unix, and that suit will now have to be dropped.

Two things will probably happen immediately. SCO shares, which traded at $4.25 in June 2006, and are at $1.50 now, may sell off to under $1. It is fair to ask if the company has any future now. The firm only has about $6 million in revenue each quarter and losses over $1 million on that.

Novell’s shares should strengthen. The big IP issues around Linux seem to be resolved, and the theory is that companies were concerned about using it instead of Microsoft software because of the potential liabilities around the SCO litigation. Microsoft (MSFT) and Novell announced a deal in November 2006 for the companies to jointly market Windows and Linux. Novell’s shares jumped from about $6 to $9. But, as the Linux community has voiced its concern about Microsoft being in bed with Novell, its  stock has moved back to just above $6. The ruling should help drive it back up.  It should also help Redhat (RHT) the largest marketer of enterprise Linux.

The Wall Street Journal offers the opinion that "the ruling is a boon to the "open source" software movement and to Linux, the freely available computer operating system that has become an alternative to Microsoft’s Windows operating system." That may be premature.

In May of this year, Microsoft said that Linux violated 235 Microsoft patents. Redmond has not done anything about those alleged infringements, but, it may have hoped that the SCO/IBM litigation would take care of some of that.

Linux may be a little better off today, but it still lives in Microsoft’s shadow, and 235 is a lot of patents.

Douglas A. McIntyre