PJ's Intro:

IBM's Second Amended Counterclaims Lists 9 Newly Registered Copyrights


Wednesday, March 31 2004 @ 04:35 AM EST

IBM has registered nine new copyrights, including IBM Linux Kernel Support for JFS. They registered on February 2, 2004. They show up in a list in the new Second Amended Counterclaims in IBM's Eighth Counterclaim, beginning with paragraph 154. This obviously gives them the right to sue for damages. You'll enjoy reading about IBM's knockout blow here.

If you wish to compare the prior version, it is here. The PDF of this document is here. This is still a rough draft, and normally I wouldn't put it up until it was finished, but the copyright news is significant enough that it seemed worthwhile showing them to you immediately. I have marked all the significantly new material in red text. I'm working mighty fast, and I have to stop now to get some paid work done by noon, but then I'll come back and finish. Or likely some of you may wish to finish it and make a note of further changes. A special thanks to jkondis for the text version to work from.

SCO appears to have given up its claim that the GPL is unconstitutional!

Here is SCO's Answer to IBM's Second Amended Counterclaims as text, and you will see that SCO has dropped that affirmative defense in this newly filed amended pleading.

Oh, and it doesn't violate the export laws or copyright law or antitrust law, either. SCO made a mistake it seems, and now, like Gilda Radner's classic Emily Litella skit on the old Saturday Night Live, they say, "Never mind." Maybe BayStar talked some sense into them.

Here is a list of all the defenses it has dropped, according to my reckoning, which you can verify for yourself by comparing it with SCO's last Amended Answer to IBM's previous Amended Counterclaims. IBM's Second Amended Counterclaims are here, which is the document this filing is responding to. Maybe someone will feel like doing a nice color coded chart showing all the differences?

[ ... ]

Thanks go to several volunteers, including Samuel Blomqvist and Alex Labram, for tackling this huge task. Alex says it was good typing practice. Some OCR'd, some typed, some coded. Thank you so much, everyone.

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH

THE SCO GROUP, INC., a Delaware
corporation,

Plaintiff/Counterclaim-Defendant,

-against-

INTERNATIONAL BUSINESS
MACHINES CORPORATION, a New York
corporation,

Defendant/Counterclaim-Plaintiff,

COUNTERCLAIM-PLAINTIFF
IBM'S SECOND AMENDED
COUNTERCLAIMS
AGAINST SCO

JURY TRIAL DEMANDED

Civil No. 2:03CV-0294 DAK

Honorable Dale A. Kimball

Magistrate Judge Brooke C. Wells

For its counterclaims herein, counterclaim-plaintiff International Business Machines Corporation ("IBM"), by and through its attorneys, upon personal knowledge as to its own actions and upon information and belief as to the actions of counterclaim-defendant The SCO Group, Inc. ("SCO"), avers as follows:

Brent O. Hatch (5715)
Mark R. Clements (7172)
HATCH, JAMES & DODGE, P.C.
[address, phone, fax]

Stephen N. Zack
Mark J. Heise
BOIES, SCHILLER & FLEXNER L.L.P.
[address, phone, fax]

Attorneys for Plaintiff The SCO Group, INC.

----------------------------------------

IN THE UNITED STATES DISTRICT COURT

DISTRICT OF UTAH

----------------------------------------

THE SCO GROUP, INC.,
a Delaware corporation,

Plaintiff,

vs.

INTERNATIONAL BUSINESS MACHINES
CORPORATION, a New York corporation,

Defendant.

----------------------------------------

SCO'S ANSWER TO IBM'S SECOND AMENDED COUNTERCLAIMS

Case No. 03-CV-0294

Hon: Dale A. Kimball

Magistrate Judge Brooke C. Wells

----------------------------------------

Plaintiff and counterclaim-defendant The SCO Group, Inc. ("SCO"), by and through counsel, answers the second amended counterclaims of defendant and counterclaim-plaintiff International Business Machines Corporation ("IBM") and further admits, denies and alleges as follows:

NATURE OF COUNTERCLAIMS

ANSWER

1. These counterclaims arise from SCO's efforts wrongly to assert proprietary rights over important, widely-used technology and to impede the use of that technology by the open-source community. SCO has misused, and is misusing, its purported rights to the Unix operating system developed originally by Bell Laboratories, then a research and development arm of AT&T Corp., to threaten destruction of the competing operating systems known as AIX, Dynix and Linux, and to extract windfall profits for its unjust enrichment.

1. Admits that the UNIX operating system was originally developed by Bell Laboratories, then a development arm of AT&T Corp., but denies the remaining allegations of ¶1.

2. IBM's counterclaims also arise from SCO's infringement of IBM copyrights and patents. Although SCO purports to respect the intellectual property rights of others -- and has instituted litigation against IBM for alleged failures with respect to SCO's purported rights -- SCO has infringed and is infringing a number of IBM copyrights and patents.

2. Admits that it respects the intellectual property rights of others, but denies the remaining allegations of ¶2.

JURISDICTION AND VENUE

 
3. This Court has jurisdiction over IBM's counterclaims pursuant to 28 U.S.C. §§ 1331, 1332(a)(l), 1338(a) and (b), 1367, 2201(a) and 2202 and 15 U.S.C. § 1125(a)(l).

3. Admits the allegations of ¶3.

4. The Court has diversity and supplemental jurisdiction over IBM's state law claims. The parties have complete diversity of citizenship, and the amount in controversy exceeds $75,000, exclusive of interest and costs. IBM's Lanham Act, copyright and patent claims arise under federal law.

4. Admits the court has jurisdiction over the claims, but denies that IBM has any valid claims and denies the remaining allegations of ¶4 not specifically admitted herein.

5. Venue is proper in this district, with respect to IBM's counterclaims, pursuant to 28 U.S.C. §§ 1391(b), 1391(c), and 1400(a) and (b).

5. Admits the allegations of ¶5.

PARTIES

 
6. Counterclaim-plaintiff IBM is a New York corporation with its principal place of business in the state of New York.

6. Admits the allegations of ¶6.

7. Counterclaim-defendant SCO is a Delaware corporation with its principal place of business in Utah County, Utah.

7. Admits the allegations of ¶7.

BACKGROUND

A. Unix
 

8. Unix is a name used to characterize a family of operating systems that share common characteristics and meet certain well-publicized "UNIX" standards. The earliest Unix operating system was built by software engineers at Bell Laboratories, the research division of AT&T.

8. Admits that the earliest UNIX operating system was built by software engineers at Bell Laboratories, the research division of AT&T, but denies the remaining allegations of ¶8 not admitted herein.

9. Over the years, AT&T Technologies, Inc., a wholly owned subsidiary of AT&T, and its related companies licensed Unix operating systems, such as the version known as "UNIX System V", for widespread enterprise use. AT&T's Unix software has been licensed to many thousands of persons or entities.

9. Admits the allegations of ¶9.

10. In 1993, AT&T sold its Unix assets -- then held by its subsidiary, Unix System Laboratories, Inc. ("USL") -- to Novell, Inc. ("Novell"). In 1995, Novell sold some, but not all, of its Unix assets to The Santa Cruz Operation, Inc., now known as Tarantella, Inc. ("Original SCO"), which is not affiliated with counterclaim-defendant SCO.

10. Admits that AT&T sold UNIX assets, through its subsidiary USL, to Novell in 1993, admits that Novell sold UNIX assets to The Santa Cruz Operation, Inc., now known as Tarantella, Inc. ("Tarantella") in 1995, but denies that Novell sold only part of its UNIX assets and further denies the remaining allegations contained in ¶10 not specifically admitted herein.

11. Counterclaim-defendant SCO played no role in the development of Unix. But it purports to have acquired Original SCO's rights to Unix in 2001. Based upon the rights it purports to have acquired from Original SCO, SCO has undertaken the scheme described herein.

11. Denies the allegations of ¶11.

B. IBM and Unix

 

12. In the mid-1980s, IBM acquired broad rights to use Unix System V software pursuant to a series of agreements with AT&T Technologies. These agreements, referred to as the "AT&T Agreements", include the Software Agreement (Agreement Number SOFT-00015) dated February 1, 1985, the Sublicensing Agreement (Agreement Number SUB-00015A) dated February 1, 1985, the Substitution Agreement (Agreement Number XFER-000l5B) dated February 1, 1985, the letter agreement dated February 1, 1985, and the Software Agreement Supplement 170, as amended by a letter agreement dated on or about January 25, 1989. Copies of these agreements are attached hereto as Exhibits A - F, respectively.

12. Admits that in 1985 IBM acquired certain UNIX rights pursuant to license with AT&T, and admits that IBM and AT&T entered agreements as referenced in ¶12, but denies that IBM's UNIX-related rights are characterized as "broad," denies that IBM has any remaining rights under the referenced agreements and denies the remaining allegations of ¶12 not specifically admitted herein.

13. In connection with the proper exercise of these and other rights previously obtained by IBM with respect to Unix, IBM began development of its own version of a Unix operating system, called AIX. Over the last two decades, IBM has expended tremendous resources on developing AIX, creating millions of lines of original code, incorporating it into its product lines and licensing the technology to thousands of customers worldwide. IBM continues to do so today.

13. Admits that IBM developed a version of UNIX pursuant to license originally with AT&T and admits that IBM's version of UNIX is called AIX but denies that IBM properly exercised its rights and is without information sufficient to admit or deny the remaining allegations of ¶13, and therefore denies the same.

14. On October 17, 1996, after Novell and Original SCO acquired AT&T's rights to UNIX, IBM obtained additional rights with respect to UNIX System V software. Pursuant to an agreement known as Amendment X, entered into by IBM, Novell and Original SCO, IBM acquired, for example, the "irrevocable, fully paid-up, perpetual right to exercise all of its rights" under the IBM Agreements. A copy of this agreement is attached hereto as Exhibit G.

14. Admits this Amendment X was entered into in 1996 by and among IBM, Santa Cruz Operations and Novell, but denies the remaining allegations of ¶14.

15. Like IBM, Sequent Computer Systems, Inc. ("Sequent") acquired broad rights to use AT&T's UNIX System V software pursuant to a series of agreements with AT&T Technologies in the mid-1980s. These agreements, referred to as the "Sequent Agreements", include the Software Agreement (Agreement Number SOFT-000321) dated April 18, 1985, the Sublicensing Agreement (Agreement Number SUB-000321A) dated January 28, 1986, and the Substitution Agreement (Agreement Number XFER-000321B) dated January 28, 1986. Copies of these agreements are attached hereto as Exhibits H-J, respectively.

15. Admits that Sequent, like IBM, acquired certain UNIX rights pursuant to its own license agreements with AT&T, admits that Sequent and AT&T entered into agreements with AT&T, admits that IBM acquired the stock of Sequent, but denies that Sequent's UNIX-related rights are characterized as "broad," denies that Sequent has any remaining rights under the referenced agreements and denies the remaining allegations of ¶15 not specifically admitted herein.

16. Sequent also developed a version of a Unix operating system known as Dynix in connection with the proper exercise of its rights under these and other agreements with respect to UNIX System V. IBM acquired Sequent by merger in 1999.

16. Admits that Sequent developed a version of UNIX pursuant to license originally with AT&T and admits that Sequent's version of UNIX is called Dynix but denies that IBM properly exercised its rights and is without information sufficient to admit or deny the remaining allegations of ¶16, and therefore denies the same.

C. Linux

17. Linux is an operating system that stems from a rich history of collaborative development. Linux is a dynamic and versatile operating system and is, for many, the operating system of choice.

17. Denies the allegations of ¶17 and alleges that Linux is, in actuality, an unauthorized version of UNIX that is structured, assembled and designed to be technologically indistinguishable from UNIX, and practically is distinguishable only in that Linux is a "free" version of UNIX designed to destroy proprietary operating system software.

18. The development of Linux began when an undergraduate student at the University of Helsinki, by the name of Linus Torvalds, set out to create a new, free operating system. In 1991, Linus Torvalds began developing the Linux kernel, the core of the operating system, and posting news of his project to internet newsgroups, along with a call for volunteers to assist in his efforts.

18. Admits that Linus Torvalds assembled the original Linux kernel but is without information sufficient to admit or deny the remaining allegations of ¶18 not specifically admitted herein, and therefore denies the same.

19. With the internet providing for a distributed collaboration, other programmers joined to create code making up the kernel. Linus Torvalds directed the collaboration to a version 1.0 release of the Linux kernel in 1994.

19. Is without information sufficient to admit or deny the allegations of ¶19, and therefore denies the same.

20. In the years that followed, thousands of developers, including developers at IBM, contributed to the further development of Linux. Version 2.4 of the Linux kernel was released in 2001. IBM owns valid copyrights in its contributions to Linux, as illustrated below.

20. Admits that many developers have contributed software code to the Linux kernel, admits that IBM has contributed code to the Linux kernel, admits that the first iteration of Version 2.4 of the Linux kernel was released in 2001, but is without information sufficient to admit or deny the remaining allegations of ¶20 not specifically admitted herein, and therefore denies the same.

21. The first commercial distribution of Linux was introduced in 1994 by Red Hat. Thereafter, other distributors, including SCO, introduced a number of commercial Linux products, which typically comprise the Linux kernel, the applications that the kernel runs (which, with the kernel, comprise a complete operating system) and whatever else the distributor chooses to combine into an easily installable product.

21. Admits that Red Hat has distributed one or more versions of Linux, which may include one or more versions of the Linux kernel, and admits that other distributors may have done so as well, including SCO, but denies the remaining allegations of ¶21 not specifically admitted herein.

D. Open-Source Software and the GPL

22. Linux is open-source software. Open-source software is free in the sense that it is publicly available, royalty free, and users have the freedom to run, copy, distribute, study, adapt, and improve the software.

22. Admits the allegations of ¶22, but alleges that Linux software contains other additional characteristics not identified in ¶22, and further alleges that ¶22 does not provide a complete definition of Linux.

23. Whereas traditional software licenses often reflect legal limitations restricting the use and reproduction of original works, the open-source community has taken a different approach to licensing. The open-source community, including SCO, resolved to license Linux so as to keep the source code publicly available. Due to the open-source nature of Linux, anyone can freely download Linux and many Linux applications and modify and re-distribute them with few restrictions.

23. Admits that software license agreements typically reflect legal limitations restricting the use and reproduction of works, admits that Linux is available for free download, admits that the license presently governing Linux (the General Public License) generally is oriented to keep source code publicly available, but denies the remaining allegations of ¶23 not specifically admitted herein.

24. There are a variety of open-source licenses, but the most popular is the GNU General Public License (the "GPL"), a copy of which is attached hereto as Exhibit K. The Linux kernel, and significant portions of the larger Linux operating system, are distributed under the GPL.

24. Admits the allegations of ¶24, but denies enforcability or applicability of the GPL.

25. In fact, one of the most important decisions Linus Torvalds made was to develop the Linux kernel under the GPL and keep the source code freely distributable so others could build upon, modify, and develop programs for the operating system.

25. Is without information sufficient to admit or deny the allegations of ¶25, and therefore denies the same.

26. Whereas the licenses for most software are programs designed to limit or restrict a licensee's freedom to share and modify it, the GPL is intended to guarantee a licensee's freedom to share and modify open-source software. The GPL applies to any program whose authors commit to using it.

26. Admits that the GPL purports to guarantee the right to freely share and change free software, but denies that the GPL applies to any program whose authors commit to using it, denies enforceability or applicability of the GPL, and is without information sufficient to admit or deny the remaining allegations of ¶26 not specifically admitted herein, and therefore denies the same.

27. The GPL is designed to make sure that a licensee has the freedom to distribute copies of open-source software, to receive source code or to get it if the licensee so desires, to modify the software or use pieces of it in new free programs, and to know the licensee can do these things.

27. Admits that the GPL allows a licensee to distribute copies of free software, receive source code and change and use the software in new free programs but is without information sufficient to admit or deny the remaining allegations of ¶ 27 not specifically admitted herein and therefore denies the same.

28. The Linux kernel is subject to the GPL as it is comprised of programs and other works that contain notices placed by contributing copyright holders permitting distribution under the terms of the GPL. The Linux developers' public agreement to apply GPL terms expresses in a binding legal form the conscious public covenant that defines the open-source community -- a covenant that SCO itself supported as a Linux company for many years.

28. Admits that Linux is licensed under the GPL and admits that Linux contains some notices placed by some copyright holders, but denies enforceability or applicability of the GPL and denies the remaining allegations of ¶28 not specifically admitted herein.

29. SCO accepted the terms of the GPL by modifying and distributing Linux products. By distributing Linux products under the GPL, SCO agreed, among other things, not to assert -- indeed, it is prohibited from asserting -- certain proprietary rights over any programs distributed by SCO under the terms of the GPL. SCO also agreed not to restrict further distribution of any programs distributed by SCO under the terms of the GPL.

29. Denies the allegations of ¶29.

E. SCO's Business

 

30. SCO was founded as Caldera, Inc. in 1994, approximately 25 years after the beginning of the development of Unix and three years after Linus Torvalds began the development of Linux, to develop Linux-based business solutions. In 1998, Caldera, Inc. sold its assets relating to its business of developing and marketing Linux to Caldera Systems, Inc., a newly formed corporation.

30. Admits that there was an entity known as Caldera, Inc. in 1994, admits that in 1998 Caldera, Inc. sold certain of its assets to Caldera Systems, Inc., but denies the remaining allegations in ¶30 not specifically admitted herein.

31. SCO began its business as a developer and distributor of the Linux operating system. By 2001, according to SCO, it led the world's largest Linux channel with more than 15,000 resellers worldwide.

31. Admits that it has distributed certain versions of the Linux operating system but denies the remaining allegations of ¶31.

32. SCO has developed and marketed software based on the Linux operating system and provided related services that enable the development, deployment and management of Linux-specialized servers and internet access devices that simplify computing. According to SCO, it was one of the first companies to tailor Linux open-source code from various sources into discrete commercial products.

32. Admits that it previously developed and marketed software based on certain versions of the Linux operating system, and admits that it has provided certain Linux-related services, but denies the remaining allegations of ¶32.

33. Specifically, SCO has distributed and/or redistributed a number of Linux products, including SCO Linux server, SCO OpenLinux Server, and SCO OpenLinux Workstation. SCO has also distributed SCO Volution Manager, a web-based management solution system for managing and maintaining established versions of Linux (as well as Unix operating systems). Although SCO purported to suspend its Linux distribution after the commencement of this action, SCO has continued to make Linux source code available for download through its website.

33. Admits that it previously distributed or re-distributed SCO Linux server, SCO OpenLinux Server, SCO OpenLinux Workstation and SCO Volution Manager, and admits that SCO has suspended its Linux distribution, but denies the remaining allegations contained in ¶33.

34. The viability of SCO's product offerings has depended in large measure upon the efforts of the open-source community in enhancing products and making them compatible for use across multiple software and hardware platforms. Indeed, SCO incorporated certain code licensed pursuant to the GPL into its proprietary Unix products. SCO has also relied on independent developers in the open-source community, such as Linus Torvalds, in order to release upgrades of SCO's Linux-based products.

34. Denies the allegations of ¶34.

35. In addition to distributing Linux products, SCO facilitated the adoption of Linux by providing education programs designed to help its customers to develop, deploy and administer Linux systems. Furthermore, SCO joined with other Linux vendors in UnitedLinux, an initiative to streamline Linux development and certification around a global, uniform distribution of Linux for business.

35. Admits that it previously distributed certain versions of Linux, admits that it previously provided Linux-related educational programs, admits that it joined UnitedLinux, but denies the remaining allegations of ¶35 not specifically admitted herein.

36. On May 7, 2001, Caldera Systems was merged into Caldera International, Inc. (described below), which changed its name to The SCO Group, Inc. in May 2003.

36. Admits the allegations of ¶36.

F. SCO's Open-Source Activities

37. Until it undertook the scheme described herein, SCO supported the open-source community. According to SCO, it fully embraced the open-source model.

37. Admits that it previously supported in some ways the open-source community prior to discovery of violation of its intellectual property rights by IBM and others, but denies the existence of any "scheme," and denies the allegations of ¶37 not specifically admitted herein.

38. SCO Linux products encompass a range of software that uses a number of different licensing schemes, including open-source licenses and, in particular, the GPL. Components of SCO's Linux products (such as OpenLinux), including the Linux kernel, have been developed and made available for licensing under the GPL and similar licenses, which generally allow any person or organization to copy, modify and distribute the software, without royalty, in any form, including source code.

38. Admits that some of its products were previously made available for licensing under the GPL, but denies the remaining allegations of ¶38 not specifically admitted herein.

39. Due to the open-source nature of many of SCO's software products and the licenses under which it has developed and distributed them, SCO's collection of trademarks constitutes its most important intellectual property.

39. Denies the allegations of ¶39.

40. At least until it undertook the scheme described herein, SCO contributed tools and technology to the open-source community. For instance, SCO incorporated open- source components in its product offerings to the betterment of its products, and gave away CD-ROMs containing its Linux operating system at trade shows and allowed it to be freely downloaded over the internet to encourage interest.

40. Admits that it previously engaged in certain Linux-related activities, but denies the remaining allegations of ¶40 not specifically admitted herein.

41. In addition, SCO fostered, and regularly contributed to, multiple open-source development projects in order to enhance the capability of SCO's products and services. In fact, SCO's business model depended upon incorporating contributions from the open-source community into products that it open sourced.

41. Admits that it has contributed to certain open-source development projects, but denies the remaining allegations of ¶41 not specifically admitted herein.

42. SCO also fostered and supported the development of additional open-source and Linux enhancements through the Open Source Development Lab and through participation as a key member of many industry standard and open-source initiatives.

42. Denies the allegations of ¶42.

G. IBM and Linux

43. IBM is a participant in the open-source movement and has made a substantial investment in Linux business efforts over the last 5 years. IBM participates in a broad range of Linux projects that are important to the company and contribute to the open-source community.

43. Admits the allegations of ¶43, but alleges that SCO was unaware of IBM's Linux-related investment prior to its formal announcements thereof, and further alleges that IBM secretly and improperly failed to disclose to SCO such Linux-related investments and its intentions with respect to Linux before and during Project Monterey.

44. Today, IBM has many Linux-related offerings: mainframes and servers that run Linux; memory solutions for Linux environments; a broad range of software offerings; services that include deployment of Linux-based e-business environments, migration of database applications and data to Linux systems, support for Linux-based cluster computing, server consolidation, and a 24-hour technical engineering support line. IBM has created a Linux Center of Competency that offers Linux training and support, applications testing, technical advice and a hands-on environment in which to evaluate Linux and Linux-based applications.

44. Admits the allegations of ¶44.

45. Like thousands of other developers, IBM has properly contributed source code to Linux under the GPL. In fact, SCO has included IBM contributions to Linux in Linux products that SCO has distributed under the GPL. IBM is entitled to the protections of the GPL with respect to the IBM contributions, as well as any other contributions included in SCO's Linux distributions, of which IBM is a recipient.

45. Admits that IBM has contributed source code to Linux projects under the GPL, but denies that such contributions were proper or legal, and denies the remaining allegations of ¶45 not specifically admitted herein.

46. IBM also uses and reproduces Linux itself, both in developing and providing hardware, software and services, and for other, internal business purposes.

46. Is without information sufficient to admit or deny the allegations of ¶46 and therefore denies the same.

47. IBM's employees use and reproduce Linux in designing, testing and implementing hardware, software and consulting products for the company's internal use, for sale to its customers and for contribution to the open source community. IBM's engineers, developers, and consultants are trained to design, operate and implement products and systems that work with Linux. IBM personnel use and reproduce Linux in the course of this training.

47. Is without information sufficient to admit or deny the allegations of ¶47 and therefore denies the same.

48. Many IBM employees already use and reproduce Linux as their platform for day-to-day business computing, such as word processing, spreadsheets and e-mail.

48. Is without information sufficient to admit or deny the allegations of ¶48 and therefore denies the same.

H. Failure of SCO's Business

49. Although it completed an initial public offering, SCO has failed to establish a successful business around Linux. SCO's Linux business has never generated a profit. In fact, the company as a whole did not experience a profitable quarter until after it abandoned its Linux business and undertook its present scheme to extract windfall profits from Unix technology that SCO played no role in developing.

49. Admits that it completed a public offering, admits that SCO has never generated a profit related to Linux, admits that SCO has not generated profit until recently, but denies the remaining allegations of ¶49 not specifically admitted herein and alleges that IBM's Linux-related revenue is from its wrongful conduct in violation of SCO's legal and contractual rights set forth in the Second Amended Complaint.

50. In an attempt to revive its faltering Linux business, SCO acquired rights to Unix operating systems originally developed by Bell Laboratories and undertook the unification of Unix and Linux operating systems. On May 7, 2001, Caldera Systems was merged into Caldera International, Inc., a holding company formed to acquire the Server Software and Professional Services divisions of Original SCO, including Original SCO's rights to the Unix assets it acquired from Novell and the Unix variant developed by Original SCO.

50. Admits that Caldera Systems, Inc. was merged into Caldera International, Inc., admits that SCO acquired rights to the UNIX operating system originally developed by Bell Laboratories, but denies the remaining allegations of ¶50 not specifically admitted herein.

51. Following its acquisition of Original SCO's Unix assets, SCO described its business plan as being to integrate its Linux-based products and services with its Unix-based products and services as a way of encouraging businesses to adopt the open-source, Linux-based operating systems.

51. Denies the allegations of ¶51.

52. In pursuit of this strategy, SCO designed SCO Linux to permit existing Unix-based users to migrate to Linux. In addition, SCO marketed and sold a number of Unix products, including UnixWare, SCO OpenServer, Reliant HA, and Merge, and SCO's Global Professional Services assisted customers in developing and deploying unified Unix and Linux solutions through consulting and custom engineering services.

52. Denies the allegations of ¶52.

53. Like SCO's original Linux business, however, this enterprise failed. SCO has not been able to operate a successful, legitimate business concerning Linux and/or Unix. With apparently no other prospects, SCO shifted its business model yet again -- this time to litigation and threats of litigation, as is described below.

53. Denies the allegations of ¶53.

I. SCO's Scheme

54. SCO devised a scheme to profit from the Unix assets that it acquired from Original SCO, though those assets were in no way developed by SCO. Although most, if not all, of the AT&T Unix technology that SCO purports to own is generally known, available without restriction to the general public or readily ascertainable by proper means, SCO undertook to create fear, uncertainty and doubt in the marketplace in regard to SCO's rights in and to that technology.

54. Denies the allegations of ¶54.

55. Recognizing that there is little value in its Unix rights, SCO did not limit its scheme to that technology. Rather, SCO devised and executed a plan to create the false perception that SCO holds rights to Unix that permit it to control not only all Unix technology, but also Linux -- including those aspects generated through the independent hard work and creativity of thousands of other developers and long distributed by SCO itself under the GPL.

55. Denies the allegations of ¶55.

56. SCO undertook to carry out its scheme by, among other things, (a) bringing baseless legal claims against IBM and threatening to sue other companies and individuals, (b) conducting a far-reaching publicity campaign to create the false and/or unsubstantiated impression that SCO has rights to Unix and Linux that it does not have and that IBM and others have violated SCO's rights and (c) otherwise seeking to condition the market to believe that SCO has rights to Unix and Linux that it does not have and cannot properly enforce.

56. Denies the allegations of ¶56.

J. SCO's Lawsuit and Threats

57. On March 7, 2003, without any prior notice or warning that would have allowed IBM to understand SCO's claims and respond to them, SCO sued IBM alleging a host of meritless claims. In its first Complaint, SCO principally alleged that IBM had misappropriated SCO's trade secrets in UNIX System V. SCO also alleged that IBM had breached its contractual obligations to SCO by, among other things, incorporating and inducing others to incorporate SCO's intellectual property into Linux, and that that IBM had competed unfairly and interfered with SCO's contracts with others.

57. Admits it alleges that IBM has, among other actions, breached contractual obligations to SCO by, among other things, incorporating and inducing others to incorporate source code in the Linux kernel in violation of SCO's contractual and intellectual property rights, but denies the remaining allegations of ¶57 not specifically admitted herein.

58. SCO submitted an Amended Complaint on July 22, 2003 and a Second Amended Complaint on February 27, 2004.

58. Although this allegation is wholly irrelevant, admits the allegations of ¶58.

59. In its succession of complaints, SCO has asserted legal theories that are meritless , such as that SCO has ownership rights with respect to all of the code in AIX and Dynix . SCO has also sought relief to which it is plainly not entitled, such as a permanent injunction terminating IBM's ability to possess and use the software products it licensed from AT&T Technologies, Inc., notwithstanding the fact that those rights are expressly "irrevocable" and "perpetual".

59. Although this allegation is wholly irrelevant, denies the allegations of ¶59.

60. SCO further persisted in maintaining for nearly a year the unsound claim that IBM had misappropriated its trade secrets. Yet when pressed to identify a single trade secret that IBM allegedly misappropriated, SCO could not, even after being ordered to do so by the Court. SCO finally (and properly) abandoned this claim, upon which SCO's entire lawsuit was initially premised, in its Second Amended Complaint.

60. Although this allegation is wholly irrelevant, denies the allegations of ¶60.

K. SCO's Campaign of False Publicity to Disparage AIX, Dynix and Linux

61. Following the commencement of its lawsuit against IBM, SCO continued its campaign of falsehoods by further misrepresenting to the market the interplay of UNIX, AIX, Dynix and Linux and SCO's and IBM's rights to these products.

61. Denies the allegations of ¶61.

62. SCO has repeatedly made false public statements to the effect that it has the right and authority to revoke, and has effectively revoked, IBM's right to use AIX, IBM's version of Unix. For example, on May 12, 2003, Chris Sontag, a Senior Vice President of SCO, stated publicly, SCO has "the right to revoke the AIX license", and on June 16, 2003, SCO announced publicly that it had "terminated IBM's right to use or distribute any software product that is a modification of or based on Unix System V source code". Indeed, in an interview given by SCO CEO Darl McBride to Peter Williams of vnunet.com on June 25, 2003, SCO falsely represented that its contractual rights to "pull" IBM's contract are "bullet-proof". SCO has made similarly false statements relating to Dynix.

62. Admits that it has made certain public statements regarding IBM's rights to use AIX and Dynix, admits that it claims the legal right and authority to revoke, and has effectively revoked, IBM's right to use, license or distribute AIX and that it has so stated in certain statements, admits that it claims the legal right to revoke IBM's use, license or distribution of Dynix and has so stated in certain statements, but denies the remaining allegations of ¶62 not specifically admitted herein.

63. In addition to purporting to terminate IBM's rights to use AIX, SCO has also disparaged AIX as "unauthorized". In a press release dated June 16, 2003, SCO's counsel stated that "Today, AIX is an unauthorized derivative of the Unix System operating system source code and its users are, as of this date, using AIX without a valid basis to do so". In the same press release, Darl McBride, SCO's Chief Executive Officer, stated that "IBM no longer has the authority to sell or distribute AIX and customers no longer have the right to use AIX software". SCO has made similarly false and disparaging statements relating to Dynix.

63. Admits that it has made certain public statements regarding IBM's rights to use AIX and Dynix, admits that it claims the legal right and authority to revoke, and has effectively revoked, IBM's right to use, license or distribute AIX and that it has so stated in certain statements, admits that it claims the legal right to revoke IBM's use, license or distribution of Dynix and has so stated in certain statements, but denies the remaining allegations of ¶63 not specifically admitted herein.

64. SCO's false and misleading statements have not been limited to AIX. In flat contradiction of its allegations in its Second Amended Complaint (i.e., that this case is not about the relative merits of proprietary versus open-source software), SCO has now falsely stated, in effect, it owns and is entitled to collect royalties regarding Linux. For example, on July 21, 2003, McBride stated, on behalf of SCO, Linux infringes SCO's rights and, as "a viable alternative to legal enforcement" SCO is prepared to offer a license to SCO's UNIX products that would, SCO says, permit lawful use of Linux.

64. Admits that it has made public statements about offering licenses to provide customers a run time binary license to operate Linux, but denies the remaining allegations of ¶64 not specifically admitted herein.

65. SCO has in fact commenced selling such "intellectual property licenses", which it falsely claims are necessary for the use of Linux. SCO has publicly touted its success in getting Linux users to sign these licenses with SCO in order to bolster its meritless claims that SCO possesses rights to Linux.

65. Admits SCO has sold licenses and has publicly stated as much, but denies the remaining allegations of ¶65.

66. SCO's campaign has not been limited to press releases and public interviews. SCO has also propagated falsehoods about its and IBM's rights in non-public meetings with analysts. SCO has solicited and participated in these meetings to misuse analysts to achieve wider dissemination of SCO's misleading message about UNIX, AIX and Linux and to damage IBM and the open-source movement. In a luncheon hosted by Deutsche Bank analyst Brian Skiba, on or about July 22, 2003, for example, SCO falsely stated that IBM transferred the NUMA code from Sequent to Linux without any legal basis to do so and that IBM's actions were giving rise to about $1 billion in damages per week. In an interview in June 2003 with Client Server News, SCO misrepresented to analysts that IBM has improperly released "truckloads" of code into the open-source community.

66. Admits it claims that IBM has contributed certain Dynix code to Linux in violation of its contractual and legal obligations to SCO and that SCO has so stated, admits it claims that IBM's violation of SCO's rights are giving rise to damages as a result of IBM's improper profit from Linux and improper continued use of AIX, and that SCO has so stated, but denies the remaining allegations of ¶66 not specifically admitted herein.

67. SCO's false and misleading statements have also damaged the reputation and prospects of the entire open-source community. SCO's misconduct undermines the substantial public interest in the provision of software that is reliable, inexpensive, and accessible by the general public.

67. Denies the remaining allegations of ¶67 not specifically admitted herein.

L. SCO's Copyright Threats and Litigation Against IBM and Others

68. In furtherance of its scheme to disparage and falsely lay claim to Linux, SCO has made open threats to Linux users that SCO intends to pursue litigation against them, and has recently filed baseless copyright infringement claims against IBM and another alleged Linux user.

68. Denies the remaining allegations of ¶68 not specifically admitted herein.

69. In May 2003, SCO first sent letters to 1500 of the world's largest corporations, including IBM , threatening litigation. In its letters, an example of which is attached hereto as Exhibit L, SCO states, "We believe that Linux infringes on our Unix intellectual property and other rights". SCO further states, "We intend to aggressively protect and enforce these rights" against not only the companies involved with "the Linux development process" but also "the end user" companies using any Linux technology.

69. Admits having sent letters to the 1500 largest companies in the world and notes that the letters are the best evidence of the contents thereof, denies that said letters threatened litigation and denies the remaining allegations of ¶69 not specifically admitted herein.

70. SCO later made clear that it intends to bring legal action against Linux end-users. For example, in a press conference on July 21, 2003, SCO stated that purchasing a license from SCO was the "alternative to legal enforcement against Linux end-users".

70. Admits to discussing licensing and notes that the transcript of that conference is the best evidence of what was said, and denies the remaining allegations of ¶70 not specifically admitted herein.

71. On November 18, 2003, during a teleconference sponsored by SCO, SCO's counsel said that it "will be looking to identify a defendant" in "the near term" and such defendant will be "a significant user that has not paid license fees and is in fact using the proprietary and copyrighted material". During the same call, SCO Chief Executive, Darl McBride was asked if the 1500 companies threatened earlier were the same group of companies that SCO would pursue. McBride responded: "We will start there. That's not going to be the ending point, but clearly large customers that have, that are using a lot of Linux machines inside of their environment would be the starting point for us."

71. Admits to a teleconference on that day, the complete transcript of which is the best evidence of what was actually said and in context, but denies the remaining allegations of ¶71 not specifically admitted herein.

72. Although its initial complaints against IBM did not include a claim for copyright infringement, SCO stated publicly after it filed its suit that IBM had infringed SCO's copyrights, and threatened to sue IBM for copyright infringement with respect to Linux. For example, at its 2003 SCO Forum conference, SCO represented to attendees, including press and financial analysts, that Linux is an unauthorized derivative of UNIX, that IBM had infringed its rights in Linux and that SCO was entitled to damages and injunctive relief against IBM.

72. Denies the allegations of ¶72.

73. At the December 5, 2003 hearing concerning discovery issues, SCO further represented to the Court that SCO would be filing a copyright infringement action against IBM "within the coming few days or no less than a week."

73. Although wholly irrelevant, admits that the entire transcript of that hearing is the best evidence of what was said, including the comments ascribed to counsel, and denies the remaining allegations of ¶73 not specifically admitted herein.

74. After making public its intent to sue IBM for copyright infringement on December 5, SCO also stepped up its threats directed at other Linux users.

74. Denies the allegations of ¶74.

75. On December 22, 2003, SCO announced in a press release that it had "commenced providing notification to selected Fortune 1000 Linux end users outlining. . . violations of SCO's copyrights contained in Linux". In connection with its December 22 press release, SCO released a letter (attached hereto as Exhibit M) dated December 19, 2003 that it sent to Linux users. In that letter, SCO wrote that "a portion of our copyrighted code . . . has been incorporated into Linux without our authorization" and that "use of the Linux operating system in a commercial setting violates our rights under the United States Copyright Act".

75. Admits a press release and letter were sent, which themselves are the best evidence of their contents, and denies the remaining allegations of ¶75 not specifically admitted herein.

76. In remarks delivered at Harvard Law School on February 2, 2004, SCO CEO McBride stated that "on the copyright side and on the end user side, we'll be in a courtroom somewhere in America soon . . . " At the same event, McBride predicted that suits would be filed by mid-February, and a SCO executive, Christopher Sontag, who also attended, stated that SCO would "probably have an issue with" any entities using Linux "in a large commercial environment and getting a great deal of economic benefit of the use of some of our portions of our intellectual property."

76. Admits various comments were made at Harvard Law School, the complete transcript of which is the best evidence what was actually said and in context, but denies the remaining allegations of ¶76 not specifically admitted herein.

77. Shortly thereafter, SCO moved for and obtained leave to add a copyright infringement claim against IBM. In the claim, SCO alleges that IBM has infringed, induced the infringement of, and contributed to the infringement of, numerous of the UNIX copyrights SCO claims to own, including through its activities relating to AIX, Dynix and Linux.

77. Admits that SCO has filed a copyright infringement claim and notes that text of the complaint is the best evidence of that claim and denies the remaining allegations of ¶77 not specifically admitted herein.

78. In particular, with respect to Linux, SCO alleges that "a significant amount of UNIX protected code and materials are currently found in Linux 2.4.x, 2.5.x and Linux 2.6.x releases in violation of SCO's contractual rights and copyrights" and that IBM's work, including at its Linux Technology Center, in using, reproducing and improving Linux therefore infringes, and contributes to the infringement of, SCO's UNIX copyrights.

78. Admits that SCO has filed a copyright infringement claim and notes that text of the complaint is the best evidence of that claim and denies the remaining allegations of ¶78 not specifically admitted herein.

79. SCO also recently filed suit against a Linux user, alleging that the use of Linux infringes copyrights SCO purports to hold to UNIX.

79. Admits that SCO has filed a copyright infringement lawsuit and notes that text of the complaint is the best evidence of that claim and denies the remaining allegations of ¶79 not specifically admitted herein.

80. SCO' s complaint in that suit asserts that "Linux has been transformed from a non-commercial operating system into a powerful general enterprise operating system for which, as stated in its suit against IBM, SCO believes IBM is responsible.

80. Admits that SCO has filed a copyright infringement lawsuit and notes that text of the complaint is the best evidence of that claim and denies the remaining allegations of ¶80 not specifically admitted herein.

81. SCO further claims that "parts or all of [SCO's copyrighted material] has been copied or otherwise improperly used as the basis for creation of derivative software code included (in) one or more Linux implementations, including Linux versions 2.4 and 2.6, without the permission of SCO". Again, as stated in its suit against IBM, SCO claims that IBM is responsible for such copyrighted materials being contributed to Linux.

81. Admits that SCO has filed a copyright infringement lawsuit and notes that text of the complaint is the best evidence of that claim and denies the remaining allegations of ¶81 not specifically admitted herein.

82. SCO' s threats and its claims against IBM and other Linux users are meritless, and are simply part and parcel of SCO's illicit scheme to get Linux users to pay SCO for unneeded licenses to Linux.

82. Denies the allegations of ¶82.

M. Novell's Exercise of Rights

83. On June 9, 2003, in response to SCO's actions, and pursuant to its obligations under Amendment X, Novell stated its belief that SCO has no right to terminate IBM's Unix license which is perpetual and irrevocable. Novell therefore exercised its retained rights to AT&T's UNIX System V to put a stop to SCO's misconduct. Under Section 4.16(b) of the Asset Purchase Agreement between Novell and Original SCO dated September 19, 1995 ("APA"), attached hereto as Exhibit N, Novell directed SCO to "waive any purported right SCO may claim to terminate IBM's [Unix] licenses enumerated in Amendment X or to revoke any rights thereunder, including any purported rights to terminate asserted in SCO's letter of March 6, 2003 to IBM". A copy of Novell's June 9, 2003 letter is attached hereto as Exhibit O.

83. Admits the existence of the letter of June 9, 2003, but denies any legal or factual basis for the letter and denies the remaining allegations of ¶83 not specifically admitted herein.

84. When SCO failed to take the actions directed by Novell, on June 12 2003 Novell exercised its rights under Section 4.16(b) ofthe APA to waive and revoke, in SCO' stead, any purported right SCO claimed to terminate IBM' s licenses. A copy of Novell' June 12 2003 letter is attached hereto as Exhibit P.

84. Admits the existence of the letter of June 12, 2003 but denies any right in Novell to waive or revoke SCO's rights and denies any legal or factual basis for the letter and denies the remaining allegations of ¶84 not specifically admitted to herein.

85. Notwithstanding the fact that IBM' s rights to UNIX System V are expressly "irrevocable" and "perpetual" under Amendment X and the fact that Novell has exercised its right to waive, in any event, any contractual rights SCO claims IBM violated, SCO nevertheless purported to terminate IBM' s licenses on June 13 2003. Moreover, even assuming (contrary to fact) that IBM' s rights were terminable, at no time prior to SCO' s purported termination did SCO comply with its obligations under the IBM Agreements to identify the specific acts or omissions that SCO alleges constitute IBM' s breach, despite IBM' s demands that SCO do so.

85. Denies the allegations of ¶85.

86. Rather, SCO has continued to misrepresent that it can, or will, or has in fact revoked IBM' s right to use UNIX System V, without disclosing that IBM' s rights to UNIX System V are not terminable or that Novell has exercised its right to waive any contractual rights SCO claims IBM violated. In an interview with Information , 2003, for instance, SCO falsely stated that it has the right to revoke IBM' s license and order the destruction of every copy of AIX.

86. Admits it has revoked IBM's right to further use, license or distribute AIX, pursuant to the express terms of the Software Agreement and related documents, and that it has so stated, but denies the remaining allegations of ¶86 not specifically admitted herein.

87. Novell additionally invoked its rights under Section 4.16(b) of the AP A to correct SCO's illogical and unsupported interpretation of the IBM Agreements and the Sequent Agreements upon which its breach of contract claims are based, and to explicitly waive and revoke any purported right SCO had to assert a breach based on this wrong interpretation.

87. Denies the allegations of ¶87.

88. On October 2003 Novell informed SCO by letter that its position that IBM original code contained in AIX "must be maintained as confidential and subject to use restrictions is contrary to the agreements between AT&T and IBM including Amendment X, to which Novell is a party". A copy of Novell's October 7, 2003 letter is attached hereto as Exhibit Q.

88. Admits the existence of the letter of October 7, 2003, but denies any legal or factual basis for it and denies the remaining allegations of ¶88 not specifically admitted herein.

89. According to Novell, the IBM Agreements provide "a straightforward allocation of rights (1) AT&T retained ownership of its code from the Software Products ("AT&T Code ), and the Agreements' restrictions on confidentiality and use apply to the AT&T Code, whether in its original form or as incorporated in a modification or derivative work, but (2) IBM retained ownership of its own code, and the Agreements' restrictions on confidentiality and use do not apply to that code so long as it does not embody any AT&T Code. Novell concluded that any other interpretation "would defy logic as well as the intent of the parties".

89. Admits the existence of the letter of October 7, 2003, but denies any legal or factual basis for it and denies the remaining allegations of ¶89 not specifically admitted herein.

90. Novell therefore directed SCO to waive any purported right to assert a breach of the IBM Agreements based on IBM' s use or disclosure of code that does not contain any of AT&T's UNIX System V code.

90. Admits the existence of the letter but denies Novell's right to waive IBM's breaches of agreements and denies the remaining allegations of ¶90 not specifically admitted herein.

91. When SCO failed to follow Novell' s instruction, on October 10, 2003 Novell expressly waived and revoked any purported right of SCO's to assert a breach of the IBM Agreements based on IBM's use or disclosure of code that does not contain any UNIX System V code. A copy of Novell's October 10, 2003 letter is attached hereto as Exhibit R.

91. Admits the existence of the letter of October 10, 2003 but denies any legal or factual basis for the letter and denies the remaining allegations of ¶91 not specifically admitted herein.

92. On February 6, 2004, Novell similarly directed SCO to waive any purported right to assert a breach of the Sequent Agreements based on IBM' s use or disclosure of code contained in Dynix that does not contain any UNIX System V code. February 6 2004 letter is attached hereto as Exhibit S.

92. Admits the existence of the letter of February 6, 2004, but denies any legal or factual basis for the letter and denies the remaining allegations of ¶92 not specifically admitted herein.

93. In the letter, Novell reiterated that SCO' s interpretation of the Sequent Agreements, like its interpretation of IBM Agreements, was wrong and "plainly contrary to the position taken by AT&T, as author of and party to" such agreements.

93. Admits the existence of the letter, but denies any legal or factual basis for the letter and denies the remaining allegations of ¶93 not specifically admitted herein.

94. When SCO failed to follow Novell' s instruction, on February 11 2004 Novell expressly waived any purported right of SCO's to assert a breach of the Sequent Agreements based on IBM's use or disclosure of code that does not contain any UNIX System V code. A copy of Novell's February 11, 2004 letter is attached hereto as Exhibit T.

94. Admits to the existence of the letter of February 11, 2004 but denies any legal or factual basis for the letter and denies the remaining allegations of ¶94 not specifically admitted herein.

95. Despite these proper instructions and waivers by Novell, SCO continues improperly to maintain that IBM has breached the IBM Agreements and the Sequent Agreements by contributing its original code to Linux.

95. Denies the allegations of ¶95.

96. In addition to its waivers of SCO's purported rights with respect to IBM Novell has additionally asserted publicly that it owns the copyrights for UNIX, and that SCO's registration of copyrights for UNIX was improper.

96. Admits Novell has falsely publicly claimed that it owns copyrights for UNIX but denies those false claims and the remaining allegations of ¶96 not specifically admitted herein.

N. SCO's Refusal to Specify Its Claims

97. Rather than particularize its allegations of misconduct by IBM and others SCO has obfuscated and altered its claims to foster fear, uncertainty and doubt about its rights and the rights of others. In letters dated April 2, 2003, and May 5, 2003, attached hereto as Exhibits U and V, respectively, IBM expressly asked SCO to advise IBM as to what SCO contends IBM has done in violation of any of its agreements, and what SCO contends IBM should do to cure such violations. SCO refused. , SCO's counsel indicated, in an interview with Maureen O' Gara of LinuxGram, that it "doesnt want IBM to know what they (SCO' s substantive claims) are".

97. Admits that IBM sent letters dated April 2, 2003 and May 5, 2003 but denies the remaining allegations of ¶97 not specifically admitted herein.

98. SCO has obfuscated its claims and has hidden its supposed evidence because the evidence does not demonstrate the breaches and violations that SCO has alleged. Moreover, key developers and influence leaders in the open-source community, including leaders of Linux kernel development, have stated publicly that they are prepared immediately to remove any allegedly offending material from the Linux kernel. Rather than permit remediation or mitigation of its alleged injuries (which are non-existent), SCO has declined to reveal the particulars of the alleged violations in order to artificially and improperly inflate the price of its stock.

98. Denies the allegations of ¶98.

99. While refusing to supply IBM with meaningful specifics regarding the alleged breaches, SCO has shown its purported evidence to analysts, journalists and others who are interested in seeing it. For example, at a forum held in Las Vegas on August 17- 2003 SCO made a false and misleading presentation concerning its claims against IBM, in which SCO purported to disclose examples of its evidence of alleged misconduct by IBM.

99. Denies the allegations of ¶99.

100. In light of SCO' s continuing refusal to provide detail regarding its claims IBM moved on October 1, 2003 to compel complete responses to IBM' s First Set of Interrogatories, and on November 6, 2003, to compel complete responses to IBM' s Second Set of Interrogatories. Even in the face of these motions, however, SCO continued to attempt to obfuscate its claims and hide its evidence.

100. Although legally irrelevant, SCO admits IBM filed motions to compel but denies the remaining allegations of ¶100 not specifically admitted herein.

101. IBM' s motions to compel were granted at a hearing on December 5, 2003.

101. Although legally irrelevant, admits that IBM motions to compel were granted in part.

102. Yet despite an Order directing SCO, among other things, to "identify and state with specificity the source code(s) that SCO is claiming form the basis of their action against IBM" by January 12 2004, SCO failed adequately to do so. In its supplemental responses purportedly submitted in compliance with the Order, SCO still failed to identify a single line of UNIX System V code that IBM allegedly misappropriated or misused.

102. Although legally irrelevant, admits the contents of the Court Order includes some of the excerpted language but denies all remaining allegations of ¶102.

103. In fact, finally realizing that it could no longer maintain the illusion that IBM had misappropriated its trade secrets, SCO dropped its trade secrets claim altogether. SCO continues, however, to press equally meritless contract and other claims against IBM, despite being unwilling to identify the UNIX System V code that IBM allegedly misused in violation of any agreement.

103. Although legally irrelevant, denies the allegations of ¶103.

104. As a result of SCO's ongoing failure to be forthcoming regarding its claims against IBM, SCO was ordered on March 4, 2004 yet again to provide the specifics of its claims against IBM, this time by April 19, 2004.

104. Although legally irrelevant, denies the allegations of ¶104.

105. In the meantime, by failing to disclose the particulars of its claims for more than a year, SCO has been able to cultivate and maintain in the marketplace fear uncertainty and doubt about its rights and the rights of others.

105. Although legally irrelevant, denies the allegations of ¶105.

O. Effects of SCO' s Misconduct and State of Mind

106. As a result of the misconduct described above, SCO has not only artificially inflated its stock price and been unjustly enriched, but it has also injured IBM and more broadly, the open-source movement. SCO' s misconduct has resulted in damage to IBM' business, including its reputation and goodwill, has interfered with IBM' s prospective economic relations and has required IBM unduly to divert resources to respond to baseless allegations. SCO has injured the open-source movement, of which it was once a part, by fostering fear uncertainty and doubt about its and others' rights to use UNIX, AIX, Dynix and Linux.

106. Denies the allegation of ¶106.

107. SCO's misconduct is especially egregious because SCO has implemented its scheme with actual knowledge or in reckless disregard of the fact that SCO does not have the rights that it seeks to assert (e.g. the right to terminate IBM's irrevocable and perpetual UNIX rights). Moreover, SCO committed not to assert certain proprietary rights over or to restrict further distribution of any program distributed by SCO under the terms of the GPL.

107. Denies the allegation of ¶107.

P. SCO' s Copyright Infringement

108. As stated, IBM has made contributions of source code to Linux under the GPL, some of which are identified below. IBM owns valid copyrights in these contributions, as illustrated below, and has identified them with appropriate copyright notices.

108. Admits that IBM has made contributions of source code to Linux 2.4 and 2.5 kernels under the GPL, but denies the applicability or enforceability of the GPL and denies the remaining allegations of ¶108 not specifically admitted herein.

109. Notwithstanding SCO's allegations that IBM and others have breached SCO' s intellectual property rights, SCO has infringed and is infringing IBM' s copyrights in its Linux contributions.

109. Admits that IBM and others have breached SCO's intellectual property rights, but denies the remaining allegations of ¶109.

110. IBM granted SCO and others a non-exclusive license to these copyrighted contributions on the terms set out in the GPL and only on the terms set out in the GPL. SCO breached its obligations under the GPL, however, and therefore its rights under the GPL terminated.

110. Denies the allegations of ¶110 and denies the enforceability or applicability of the GPL.

111. SCO has infringed and is infringing IBM' s copyrights by copying, modifying, sublicensing and/or distributing Linux products including IBM' s copyrighted contributions after its rights under the GPL terminated. SCO has taken copyrighted source code made available by IBM under the GPL, included that code in SCO's Linux products, and copied modified, sublicensed and/or distributed those products other than as permitted under the GPL.

111. Denies the allegations of ¶111.

Q. SCO's Patent Infringement

112. In addition to infringing IBM' s copyrights, SCO is engaged in pervasive acts of infringement of no fewer than three of IBM' s patents, by making, using, selling and/or offering to sell a variety of products, including but not limited to: "UnixWare , a UNIX operating system for Intel and AMD processor-based computer systems; "Open Server , an operating system platform; and "Reliant HA" clustering" software that permits interconnection of multiple servers to achieve redundancy.

112. Admits that SCO licenses and distributes UnixWare, "OpenServer," "SCO Manager," and "Reliant HA," but denies infringement and denies the remaining allegations of ¶112.

FIRST COUNTERCLAIM

Breach of Contract

113. IBM repeats and realleges the averments in paragraphs 1 through 112, with the same force and effect as though they were set forth fully herein.

113. Repeats and realleges ¶¶1 through 112, above.

114. SCO is licensor and IBM licensee of the right to use and sublicense UNIX System V software, as specified in the AT&T Agreements, Amendment X, the Sequent Agreements and other similar agreements, all of which are valid contracts.

114. Admits that IBM continues to be obligated to SCO by confidentiality requirements and other provisions in the AT&T Agreements and Amendment X that, by their terms, specifically continue beyond termination, but alleges that IBM's right to use, license and distribute under the said agreements has been lawfully and properly terminated, and therefore denies that IBM has any right under the said agreements and denies the remaining allegations of ¶114 not specifically admitted herein.

115. IBM has performed all its duties and obligations under the AT&T Agreements, Amendment X, the Sequent Agreements and other similar agreements.

115. Denies the allegations of ¶115.

116. SCO has breached its express duties and obligations under the AT&T Agreements, Amendment X, the Sequent Agreements and other similar agreements by, among other things, purporting to terminate IBM's irrevocable and perpetual UNIX rights and/or refusing to provide IBM adequate notice and opportunity to cure its alleged misconduct.

116. Denies the allegations of ¶116.

117. SCO has also breached the implied covenant of good faith and fair dealing under the AT&T Agreements, Amendment X, the Sequent Agreements and other similar agreements by affirmatively seeking to deprive IBM of the benefits to which it is entitled under those contracts through numerous acts of bad faith, including, among other things, making false and misleading statements to the public about SCO's and IBM's rights under the same.

117. Denies the allegations of ¶117.

118. IBM has suffered damages from SCO's breaches of contract in an amount to be determined at trial.

118. Denies the allegations of ¶118.

SECOND COUNTERCLAIM

Lanham Act Violation

119. IBM repeats and realleges the averments in paragraphs 1 through 118, with the same force and effect as though they were set forth fully herein.

119. Repeats and realleges ¶¶1-118, above.

120. IBM sells and distributes AIX and Linux-related products and services in interstate commerce, and IBM sold and distributed Dynix in interstate commerce.

120. Admits that IBM sells Linux-related services in interstate commerce, but denies that IBM has or had authority to sell, license or distribute AIX in interstate commerce from and after June 16, 2003, and denies that IBM has or had authority to license, sell or distribute Dynix in interstate commerce from and after September 2, 2003, alleges that IBM's rights in AIX and Dynix have been lawfully and properly terminated, and denies the remaining the allegations of ¶120 not specifically admitted herein.

121. SCO has made material false representations regarding AIX, Dynix and IBM's Linux-related products and services, which affect a customer's decision whether to purchase these products and services. Specifically, SCO has publicly misrepresented the legitimacy of these products and services by falsely representing that IBM no longer has the right, authority and license to use, produce and distribute these products and by misrepresenting SCO's own rights in and to Unix, AIX, Dynix and Linux.

121. Denies the allegations of ¶121.

122. SCO has published its false statements in a series of widely-distributed press releases, press interviews and other streams of commerce, as part of its bad faith campaign to discredit IBM's products and services in the marketplace, to increase the perceived value of SCO's limited rights to UNIX and to promote SCO's own UNIX operating systems, UnixWare and Open Server.

122. Denies the allegations of ¶122.

123. These statements are likely to cause confusion and mistake and have in fact caused confusion and mistake as to the characteristics of IBM's goods, products and/or services.

123. Denies the allegations of ¶123.

124. As a direct result of SCO's false representations, all of which are in violation of 15 U.S.C. § 1125, IBM has suffered damages in an amount to be determined at trial. IBM is also entitled to damages and attorneys' fees pursuant to 15 U.S.C. § 1117(a).

124. Denies the allegations of ¶124.

THIRD COUNTERCLAIM

Unfair Competition

125. IBM repeats and realleges the averments in paragraphs 1 through 124, with the same force and effect as though they were set forth fully herein.

125. Repeats and realleges ¶¶1-124, above.

126. IBM has invested over two decades and hundreds of millions of dollars in the creation and development of AIX. Through IBM' s efforts, innovation and hard work, AIX has become one of the leading UNIX operating systems, and IBM' s AIX products and services are sold and used throughout the United States. Similarly, IBM expended substantial resources to acquire Dynix and has invested substantial time and effort in developing its Linux-related products and services.

126. Admits that IBM has expended a substantial investment of time, effort and money in development of AIX pursuant to the terms of its license with SCO and SCO's predecessors in interest, admits that AIX has become one of the world's leading UNIX operating systems, admits that IBM's products and services are sold and used throughout the United States, admits that IBM acquired Sequent and thereby acquired Sequent's interest in Dynix, subject to the terms and conditions of Sequent's agreements with SCO and/or its predecessors, but denies the remaining allegations of ¶126 not specifically admitted herein.

127. SCO has intentionally, knowingly, wrongfully and in bad faith engaged in a public pattern of conduct aimed at depriving IBM of the value of its AIX, Dynix and Linux-related products and services and misappropriating the same for the benefit of SCO' s UNIX licensing business as well as SCO' s competing UNIX operating systems. SCO' s misconduct is likely to result in confusion in the marketplace and has in fact resulted in confusion concerning AIX, Dynix and Linux.

127. Denies the allegations of ¶127.

128. SCO has engaged in unfair competition by falsely claiming ownership of IBM' s intellectual property as well as the intellectual property created by the open-source community; publishing false and disparaging statements about AIX and Dynix; making bad faith misrepresentations concerning IBM' s rights to UNIX, AIX and Dynix; misusing and misrepresenting SCO's limited rights in UNIX to injure IBM; and falsely accusing IBM of theft of SCO' s intellectual property.

128. Denies the allegations of ¶128.

129. As a direct result of SCO's unfair competition, IBM has and will continue to suffer damage to its reputation, goodwill, and business in an amount to be determined at trial. Because SCO's acts of unfair competition were and are willful and malicious, IBM is also entitled to punitive damages.

129. Denies the allegations of ¶129.

FOURTH COUNTERCLAIM

Intentional Interference with Prospective Economic Relations

130. IBM repeats and realleges the averments in paragraphs 1 through 129, with the same force and effect as though they were set forth fully herein.

130. Repeats and realleges ¶¶1-129, above.

131. IBM is actively engaged in the development, manufacture and sale of AIX and products and services that work with Linux, and IBM has sold and distributed Dynix. IBM has prospective business relationships with numerous companies and individuals to whom IBM has sold and/or licensed these products and services and/or to whom IBM seeks to sell and/or license these products and services. IBM also has prospective business relationships with business and individual members of the Linux and open-source software development distribution, service and computing communities with whom IBM seeks to do business in various capacities, including through research and development efforts.

131. Admits the allegations of ¶131.

132. SCO is fully aware of these prospective business relationships and the importance of the relationships to IBM's continued commercial success.

132. Admits it is generally aware that IBM has or may have certain prospective business relationships that IBM deems important, but denies the remaining allegations of ¶132 not specifically admitted herein.

133. SCO has intentionally interfered with these relationships through improper means, including by making false and misleading statements to IBM's prospective customers that IBM no longer has the right, authority and license to use, produce and distribute AIX, Dynix and Linux-related products. SCO has also misrepresented its own rights relating to these operating systems. The purpose of SCO's unlawful conduct is to injure IBM by driving prospective customers of AIX, Dynix and IBM's Linux-related products and services away from purchasing and licensing the same from IBM.

133. Denies the allegations of ¶133.

134. Furthermore, SCO has intentionally interfered with IBM's valuable economic relationships with business and individual members of the Linux and open-source software communities by falsely and publicly accusing IBM of inserting "truckloads" of SCO's intellectual property into the Linux kernel and related software. Again, the purpose of SCO's unlawful conduct is to injure IBM by driving away these businesses and individuals from future open-source collaborations with IBM.

134. Denies the allegations of ¶134.

135. IBM has suffered damages from SCO's tortious interference with its economic relations in an amount to be determined at trial. Because SCO's tortious interference with IBM's prospective economic relations was and is willful and malicious, IBM is entitled to punitive damages.

135. Denies the allegations of ¶135.

FIFTH COUNTERCLAIM

Unfair and Deceptive Trade Practices

136. IBM repeats and realleges the averments in paragraphs 1 through 135, with the same force and effect as though they were set forth fully herein.

136. Repeats and realleges ¶¶1-135, above

137. SCO has engaged in unfair and deceptive trade practices by, among other things, falsely representing that IBM no longer has the right, authority and/or license to use, produce and/or distribute AIX, Dynix and Linux-related products; misrepresenting SCO's and IBM's rights relating to these operating systems; and publishing false and disparaging statements about AIX, Dynix and Linux.

137. Denies the allegations of ¶137.

138. SCO's false statements and misrepresentations were made in connection with SCO's solicitation of business, and in order to induce IBM and others to purchase products and licenses from SCO. SCO's statements and misrepresentations are likely to cause confusion and misunderstanding as to the qualities, benefits and characteristics of AIX, Dynix and Linux. SCO has misrepresented the qualities, benefits and/or characteristics of these products.

138. Denies the allegations of ¶138.

139. SCO's misconduct was undertaken for the purpose of deceiving the marketplace and defaming IBM and has deceived and misled the public and IBM's customers; disparaged the goods, services, and business of IBM; and otherwise injured IBM's business in violation of N.Y. Gen. Bus. Law § 349 and the laws of other states.

139. Denies the allegations of ¶139.

140. IBM has provided SCO with notice of its false and misleading statements, and has given SCO an opportunity to correct those statements. SCO has refused and has instead opted to make more false and misleading statements.

140. Denies the allegations of ¶140.

141. As a direct result of SCO's unfair and deceptive trade practices, the public at large, including AIX, Dynix and Linux users, has been harmed by SCO's campaign to foster fear, uncertainty and doubt about AIX, Dynix and Linux. Moreover, IBM has suffered damages in an amount to be determined at trial. Because SCO's acts of unfair and deceptive trade practices were and are willful, knowing and malicious, IBM is also entitled to treble damages and/or fees pursuant to N.Y. Gen. Bus. Law § 349(h).

141. Denies the allegations of ¶141.

SIXTH COUNTERCLAIM

Breach of the GNU General Public License

142. IBM repeats and realleges the averments in paragraphs 1 through 141, with the same force and effect as though they were set forth fully herein.

142. Repeats and realleges ¶¶1-141, above.

143. IBM has made contributions of source code to Linux under the GPL on the condition that users and distributors of such code, including SCO, abide by the terms of the GPL in modifying and distributing Linux products, including, for example, the requirement that they distribute all versions of software licensed under the GPL (original or derivative) under the GPL and only the GPL.

143. Admits that IBM has made contributions of source code to Linux under the GPL, but denies the applicability or enforceability of the GPL and denies the remaining allegations of ¶143 not specifically admitted herein.

144. SCO has taken source code made available by IBM under the GPL, included that code in SCO's Linux products, and distributed significant portions of those products under the GPL. By so doing, SCO accepted the terms of the GPL (pursuant to GPL § 5), both with respect to source code made available by IBM under the GPL and with respect to SCO's own Linux distributions.

144. Denies the allegations of ¶144.

145. SCO has breached the GPL by, among other things, copying, modifying, sublicensing or distributing programs licensed under the GPL, including IBM contributions, on terms inconsistent with those set out in the GPL; and seeking to impose additional restrictions on the recipients of programs licensed under the GPL, including IBM contributions, distributed by SCO.

145. Denies the allegations of ¶145.

146. Based upon its breaches of the GPL and the misconduct described herein, SCO's rights under the GPL, including but not limited to the right to distribute the copyrighted works of others included in Linux under the GPL, terminated (pursuant to § 4 of the GPL). The GPL prohibits SCO from, among other things, asserting certain proprietary rights over, or attempting to restrict further distribution of any program distributed by SCO under the terms of the GPL, except as permitted by the GPL.

146. Denies the allegations of ¶146.

147. As a result of SCO's breaches of the GPL, countless developers and users of Linux, including IBM, have suffered and will continue to suffer damages and other irreparable injury. IBM is entitled to a declaration that SCO's rights under the GPL terminated, an injunction prohibiting SCO from its continuing and threatened breaches of the GPL and an award of damages in an amount to be determined at trial.

147. Denies the allegations of ¶147.

SEVENTH COUNTERCLAIM

Promissory Estoppel

148. IBM repeats and realleges the averments in paragraphs 1 through 147, with the same force and effect as though they were set forth fully herein.

148. Repeats and realleges ¶¶1-147, above.

149. SCO made a clear and unambiguous promise to IBM and others that SCO would copy, modify or distribute programs distributed by IBM and others under the GPL only on the terms set out in the GPL; and would not assert rights to programs distributed by SCO under the GPL except on the terms set out in the GPL.

149. Denies the allegations of ¶149.

150. IBM and others reasonably, prudently and foreseeably relied upon these promises, such as by making contributions under the GPL and committing resources to open- source projects.

150. Denies the allegations of ¶150.

151. SCO knew or should have known that IBM and others would rely and in fact relied upon SCO's promises and knew or should have known that those promises would induce and in fact induced action or forbearance on the part of IBM and others.

151. Denies the allegations of ¶151.

152. SCO was and is aware of all material facts relating to IBM's reliance on SCO's promises including but not limited to IBM's contributions under the GPL, SCO's distributions under the GPL and the intent, meaning and import of the GPL.

152. Denies the allegations of ¶152.

153. As a result of its reliance upon SCO's promises, IBM has sustained injuries and is entitled to an award of damages in an amount to be determined at trial. In addition to an award of damages, IBM is entitled to declaratory and injunctive relief, including but not limited to a declaration that SCO is not entitled to assert proprietary rights with respect to products distributed by SCO under the GPL except upon the terms set out in the GPL.

153. Denies the allegations of ¶153.

EIGHTH COUNTERCLAIM

Copyright Infringement

154. IBM repeats and realleges the averments in paragraphs 1 through 153, with the same force and effect as though they were set forth fully herein.

154. Repeats and realleges ¶¶1-153, above.

155. As stated, IBM has made contributions of source code to Linux under the GPL. IBM is, and at all relevant times has been, the owner of valid copyrights in these contributions, as well as of all the rights, title and interest in those copyrights.

155. Admits that IBM has made contributions of source code to Linux under the GPL, but denies the applicability or enforceability of the GPL, alleges that part of said contributions by IBM violate SCO's contract and intellectual property rights, and denies the remaining allegations of ¶155 not specifically admitted herein.

156. IBM holds the following certificates of copyright from the United States Copyright Office (copies of which are attached hereto as Exhibits O - U), among others:

Registration No. Date of Registration

Title of Work

TX 5-757-696 August 15, 2003 IBM Enterprise Volume Management System
TX 5-757-697 August 15, 2003 IBM Enterprise Class Event Logging
TX 5-757-698 August 15, 2003 IBM Dynamic Probes
TX 5-757-699 August 15, 2003 IBM Linux Support Power PC64
TX 5-757-700 August 15, 2003 IBM Omni Print Driver
TX 5-757-701 August 15, 2003 IBM Journaled File System
TX 5-757-702 August 15, 2003 IBM Next Generation Posix Threading
TX 5-856-466 February 2, 2004 IBM Linux Kernel Support for JFS
TX 5-856-467 February 2, 2004 IBM Linux Kernel S390 Support
TX 5-856-468 February 2, 2004 IBM Linux Kernel Support for Service Processor
TX 5-856-469 February 2, 2004 IBM Linux Kernel Support for Memory Expansion Technology
TX 5-856-470 February 2, 2004 IBM Linux Kernel Support for IBM eServer iSeries Devices
TX 5-856-471 February 2, 2004 IBM Linux Kernel Support for PCI Hotplug
TX 5-856-472 February 2, 2004 IBM Linux Kernel Support for pSeries Hypervisor Terminal
TX 5-856-473 February 2, 2004 IBM Linux Kernel Support for PPC64 Support
TX 5-856-474 February 2, 2004 IBM Linux Kernel Support for Mwave Modem

156. Is without information sufficient to admit or deny the allegations of ¶ 156, and therefore denies the same.

157. IBM has placed or caused to be placed a copyright notice on these contributions of source code to Linux under the GPL and has otherwise complied with the copyright laws of the United States in this respect. IBM does not permit the unauthorized copying of its Linux contributions.

157. Admits that IBM has placed copyright norices on certain of its AIX and Dynix contributions to UNIX, but denies it has the legal authority to do so, denies the applicability or enforceability of the GPL, and denies the remaining allegations of ¶157 not specifically admitted herein.

158. IBM granted SCO and others a non-exclusive license to the above-listed copyrighted contributions to Linux on the terms set out in the GPL and only on the terms set out in the GPL. IBM made these contributions on the condition that users and distributors of its copyrighted code, including SCO, abide by the terms of the GPL in copying, modifying and distributing Linux products.

158. Denies the allegations of ¶158.

159. SCO has infringed and is infringing IBM's copyrights by copying, modifying, sublicensing and/or distributing Linux products except as expressly provided under the GPL. SCO has taken copyrighted source code made available by IBM under the GPL, included that code in SCO's Linux products, and copied, modified, sublicensed and/or distributed those products other than as permitted under the GPL. SCO has no right -- and has never had any right - to copy, modify, sublicense and/or distribute the IBM copyrighted code except pursuant to the GPL.

159. Denies the allegations of ¶159.

160. As a result of SCO's infringement, IBM has been damaged and is entitled to an award of actual and/or statutory damages pursuant to 17 U.S.C. § 504 in an amount to be proven at trial. Because SCO's infringement has been willful, deliberate and in utter disregard and derogation of IBM's rights, IBM is entitled to enhanced statutory damages pursuant to 17 U.S.C. § 504. IBM is entitled to costs and attorney's fees pursuant to 17 U.S.C. § 505.

160. Denies the allegations of ¶160.

161. In addition, IBM is entitled to injunctive relief pursuant to 17 U.S.C. § 502, as SCO will continue to infringe IBM's copyrights in violation of the copyright laws of the United States unless restrained by this Court. IBM is also entitled to an appropriate order pursuant to 17 U.S.C. § 503.

161. Denies the allegations of ¶161.

NINTH COUNTERCLAIM

Declaratory Judgment of Noninfringement of Copyrights

162. IBM repeats and realleges the averments in paragraphs 1 through 161, with the same force and effect as though they were set forth fully herein.

162. Repeats and realleges ¶¶1-161, above.

163. SCO purports to hold copyrights relating to UNIX software, including the following copyrights:

Registration No. Date of Registration

Title of Work

TXU-510-028 March 25, 1992 UNIX Operating System Edition 5 and Instruction Manual
TX u-511-236 April 7, 1992 UNIX Operating System Edition 6 and Instruction Manual
TXu-516-705 May 15, 1992 UNIX Operating System Edition 32V and Instruction Manual
TXu-516-705 May 15, 1992 UNIX Operating System Edition 7 and Instruction Manual
TXu-301-868 November 25, 1987 Operating System Utility Programs
TX5-787-679 June 11, 2003 UNIXWARE 7.1.3
TX 5-750-270 July 7, 2003 UNIX System V RELEASE 3.0
TX 5-750-269 July 7, 2003 UNIX SYSTEM V RELEASE 3.1
TX 5-750-271 July 7, 2003 UNIX SYSTEM RELEASE 3.2
TX 5-776-217 July 16, 2003 UNIX SYSTEM V RELEASE 4.0
TX 5-705-357 June 30, 2003 UNIX SYSTEM V RELEASE 4.1ES
TX 5-762-235 July 3, 2003 UNIX SYSTEM V RELEASE 4.2
TX 5-762-234 July 3, 2003 UNIX SYSTEM V RELEASE 4.1
TX 5-750-268 July 9, 2003 UNIX SYSTEM V RELEASE 3.2

163, Admits SCO has the copyrights listed in ¶ 162.

164. 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 AIX and Dynix.

164. Admits SCO has sued IBM for copyright infringement and notes that the text of that claim is the best evidence of all of the allegations made against IBM.

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

165. Is without information sufficient to admit or deny the allegations of 165, and therefore denies the same.

166. 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.

166. Denies the allegations of ¶166.

167. IBM is entitled to a declaratory judgment pursuant to 28 U. C. Section 2201 that IBM does not infringe, induce the infringement of, or contribute to the infringement of any SCO copyright through the reproduction, improvement, and distribution of AIX and Dynix, and that some or all ofSCO' s purported copyrights in UNIX are invalid and unenforceable.

167. Denies the allegations of ¶167.

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.

168. Repeats and realleges ¶¶1-167, above

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

169. These allegations are the subject of a motion to dismiss or stay and therefore no response is necessary.

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.

170. These allegations are the subject of a motion to dismiss or stay and therefore no response is necessary.

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.

171. These allegations are the subject of a motion to dismiss or stay and therefore no response is necessary.

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

172. These allegations are the subject of a motion to dismiss or stay and therefore no response is necessary.

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.

173. These allegations are the subject of a motion to dismiss or stay and therefore no response is necessary.

ELEVENTH COUNTERCLAIM

Patent Infringement

174. IBM repeats and realleges the averments in paragraphs 1 through 173, with the same force and effect as though they were set forth fully herein.

174. Repeats and realleges ¶¶1 through 173, above.

175. IBM is the lawful owner, by assignment, of the entire right, title and interest in United States Patent No. 4814746 ("the '746 Patent"), duly and legally issued on March 21, 1989 to Miller et aI., entitled "Data Compression Method". A copy of the ' 746 Patent is attached hereto as Exhibit X.

175. Is without information sufficient to admit or deny the allegations of ¶ 175, and therefore denies the same.

176. Upon information and belief, SCO has infringed, contributorily infringed and/or actively induced others to infringe the '746 Patent within this judicial district and elsewhere in violation of35 U. C. 9271 by, without authority or license from IBM, (a) making, using, selling and/or offering to sell products, including Unix Ware and Open Server, that practice one or more claims of the '746 Patent and (b) actively, knowingly and intentionally causing and assisting others to infringe one or more claims of the' 746 Patent.

176. Denies the allegations of ¶176.

177. Upon information and belief, SCO will continue to infringe, contributorily infringe and/or actively induce others to infringe the '746 Patent unless enjoined by this Court.

177. Denies the allegations of ¶177.

178. IBM has been and continues to be damaged and irreparably harmed by the aforesaid acts of infringement of the '746 Patent by SCD, and will suffer additional damages and irreparable harm unless this Court enjoins SCD from further infringement.

178. Denies the allegations of ¶178.

179. Upon information and belief, SCO's continued manufacture, use, sale and/or offer for sale of the infringing products, including UnixWare and Open Server, following receipt of notice from IBM of SCO's infringing activities was and is willful, and such activities by SCO prior to receipt of such notice also have been willful if, after reasonable opportunity for discovery, evidence arises that SCO had actual knowledge that its actions could constitute infringement of the '746 Patent, making this an exceptional case and justifying the assessment of treble damages pursuant to 35 U.S.C. § 284, and the award of attorneys' fees pursuant to 35 U.S.C. § 285.

179. Denies the allegations of ¶179.

TWELFTH COUNTERCLAIM

Patent Infringement

180. IBM repeats and realleges the averments in paragraphs 1 through 179, with the same force and effect as though they were set forth fully herein.

180. Repeats and realleges ¶¶1-179, above.

181. IBM is the lawful owner, by assignment, of the entire right, title and interest in United States Patent No. 4,953,209 ("the ‘209 Patent"), duly and legally issued on August 28, 1990 to Ryder et al., entitled "Self-Verifying Receipt and Acceptance System for Electronically Delivered Data Objects". A copy of the ‘209 Patent is attached hereto as Exhibit Y.

181. Is without information sufficient to admit or deny the allegations of ¶181, and therefore denies the same.

182. Upon information and belief, SCO has infringed, contributorily infringed and/or actively induced others to infringe the '209 Patent within this judicial district and elsewhere in violation of 35 U.S.C. § 271 by, without authority or license from IBM, (a) making, using, selling and/or offering to sell products, including Unix Ware, that practice one or more claims of the '209 Patent and (b) actively, knowingly and intentionally causing and assisting others to infringe one or more claims of the '209 Patent.

182. Denies the allegations of ¶182.

183. Upon information and belief, SCO will continue to infringe, contributorily infringe and/or actively induce others to infringe the ‘209 Patent unless enjoined by this Court.

183. Denies the allegations of ¶183.

184. IBM has been and continues to be damaged and irreparably harmed by the aforesaid acts of infringement of the '209 Patent by SCO, and will suffer additional damages and irreparable harm unless this Court enjoins SCO from further infringement.

184. Denies the allegations of ¶184.

185. Upon information and belief, SCO's continued manufacture, use, sale and/or offer for sale of the infringing products, including Unix Ware, following receipt of notice from IBM of SCO's infringing activities by SCO prior to receipt of such notice also have been willful if, after reasonable opportunity for discovery, evidence arises that SCO had actual knowledge that its actions could constitute infringement of the '209 Patent, making this an exceptional case and justifying the assessment of treble damages pursuant to 35 U.S.C. § 284, and the award of attorneys' fees pursuant to 35 U.S.C. § 285.

185. Denies the allegations of ¶185.

THIRTEENTH COUNTERCLAIM

Patent Infringement

186. IBM repeats and realleges the averments in paragraphs 1 through 185, with the same force and effect as though they were set forth fully herein.

186. Repeats and realleges ¶¶1-185, above.

187. IBM is the lawful owner, by assignment, of the entire right, title and interest in United States Patent No. 5,805,785 ("the ‘785 Patent"), duly and legally issued on September 8, 1998 to Dias et al., entitled "Method for Monitoring and Recovery of Subsystems in a Distributed/Clustered System". A copy of the ‘785 Patent is attached hereto as Exhibit Z.

187. Is without information sufficient to admit or deny the allegations of ¶187, and therefore denies the same.

188. Upon information and belief, SCO has infringed, contributorily infringed and/or actively induced others to infringe the '785 Patent within this judicial district and elsewhere in violation of 35 U.S.C. § 271 by, without authority or license from IBM, (a) making, using, selling and/or offering to sell products, including Reliant HA, that practice one or more claims of the '785 Patent and (b) actively, knowingly and intentionally causing and assisting others to infringe one or more claims of the '785 Patent.

188. Denies the allegations of ¶188.

189. Upon information and belief, SCO will continue to infringe, contributorily infringe and/or actively induce others to infringe the ‘785 Patent unless enjoined by this Court.

189. Denies the allegations of ¶189.

190. IBM has been and continues to be damaged and irreparably harmed by the aforesaid acts of infringement of the ‘785 Patent by SCO , and will suffer additional damages and irrevocable harm unless this Court enjoins SCO from further infringement.

190. Denies the allegations of ¶190.

191. Upon information and belief, SCO's continued manufacture, use, sale and/or offer for sale of the infringing products, including Reliant HA, following receipt of notice from IBM of SCO's infringing activities was and is willful, and such activities by SCO prior to receipt of such notice also have been willful if, after reasonable opportunity for discovery, evidence arises that SCO had actual knowledge that its actions could constitute infringement of the ‘785 Patent, making this an exceptional case and justifying the assessment of treble damages pursuant to 35 U.S.C. § 284, and the award of attorneys' fees pursuant to 35 U.S.C. § 285.

191. Denies the allegations of ¶191.

FOURTEENTH COUNTERCLAIM

Declaratory Judgment

192. IBM repeats and realleges the averments in paragraphs 1 through 191, with the same force and effect as though they were set forth fully herein.

192. Repeats and realleges ¶¶1-191, above.

193. SCO has breached its contractual obligations to IBM, violated the Lanham Act, engaged in unfair competition, interfered with IBM's prospective economic relations, engaged in unfair and deceptive trade practices, breached the GPL, infringed IBM copyrights and infringed IBM patents, as stated above.

193. Denies the allegations of ¶193.

194. Pursuant to 28 U.S.C. § 2201, IBM is entitled to declaratory relief with respect to SCO's and IBM's rights, including among other things a declaration that SCO has violated IBM's rights as outlined above by breaching its contractual obligations to IBM, violating the Lanham Act, engaging in unfair competition, interfering with IBM's prospective economic relations, engaging in unfair and deceptive trade practices, breaching the GPL, infringing IBM copyrights and infringing IBM patents, and is estopped as outlined above.

194. Denies the allegations of ¶194.

195. Moreover, IBM is entitled to a declaration that (1) SCO has no right to assert, and is estopped from asserting, proprietary rights over programs that SCO distributed under the GPL except as permitted by the GPL; (2) SCO is not entitled to impose restrictions on the copying, modifying or distributing of programs distributed by it under the GPL except as set out in the GPL; and (3) any product into which SCO has incorporated code licensed pursuant to the GPL is subject to the GPL and SCO may not assert rights with respect to that code except as provided by the GPL.

195. Denies the allegations of ¶195.

196. There is a justiciable controversy between IBM and SCO with respect to all of the issues described above.

196. Denies the allegations of ¶196.

197. Absent declaratory relief, SCO's misconduct will continue to cause injury to IBM, the open-source community and the public at large.

197. Denies the allegations of ¶197.

PRAYER FOR RELIEF

WHEREFORE, counterclaim-plaintiff IBM prays that this Court enter judgment on the counterclaims in favor of IBM and against SCO:

(a) awarding IBM compensatory damages;

(b) awarding damages pursuant to 15 U.S.C. § 1117(a) and 17 U.S.C. § 504;

(c) awarding IBM punitive damages;

(d) granting IBM treble damages pursuant to 35 U.S.C. § 284;

(e) granting IBM declaratory relief, including a declaration that (i) that IBM does not, through its reproduction, improvement, and distribution of AIX and Dynix, infringe, induce the infringement of, or contribute to the infringement of any valid and enforceable copyright owned by SCO; (ii) that IBM does not, through its Linux activities, including its use, reproduction and improvement of Linux, infringe, induce the infringement of, or contribute to the infringement of any valid and enforceable copyright owned by SCO; (iii) SCO has violated IBM's rights as outlined above by breaching its contractual obligations to IBM, violating the Lanham Act, engaging in unfair competition, interfering with IBM's prospective economic relations, engaging in unfair and deceptive trade practices, breaching the GPL, infringing IBM copyrights and infringing IBM patents; (iv) SCO has no right to assert, and is estopped from asserting, proprietary rights over programs that SCO distributed under the GPL except as permitted by the GPL; and is not entitled to impose restrictions on the copying, modifying or distributing of programs distributed by it under the GPL except as set out in the GPL; and (v) any product into which SCO has incorporated code licensed pursuant to the GPL is subject to the GPL and SCO may not assert rights with respect to that code except as provided by the GPL;

(f) granting IBM injunctive relief, enjoining and restraining SCO and its affiliates, subsidiaries, officers, agents, servants, employees, attorneys, successors and assigns and all others persons acting in concert with them, from further violating IBM's rights as described above, including in particular from (i) misrepresenting SCO's rights and IBM's rights to Unix technology, such as that SCO can, will or has in fact revoked IBM right to use Unix, (ii) misrepresenting that IBM no longer has the right, authority and license to use, produce and distribute AIX, Dynix and IBM's Linux-related products; (iii) publishing false and disparaging statements about AIX, Dynix and IBM's Linux-related products; (iv) engaging in further acts of unfair competition; (v) claiming certain ownership rights over programs made available under the GPL; (vi) engaging in unfair and deceptive trade practices; (vii) further infringement of IBM's copyrights; and (viii) further infringement or inducement of infringement of the ‘746, ‘209 and ‘785 Patents;

(g) awarding IBM costs, expenses and reasonable attorneys' fees pursuant to 35 U.S.C. § 285, 15 U.S.C. § 1117(a), Utah Code Ann. § 13-24-5, N.Y. Gen. Bus. Law § 349(h), and 17 U.S.C. § 505;

(h) awarding IBM pre- and post-judgment interest on the damages caused to IBM as a result of all wrongful acts alleged herein; and

(i) granting IBM such other and further relief as this Court deems just and proper, including costs, disbursements and reasonable attorneys' fees.

JURY DEMAND

IBM demands a trial by jury on all issues so triable.

DATED this ___ day of ________, 2004

SNELL & WILMER LLP

____________________
Alan L. Sullivan
Todd M. Shaughnessy

CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler
David R. Marriott

Counsel for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation

Of counsel:

MORGAN & FINNEGAN LLP
Chrstopher A. Hughes
Richard Straussman
[address, phone]

INTERNATIONAL BUSINESS MACHINES
CORPORATION
Donald J. Rosenberg
Alec S. Berman
[address, phone]

Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation

FIRST AFFIRMATIVE DEFENSE

IBM fails to state a ground upon which relief may be granted.

SECOND AFFIRMATIVE DEFENSE

IBM's claims are barred by the doctrines of waiver, estoppel, acquiescence, and/or laches.

THIRD AFFIRMATIVE DEFENSE

IBM's contractual right to license, distribute or use AIX or Dynix has been properly and validly terminated, and any claim based thereon is barred.

FOURTH AFFIRMATIVE DEFENSE

IBM's claims are barred by license.

FIFTH AFFIRMATIVE DEFENSE

IBM's claims are barred by illegality, collusion, conspiracy and/or lack of clean hands.

SIXTH AFFIRMATIVE DEFENSE

The General Public License ("GPL") is unenforceable, void and/or voidable, and IBM's claims based thereon, or related thereto, are barred.

SEVENTH AFFIRMATIVE DEFENSE

The GPL is selectively enforced by the Free Software Foundation such that enforcement of the GPL by IBM or others is waived, estopped or otherwise barred as a matter of equity.

EIGHTH AFFIRMATIVE DEFENSE

IBM's claims are barred, in whole or in part, by the First Amendment to the U.S. Constitution, by the doctrine of judicial immunity and by privilege.

NINTH AFFIRMATIVE DEFENSE

IBM's claims are barred or preempted, in whole or in part, by the laws of the United States.

TENTH AFFIRMATIVE DEFENSE

IBM's own conduct, including that of its agents, contractors and partners, and/or conduct of third parties constitute superseding or intervening causes with respect to IBM's claims of damage or injury.

ELEVENTH AFFIRMATIVE DEFENSE

SCO has acted legally and properly at all relevant times and IBM is therefore barred from any relief whatsoever.

TWELTH AFFIRMATIVE DEFENSE

The patents at issue, and particularly the claims of those patents alleged to be infringed, are invalid and of no effect for failure to comply with one or more requirements set forth in Title 35 or the United States Code, including, but not limited to Sections 101, 102, 103, 112, 116 and/or 256.

FOURTEENTH AFFIRMATIVE DEFENSE

On information and belief, IBM's claims under the patents at issue are precluded by the doctrine of prosecution history estoppel based on the admissions and representations made by IBM in proceedings before the United States Patent and Trademark Office during the prosecution of the applications of the patents at issue.

FIFTEENTH AFFIRMATIVE DEFENSE

On information and belief, U.S. Patent 4,814,746 ("the '746 patent") is unenforceable by reason of IBM's inequitable conduct, acts or omissions before the U.S. Patent and Trademark Office ("PTO"). The '746 patent, in the section entitled "Background of the Invention," cites one article directed to LZ78 data compression and indicates that it is representative of the prior art. U.S. Patent No. 4,814,746, column 1, lines 13-27. That statement is material, false and misleading and was known by IBM to be material, false and misleading. In fact, the single article cited in the '746 patent is not representative of the prior art. There are numerous other techniques such as LZ77, described in an article entitled "A Universal Algorithm For Sequential Data Compression," IEEE Transactions on Information Theory, Vol. IT-23, No. 3, May 1877, pp. 337-343. Other types of prior art data compression methods include run length encoding, arithmetic encoding and Huffman encoding. The falsity of IBM's statement is also reflected by the fact that in the period from December 9, 1975 to March 1, 1983, IBM itself obtained the issuance of at least 31 patents directed to data compression.

On September 22, 1988, during prosecution of the continuation patent application which led to issuance of the '746 patent, IBM filed an Information Disclosure Statement ("IDS") with the PTO. That IDS discloses European Patent Office ("EPO") parent publication 129439. The inventor of that patent publication was Terry Welch. The patent publication was published on December 27, 1984. Inexplicably, while IBM mentioned the United States counterpart of the EPO publication, it does not cite that counterpart in the citation of prior art. Thus, the face of the '746 patent does not contain any reference to the U.S. counterpart. That Counterpart was U.S. Patent No. 4,558,302. That patent contains claims which overlap with the '746 patent. The Welch U.S. Patent No. 4,558,302 was filed 19 days after the '746 patent was filed in the PTO. The closeness of these dates implicates 35 U.S.C. § 102(g) and raises a serious question as to who was the first inventor of the claimed subject matter and who is entitled to the patent. The failure to cite the U.S. counterpart, the fact that IBM waited almost three years after the U.S. counterpart issued as a patent to even inform the PTO of the EPO publication, and the additional fact that IBM waited until after the claims of the '746 patent were allowed to file an IDS, were intended to deter the Patent Examiner from comparing the claims of the U.S. counterpart to the allowed claims of the '746 patent. These actions were material to the examination of the '746 patent.

IBM's IDS states that the U.S. counterpart patent "apparently is an improvement on the teaching of [another referee] and offers nothing more that would affect the patentability of the allowed claims in this case.["] These statements were material, false and misleading and were known by IBM to be material, false and misleading. These statements and the fact that IBM cited the EPO publication and not the U.S. patent counterpart had the effects of not only mischaracterizing the disclosure of the Welch patent application, but also of concealing from the PTO the overlap between the claimed subject matter of the '746 patent and the counterpart U.S. patent.

IBM withheld additional prior art from the PTO. In February, 1981, IBM published an article entitled "Message Compression Method." The article wa published as an IBM Technical Disclosure Bulletin, Volume 23, No. 9, pages 4197-98. That publication was material to the patentability of the '746 patent. IBM withheld this prior art with intent to deceive the PTO.

On information and belief, IBM was aware prior to the issuance of the '746 patent, of U.S. Patent No. 4,366,551, issued December 28, 1982, to Klaus E. Holtz. This patent is material to the patentability of the claims of the '746 patent. On information and belief, IBM's intentional failure to disclose this prior art to the PTO was part of IBM's scheme to withhold material prior art.

On information and belief, U.S. Patent 5,805,785 ("the '785 patent") is unenforceable by reason of IBM's inequitable conduct, acts or omissions before the PTO. The '785 patent, entitled "Method for Monitoring and Recovery of Subsystems in a Distributed/Clustered System," was filed on February 27, 1996, listing as joint inventors Daniel Manuel Dias, Richard Pervin King, and Avraham Leff. Applicants also filed an IDS on this date. The IDS listed 12 references that are all U.S. patenrs. No other references, including technical papers authored by one or more of the joint inventors were listed. A review of papers authored by the three inventors reveals several that are material to patentability. In particular, Avraham Leff's Ph.D dissertation, entitled "A Dynamic and Decentralized Approach to Management of CPU and Memory," published at Columbia University in 1992, is material to the patentability of the '785 patent application. The dissertation describes a system of resource management that does not require a centralized coordinaton. Sites cooperate in transmitting important state information to each other. Decisions made at one site are then factored by other sites into subsequent decisions. Because this dissertation was material to the patentability of the '785 patent application, the dissertation should have been disclosed to the PTO during prosecution of the '785 patent application. IBM withheld this reference with the intent to deceive the PTO.

Inventor Daniel M. Dias appears as a joint author on three papers that relate directly to the subject matter claimed in the '785 patent. These three papers appear to have been published at about the same time as the '785 patent filing date of February 27, 1996. All three papers list joint authors, none of whom, other than Mr. Dias, appears as an inventor on the '785 patent. "A Scalable and Highty Available Web Server," published in Proceedings of COMPCON '96, lists as authors, in addition to Mr. Dias, William Kish, Rajat Mukherjee, and Renu Tewari. "High Availability in Clustered Multimedia Servers," published in Proceedings - International Conference on Data Engineering 1996, lists as authors, in addition to Mr. Dias, Renu Tewari, Rajat Mukharjee, and Harrick Vin. "Design and Performance Tradeoffs in Clustered Video Servers," published in Proceedings - International Conference on Multimedia Computing and Systems 1996, lists as authors, in addition to Mr. Dias, Renu Tewari, Rajat Mukharjee, and Harrick Vin. All three of these papers describe concepts that can be found in the '785 patent claims, and thus Messrs. Kish, Mukharjee, Tewari, and Vin should have been listed as inventors on the '785 patent. IBM's decision not to list Messrs. Kish, Mukharjee, Tewari, and Vin as inventors on the '785 patent was with the intent to deceive the PTO.

U.S. Patent 5,129,080 ("the '080 patent"), entitled "Method and System Increasing the Operational Availability of a System of Computer Programs Operating in a Distributed System of Computers," filed October 17, 1990, issued July 7, 1992, and assigned to IBM, is material to patentability of the '785 patent, and should have been disclosed by IBM to the PTO. In particular, the '080 patent discloses high availability architectures, cooperative processing among nodes of a computer network, and fault recovery techniques. The '080 patent also discloses sharing of state information among the computer network nodes and global and local management. Because the '080 patent is material to patentability of the '785 patent application, the '080 patent should have been disclosed to the PTO during prosecution of the '785 patent application. IBM withheld this reference with the intent to deceive the PTO.

On information and belief, U.S. Patent 4,953,209 ("the '209 patent") is unenforceable by reason of IBM's inequitable conduct, acts or omissions before the PTO. The '209 patent, entitled "Self-verifying Receipt and Acceptance System for Electronically Delivered Data Objects," was filed on October 31, 1988. The '209 patent, in the section entitled "Background of the Invention," describes only two prior art references: U.S. Patent No. 4,757,533 to Allen et al. and U.S. Patent No. 4,757,534 ("the '534 patent") to Stephen M Matyas et al.

The '534 patent is assigned to IBM. Stephen M. Matyas, co-inventor of the '534 patent, is listed as the author of more than 100 IBM publications related to cryptography or data encryption. Mr Matyas is also listed as an inventor on more than 70 issued patents in this field. Mr. Matyas is well known in the field of cryptography and data encryption at IBM. When the '209 patent application was filed, IBM knew that some of Mr. Matyas' activities were material to th patentability of the '209 patent. However, as noted above, only the '534 patent was listed. IBM failed to cite other material prior art references associated with Mr. Matyas, including, for example, U.S. Patent 4,203,166 ("the '166 patent") in which Mr. Matyas is listed as an inventor. The '166 patent, entitled "Cryptographic File Security for Multiple Domain Networks," filed December 5, 1977, issued May 13, 1980, and assigned to IBM, is material to patentability of the '209 patent, and should have been disclosed by IBM to the PTO.

The '166 patent discloses a file security system for data files created at a first host system in one domain and recovered at a second host system in another domain of a multiple domain network. Specifically, the '166 patent discloses, a first host system that provides a file recovery key for subsequent recovery of a data file at a second host system. The first host system enciphers (modifies) the first host system plaintext to obtain first host system ciphertext as the data file. The file recovery key is used as header information for the data file. When the data file is to be recovered at the second host system, the file recovery key is provided at the second host system and the second host system transforms the file recovery key into a form, which is usable to decipher the data file. The second host uses the transformed file recovery key to perform a cryptographic operation to obtain the first host system ciphertext in clear form (unmodified) at the second host system. Thus, the '166 patent is material to the patentability to the claims of the '209 patent. Because the '166 patent is material to the patentability of the '209 patent, the '166 patent should have been disclosed to the PTO during prosecution of the '209 patent. IBM withheld this reference with the intention to deceive the PTO.

IBM also failed to cite U.S. Patent 4,238,854 ("the '854 patent") in which Mr. Matyas is again listed as an inventor. The '854 patent, entitled "Cryptographic File Security for Single Domain Networks," filed December 5, 1977, issued December 9, 1980, and assigned to IBM, is material to patentability of the '209 patent, and should have been disclosed by IBM to the PTO. The '854 patent was filed concurently with the '166 patent described above.

The '854 patent discloses that an operational key enciphered under the file key of the designated storage madia, as header information, together with the host data enciphered under the operational key is written on the storage media as an enciphered data file. When the data file is recovered, the host data security device transforms the enciphered operational key header information under control of a host master key into a form which permits the operational key to be used for deciphering the enciphered data file to obtain the file data in clear form. Thus, the '854 patent is material to the patentability to the claims of the '209 patent. Because the '854 patent is material to the patentability of the '209 patent, the '854 patent should have been disclosed to the PTO during prosecution of the '209 patent. IBM withheld this reference with the intention to deceive the PTO.

Matyas is also one of the authors of an article entitled "Cryptographic Key Authentication in Communication Systems" published by IBM in March, 1978. The article was published in IBM Technical Disclosure Bulletin, March 1978, pages 3990-92. This publication discloses that message communication protection is obtained by enciphering a clear data message X at a host under control of a working key KS to yield a ciphered data message Y. At the receiving terminal, the enciphered data message Y is deciphered under control of the working key KS to yield the clear data message X.

Another article in which Matyas is an author is entitled "Terminal Control of Encipher and Decipher Operations" published by IBM in August, 1981. The article was published in IBM Technical Disclosure Bulletin, August, 1981, pages 1334-1339. This publication discloses that in communication security applications where data is to be transmitted in a cryptographic session, between a host unit and a remote terminal controller unit, a data encrypting session key (KS) is required to be established in a form suitable for use at each unit. Data may then be enciphered under KS at one unit and transmitted to the other unit where it is deciphered under KS.

Thus, the above publications, published as IBM Technical Disclosure Bulletins, are material to the patentability to the claims of the '209 patent. Because there publications are material to the patentability of the '209 patent, these articles should have been disclosed to the PTO during prosecution of the '209 patent. IBM withheld these references to deceive the PTO.

The foregoing actions constitute inequitable conduct and render the claims of the '746, '785 and '209 patents unenforceable. Discovery in this proceeding is ongoing, and additional acts of inequitable conduct will be added to this defense at the appropriate time.

SIXTEENTH AFFIRMATIVE DEFENSE

SCO has not infringed, literally or under the doctrine of equivalents, any valid or enforceable claim of the '746, '209 and '785 Patents.

SEVENTEENTH AFFIRMATIVE DEFENSE

On information and belief, IBM failed to mark patent articles covered by the '746, 209 and '785 Patents at issue in the counterclaims. Any claim for damages is therefore limited by 35 U.S.C. §287.

EIGHTEENTH AFFIRMATIVE DEFENSE

On information and belief, IBM failed to provide SCO with actual notice of IBM's allegations of infringement of the patents at issue, and therefore IBM cannot recover any damages for SCO's actions before the filing of IBM's counterclaims.

NINETEENTH AFFIRMATIVE DEFENSE

IBM has not and cannot plead and meet the requirements for an award of enhanced damages or attorneys' fees.

TWENTIETH AFFIRMATIVE DEFENSE

SCO has an express or implied license to practice some or all of the claims embodied in the patents at issue.

TWENTY FIRST AFFIRMATIVE DEFENSE

Upon information and belief, IBM lacks standing to assert that SCO infringed some or all of the patents at issue.

TWENTY SECOND AFFIRMATIVE DEFENSE

SCO states that IBM's request for treble damages and attorneys fees is barred because SCO acted in good faith, and this is not an exceptional case within the meaning of the Patent Code.

WHEREFORE, having fully answered IBM's second amended counterclaims, SCO prays for dismissal with prejudice of all claims, or in the alternative judgment in its favor thereunder, together with attorneys' fees and costs, and together with all other legal and equitable relief deemed just and proper by this Court.

JURY DEMAND

SCO demands trial by jury on all issues raised in IBM's amended counterclaims that are so triable.

DATED THIS 23rd day of April, 2004.

By: ______[Signature]______

HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark R. Clements
BOIES, SCHILLER & FLEXNER, L.L.P.

Stephen N. Zack
Mark J. Heise

Counsel for Plaintiff/Counterclaim Defendant

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CERTIFICATE OF SERVICE


Plaintiff, The SCO Group, Inc. hereby certifies that a true and correct copy of SCO'S ANSWER TO IBM'S SECOND AMENDED COUNTERCLAIMS was served on Defendant International Business Machines Corporation on this 23rd day of April 2004, by U.S. Mail, first class, postage prepaid, on their counsel of record as indicated below:

Alan L. Sullivan, Esp.
Todd M. Shaughnessy, Esq.
Snell & Wilmer L.L.P.
[address]

Evan R. Chester, Esp.
David R. Marriott, Esq.
Cravath, Swaine & Moore LLP
[address]

Donald J. Rosenbery, Esq.
[address]


_______[Signature]_______