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Market Scan
New Chapter For Novell
Andrew Farrell, 08.13.07, 2:00 PM ET






Long-suffering Novell's future is now a little brighter after a court ruling that, if upheld, will change the landscape for computer operating systems.

U.S. District Judge Dale Kimball ruled late Friday that Novell (nasdaq: NOVL - news - people ) owns copyrights covering Unix, a computer operating system. In 1995, Novell licensed Unix source code to Santa Cruz Operation, which later became SCO. SCO argued it had also picked up Unix copyrights from the transaction. (See: "Big 'No' To SCO")

The ruling is a huge setback to SCO's claim it should be paid billions in royalties by International Business Machines. SCO says that International Business Machines (nyse: IBM - news - people ) took code from Unix for use in Linux, another operating system. Shares of SCO Group (nasdaq: SCOX - news - people ) plummeted 68.0%, or $1.06, to 50 cents. Practically all of SCO's business is Unix-related.

Shares of Novell jumped 5.5%, or 35 cents, to $6.77, on Monday. The court victory likely means better business for Novell, which sells Linux software. Brent Williams, an analyst at the Benchmark brokerage, explained that many businesses interested in switching to Linux had been sitting on the sidelines while the SCO suit played out. They worried using Linux could obligate them to pay royalties to SCO.

Williams said the win also provides Novell some image rehabilitation. Novell's win over SCO has been cheered by Linux enthusiasts, many of whom harshly criticized Novell after it struck a sales and marketing pact with Microsoft (nasdaq: MSFT - news - people ). (See: "Microsoft's Protection Racket?")

Increased Linux adoption would also benefit Red Hat (nasdaq: RHT - news - people ). The company sells Linux-based operating systems. Shares of Red Hat were down 40 cents, or 1.8%, to $21.58, on Monday.

Unix was developed by the old American Telephone & Telegraph, and the company allowed the system to be copied, leading to multiple versions, some of which effectively leaked into the public domain. In the early 1990s, Linus Torvalds, then a college student in Helsinki, wrote a version of the program from scratch that he called Linux. Torvalds posted Linux on the Internet, allowing others to copy and improve upon it. The sytem became popular for use on servers as an alternative to Microsoft's Windows.

Companies like Novell and Red Hat can make money by packaging and supporting Linux. IBM, which failed in its attempt to market a proprietary operating system of its own, has championed Linux as an alternative to Windows.

Novell has also suffered in its attempts to battle Microsoft. Once a powerful player in the computer-networking business with its NetWare software, Novell tried to become a direct competitor to Microsoft in the 1990s buy purchasing Unix from AT&T;, and it also bought the WordPerfect word-processing system and other applications.




More On This Topic
Companies: NOVL | MSFT | IBM | SCOX | RHT

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