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January 8th, 2013

“Old” Novell Board Faces Shareholder Lawsuit

Novell is back in the news.

Not the downsized “new and improved” Novell owned by Attachmate, though they have briefly been a part of this story. We’re talking about the old, basically inept Novell–the company that once practically owned enterprise networking back in the day when Bill Gates was shortsighted enough to believe that the future of computing was in stand alone and unconnected boxes. You know, the Novell that was second cousin, by way of Raymond Noorda and the Canopy Group, to SCO. The same Novell that decided to save their proprietary business by embracing open source and buying the SUSE Linux distribution in an attempt to reposition themselves as a poor man’s IBM sans hardware.

In case you’ve forgotten–a couple of years can seem like several lifetimes in the tech world–this is the company that managed to sell the rights to UNIX to SCO without selling the copyrights. The company that, although mistrusted by many of us in the FOSS world, stepped up to the plate and spent a pocketful of cash defending these copyrights, thereby directly defending IBM and indirectly defending Linux.

Novell, the guys who helped introduce us to the legal reporting prowess of PJ at Groklaw is back in the news, according to–you guessed it–PJ at Groklaw.

It appears that some old Novell shareholders are unhappy with the way the deal went down back in 2011 when the company sold itself to Attachmate, after selling a stack of their patents to a consortium headed by Microsoft. The Oklahoma Firefighters Pension and Retirement System, Louisiana Municipal Police Employees’ Retirement System, Operating Engineers Construction Industry and Miscellaneous Pension Fund and Robert Norman have sued in Delaware Novell’s old Board, Attachmate and Elliott Associates over aspects of the sale. After all three filed motions to dismiss, Judge John Noble let Attachmate and Elliott off the hook, but decided that Novell’s board must go to court.

As you might imagine, the shareholder plaintiffs believe there was a lot of bad faith going on when Novell made their deal with Attachmate. PJ explains:

“Specifically, they claim that Novell favored Attachmate over other bidders, especially a “Party C”, and the judge, under Delaware’s reasonable ‘conceivability’ standard, denied the motion to dismiss on the pleadings with respect to the board. …the judge says the motions to dismiss were all under Rule 12(b)(6), meaning for ‘failure to state a claim upon which relief can be granted’.

“‘Party C, a private equity firm’ ended up with Attachmate at the end of negotiations as the two bidders still standing. Party C actually bid a bit higher than Attachmate. But the allegation is that Attachmate was favored with information that Party C was not given, such as a bid by a Microsoft consortium to buy Novell’s patents, and various other maneuvers that ensured the Attachmate deal prevailed. After Microsoft stepped in with an offer to buy the patents, Attachmate’s deal was better than Party C’s. But, the judge points out, if Novell had told Party C about the offer, it logically might have offered more to match or exceed Attachmate’s bid…”

According to PJ, up next will be discovery and then a trial.

“That’s if there isn’t a settlement first, which there often is in such matters. This is only about money, not a reversal of the sale.”

Since I’m no lawyer, I’ll defer to PJ’s analysis of this situation. She doesn’t seem to think this will go anywhere, as Delaware courts seem to usually side with corporate boards unless there’s glaring evidence of wrong doing. However, I found it interesting to see the old Novel back in the news. In a way they’re like the old SCO. Just when you thought you’d heard the last of them, they’re back.

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Christine Hall has been a journalist since 1971. In 2001, she began writing a weekly consumer computer column and started covering Linux and FOSS in 2002 after making the switch to GNU/Linux. Follow her on Twitter: @BrideOfLinux

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