A federal judge has ruled that Novell and not SCO owns the copyrights to the Unix operating system.

The ruling is considered a crucial step in SCO's legal campaign against Linux users and developers because it eliminates the foundation from underneath its $5bn legal claims against IBM.

"The big picture is, SCO lost," summarised Groklaw, a legal website that closely follows the case.

The latest ruling relates to a 1995 asset purchase agreement for Unix between Novell and Santa Cruz Operations, a predecessor to SCO. Novell had acquired the Unix intellectual property from AT&T in 1993.

SCO claimed that the 1995 transaction concerned the entire Unix intellectual property. Novell however argued that the transaction was more limited.

Novell produced the original transaction agreement and bill of sale as evidence, which indicated that the purchase did not include the copyright. The agreement furthermore gives Novell the right to waive any claims for misuse of Unix by IBM, and requires SCO to forward all royalties that it received for the software to Novell.

The latter could very well lead to SCO's demise. In 2003 the software maker inked a $10m licensing agreement with Sun Microsystems, and a $16.8m agreement with Microsoft. It should have paid 95 per cent of those funds to Novell, but has failed to do so.

According to SCO's most recent earnings filing, it has $19.85m in assets and $12.65m in liabilities. A claim on the Sun and Microsoft revenues would add $25.46m in liabilities, providing SCO with a negative net worth.

Novell hailed the ruling. "The court’s ruling has cut out the core of SCO’s case and, as a result, eliminates SCO’s threat to the Linux community based upon allegations of copyright infringement of Unix. We are extremely pleased with the outcome," spokesperson Kevan Barney wrote on a company blog.

SCO couldn't immediately be reached for comment.