| Stick a fork in SCO. They're done. |
Sep. 14, 2007
 Analysis -- It finally happened. Hounded by its enemies, SCO has had to declare chapter 11 bankruptcy. And, somewhere in Novell's offices there are some lawyers popping open a bottle or two of champagne.
The story of SCO and its Linux lawsuits is an IP (intellectual property) epic. It's also a horror story. It showed how even with the flimsiest of evidence, one small company could attack a multi-billion dollar software industry for years.
Novell looked at this, and decided that rather than focus on joining the broad front of the IP fight, it would target the far smaller and less nebulous front of contract law in its attempt to defeat SCO. First, Novell tackled SCO on the issue of who really owned Unix's IP. In August, Novell won that case, when a judge declared that Novell, and not SCO, is the legal owner of Unix's IP.
That was enough in itself, if upheld in the eventual appeals, to settle SCO's hash once and for all. For you see, if SCO didn't own Unix IP, all of its anti-Linux cases against IBM and other companies would fall apart.
Seeing those cases to the end, however, would take even more time. So, Novell also decided to concentrate its legal forces on one particular point in the contract law dispute: the fact that SCO had not paid Novell its share of the money from SCO's Unix deals with Sun and Microsoft.
It was those very same multi-million dollar payments that SCO used to fuel its lawsuits against IBM, Red Hat, and Novell. Novell claimed that "The APA (Asset Purchase Agreement) makes SCO the fiduciary of Novell, entrusting SCO 'to collect and pass through to [Novell] one hundred percent (100%) of the SVRX Royalties.'"
Novell attorneys also said that "SCO breached its trust relationship with Novell," because it received at least $25,846,000 from Sun and Microsoft through these SVRX Licenses. Instead of passing these millions to Novell, SCO used the cash for its own benefit.
It's exactly these issues -- how much of that money does SCO owe Novell -- that the U.S. District Court was about to address on Sept. 17. Specifically, SCO was going to face the same judge who had already ruled that Novell owned Unix.
Let's do a little bookkeeping. SCO, as of the evening of Sept. 14 has a total market cap of $7.93 million. As of April 30, the company's last reported quarter, and before the lawsuit roof fell in, it were continuing to lose money and had total assets of $19.8 million. Now, if the court were to rule that SCO owes Novell the whole $25 million and change...
Well, if that turned out to be the result, it would be a case of "Do not pass go, do not collect $200 million, go straight to business jail and never, ever come out again."
The beauty of Novell's legal plan is that even if SCO had had the money to pay off Novell, it would still have gutted SCO's finances and left the company unable to pursue any of the rest of its litigation. As it is, SCO went Chapter 11 still owing its main law firm, Boies Schiller, just over $287,000.
As I said back in October of 2006, "By not focusing on the arguments over who owns what in Unix but instead hammering on the far more simple matter of SCO not living up to its business contract, Novell hopes to put a quick end to SCO and its seemingly endless Linux litigation."
It looks like I was right. Congratulations Novell. Job well done.
Oh sure, Chapter 11 means that SCO will still hang on for at least half-a-year longer. So what? In a Chapter 11, you re-organize to continue your business. When your big-win business plan was to make billions by lawsuits and you can no longer pursue them while you're in Chapter 11, exactly what do you have left to re-organize?
If SCO really has any kind of plan at this point -- other than for its employees to squeeze out a few more paychecks while looking for new jobs -- I can think of only one thing that makes sense. SCO will try to make a deal with Novell that will end up with the company paying Novell some money and begging them to let the rest of the litigation go.
At the same time, SCO CEO McBride -- or his successor -- is going to have to take his hat in his hands and go to IBM HQ at Armonk, New York, and say, "Look, I'm sorry. Is there any way we can just make this go away."
If, and that one heck of an if, SCO abandons its losing Linux litigation efforts and its enemies allow it to survive, then and only then will SCO ever emerge alive out of bankruptcy. What I really expect to happen is for SCO to go out of business sometime in the next year.
Stick a fork in SCO. They're done.
-- Steven J. Vaughan-Nichols
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