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SCO Threatens to Derail Novell-SUSE Deal & Sue a Fortune 1000 Linux User

SCO Threatens to Derail Novell-SUSE Deal & Sue a Fortune 1000 Linux User

Talk about amusement value. Man, this thoroughly entertaining SCO thing gets better and better.

For its latest move, SCO CEO Darl McBride has suggested that SCO is going to upset Novell's $210 million acquisition of SUSE. He claims the 1995 asset purchase agreement between Novell and the old Santa Cruz Operation that the new SCO Group inherited prohibits Novell from entering a market where it would compete against SCO's Unix interests.

In a formal statement, Novell denied the existence of the non-compete, adding that it had had no communication on the subject from SCO. SCO insiders claimed they had just starting talking about it internally.

But, if the non-compete doesn't exist, how do you suppose Novell is going to explain away the verbiage in paragraph 1.6 of the 1995 agreement that reads:

"Seller [Novell] agrees that it shall use the Licensed Technology" - in other words Unix - "only (i) for internal purposes without restriction or (ii) for resale in bundled or integrated products sold by Seller [Novell] which are not directly competitive with the core products of buyer [SCO] and in which the Licensed Technology does not constitute a primary portion of the value of the total bundled or integrated product." (Emphasis added.)

Anyway, SCO is also revving its motor about making an example of one or more Fortune 1000 companies - to put the fear of God in the rest of them - and sue whoever draws the short straw for not paying their Linux tax.

According to SCO, it's got a short list of a handful of unidentified brand names to choose from - companies it's talked to directly, it said - and it will lodge suit against one or more of them in the next 90 days. The only thing that will stop a suit is capitulation. McBride said, "It's license or litigate."

In SCO's world, it's got Novell dead to rights.

Its basic premise all along has been that Linux killed its Unix business. Ergo, Novell can't sell Linux.

If a court were to find in SCO's favor, it could upset the delicate two-distribution balance the industry or at least the so-called Chicago 7 have determined is essential in the Linux business.

Somebody would also have to rush in with a transfusion of money to rescue pinched little SUSE.

SCO can't do anything until the Novell-SUSE deal closes, which Novell has said will be by the end of January.

Actually SCO hasn't said it will sue. It is "considering its options." It suggested a negotiated settlement may be possible.

SCO also revealed exactly what it costs to hire a high-profile high-powered lawyer to defend one's IP.

As previously reported, the deal that SCO's lawyer, the famous David Boies, famous by virtue of the Microsoft antitrust case and Al Gore's court-dashed bid for the presidency, cut entitles him to 20% of any license fees, settlement, award, sale of the company or, heck, even any equity infusion in SCO.

So because SCO pocketed $50 million in VC money last month, a "war chest" ensuring it can soldier on in its Linux fight, Boies and SCO's other law firms, if you read the fine print, are getting 2%-3% of the company plus a million dollars in pocket money.

They've been negotiating this "modification" to their "contingency" arrangement for a while. It's supposed to compensate Boies for expanding his charter from the IBM suit to include SCO’s copyright claims, which is what they're going to try to nail end users on. SCO suggestively notes that those copyrights include code in the 1994 settlement between Unix System Labs and Berkeley Software Design Inc (BSDI), making us wonder whether Apple is now on its hit list.

The law firms get 400,000 shares of SCO stock, worth $5.6 million nowadays and enough of a perk, one assumes, to spur them to greater exertion.

We suspect this kind of arrangement is less unusual than one might imagine. We should probably ask Silicon Valley mainstay Wilson Sonsini. Boies called it "not usual but not unique," and added that he didn’t have a piece of any other software company but suggested he had gotten stock from "Internet" firms.

Anyway, when SCO hired Boies its shares were worth about a buck, now they're hovering around $14.

As a result of these financial arrangements, SCO will take an $8.95 million charge in its fourth quarter ended October 31. It also said that there would be another charge of $8.7 million related to its issuing Series A convertible preferred stock in exchange for that $50 million investment. See, the stock was worth more when the deal closed than the price paid for it.

SCO is supposed to disclose its Q4 results on December 8 and give some indication of how its Linux tax program is progressing. Its new "license or litigate" policy suggests it hasn’t been doing that well, though it claims some successes.

It continues to guide to revenues of $22 million to $25 million.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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Most Recent Comments
anon 12/01/03 11:53:15 PM EST

la moule de ta mére, mouffi ou moufflarge tante mcbride

Tom L 11/25/03 12:08:19 PM EST

I agree with the vocal majority. Here's another take.

SCO claims they 'own' Novell's Operating System - Unix System V.

Er, Novell's OS was called "NetWare", people, and it is a shame they essentially cut support for the most C2 compliant (secured) OS in town with their dot-com craze. System V was an AT&T OS. AT&T was a public phone company, which was really unable to compete|market in the HW & SW community due to the monopoly it had, so it opted for a divestiture to get into the game, but was too slow on the draw and got beat by IBM. But in the process, they 'released' themselves from Unix to allow others to use it to let it gain popularity (while they reorganized), so long as they were not required to provide any support for it. After all, they were not really allowed to compete in SW Support arena (such as the current Linux Distros do) either as well as SW development & SW licensing unrelated to public telephone usage.

I suggest that SCO is also overstating their ability to control licensing of lines of code, or of code segments with a corresponding cost per line of code, but that their inheritance from AT&T is no more no less than an assurance that what is referred to as "System V" remains stable, consistent, supported, and ... well, old. But very solid, tried and true.

Ed Pillai 11/25/03 05:40:54 AM EST

As per Barron's IBM threw some AIX code into the Linux pool. AIX is IBM's licensed UNIX version. What would it take to just take that code out of Linux and do a rewrite? Is that too hard to do? That would just stop this nonsense in its tracks. Maybe RedHat Novell and IBM could contribute monetarily towards that effort>

J.W. 11/24/03 09:49:41 AM EST

SCO (a.k.a. Stupid Crummy Operating System) has done nothing but muddy the waters of UNIX since its inception.

SCO has never has worked....anything from Solaris X86 to Linux (notch) can smoke it. SCO is the YUGO of Unix operating systems.

All you have here is some duffus' (do-fuss-ez) who missed the internet wave, and are trying to cut their losses by riding Linux's coat tails, and helping the evil empire (BTW - who is behind Ballmer's mask???? I am guessing that it is Paulie Shore in a “fat suit”. We all know that Gates is the Evil Emperor.

BTW - Ever notice that Al Gore and Bill Gates are never in the same room at the same time? Would explain a great deal, eh?

Bill gates “invented” windows

Al Gore “invented” the internet”

Mark GW 11/22/03 08:11:33 PM EST

It seems that only one scumbag is going to get rich on the back of SCO. All of SCO's stockholders are going to take a bath and learn that get rich quick through law suits works only for the lawyers filing and defending the suit. David Boies soaked Al Gore and delivered nothing. He is now soaking SCO (who I have no sympathy for) by collecting confiscatory fees and stock options. He will continue doing it until the suit fails in court but he will have long since sold his stocks, donated them charity for a write off, or used the shares for collateral by the time the value of SCO is worthless. Boies will prolong the bilking of millions as long as he can drag his dog and pony show before the press. But if he really cared about his clients, the court case would now be under way. The courts can't help the many businesses that are being shaken down until the case is before them. Boies knows this and you can bet that SCO's CEO knows it as well. I would watch how the shares are bought and sold by the top SCO executives, Microsoft and Boies.
If the GNU foundation were smart, they would set up an escrow fund for the companies that feel they need to pay the extortion claim of SCO. At least the companies being extorted will not loose their money when SCO finally sinks in bankruptcy. (The money should be kept in escrow in a safe country where U.S. courts can't force partial pay out.) This would keep a certain bunch of lawyers from getting rich and walking away with millions. It would also force the suit into court faster and may even save SCO in the long run by not having to come up with money they have already spent.
Microsoft knows the longer Boies drags it out and continues making outrageous claims, that it will stop businesses from jumping into the Linux camp. Intel also knows that the only 64-bit game in town for the masses currently resides on AMD Athlon 64 running Linux. Small businesses can be kept at bay from going the AMD way by the threat of legal reprisal from SCO. Its all about market share. And of course IBM understands it as well. If they can drag this out just 13 more months, SCO will not be able to recover when IBM wins the lawsuit. That would bring down another competitor in the market. Microsoft, Intel, IBM, and the law firms are all hedging at the table and seeing who will fold before they are forced to show what's in their hand. But this game is unjust because the stakes are really hurting a free market economy. Intellectual Property (IP) if left to play supreme above all else will choke off a robust economy and courts already prove they can be bought off by the highest bidder. Telling the lie long enough sometimes gives the courts enough cover to treat it as truth so they can get a piece of the pie on the side.
I think it is time to stop the flow of cash into SCO by employing an escrow and everyone who pays SCO directly any way is perverting justice, hurting SCO investors, and should be boycotted. I even recommend that those who have been extorted by Boies and SCO should ask for their fees to be transferred over to escrow.

Bob H 11/22/03 04:22:08 PM EST

Maureen should have kept reading. Or maybe that was the only part Blake Stowell was willing to share.

The very next sentence says, "In the event of a change of control of Buyer, the language Maureen O'Gara quoted in her column shall case to exist."

I'm paraphrasing, but that's what it basically says.

joe sage 11/22/03 01:39:37 PM EST

oops I for got the url.


joe sage 11/22/03 01:38:53 PM EST

I think this shows "sco" is going to hurt very badly when the "wash comes in".
IMHO this might be the end of "sco"

jim 11/21/03 10:24:16 PM EST

I think Redhat is going to be the only big winner is this legal fiasco

peter 11/21/03 09:41:54 PM EST

Paragraph 1.6 applies to the "Licensed Technology", as does the entire agreement. The Licensed Technology being SysV. It thus does not apply to Linux. The agreement does not say that Novell isn't allowed to compete with old SCO with any other technology.

Only in the twisted reallity that seems to exist in McBride's mind is any Unix like product the same as SCO's Unix.

How come you need not to be a lawyer to debunk the legal excrement that comes out of Utah, I wonder..

keith 11/21/03 09:02:14 PM EST

Re: Non-compete agreement:

I think the key phrase is:
"... the Licensed Technology does not constitute a primary portion of the value of the total bundled or integrated product."

The Linux portion could be valued at $0.00 .

David 11/21/03 07:29:08 PM EST

SCO still can't figure out the difference between various products, confusing Linux with Unix. I don't think SCO will win it's lawsuit against IBM, and even if it does, it's not clear how that will impact Linux.

As for the IP issues around open source, people should realize that the GPL provides IP protection, including ownership. For example, Torvalds owns Linux as a trademark and owns the copyrights. This ownership is precisely what keeps others from just taking it and doing what they want. People think open source means nobody owns it, but that's not the case. It just means the code is open for others to review. You couldn't impose copyleft and other items if there were no IP ownership.

SCO will lose this one.

chris 11/21/03 06:42:42 PM EST

SCO has become the laughing stock of the IT industry, in my opinion. Who would take them seriously now or in the future?
Hope they enjoy hanging to the end of their rope while they can. Soon, they will fall off of it into oblivion.

[email protected] 11/21/03 05:58:13 PM EST

Well it looks like the open source facade is finally showing at the cracks. If i was the intellectual(what does intellectual mean) owner of an open source project, i would want to protect it in some way. If i said yippe da doo, and i programmed a program to say yippy da doo, would disnay
land own it

sean 11/21/03 05:57:10 PM EST

Well it looks like the open source facade is finally showing at the cracks. If i was the intellectual(what does intellectual mean) owner of an open source project, i would want to protect it in some way. If i said yippe da doo, and i programmed a program to say yippy da doo, would disnay
land own it

sean 11/21/03 05:56:06 PM EST

Well it looks like the open source facade is finally showing at the cracks. If i was the intellectual(what does intellectual mean) owner of an open source project, i would want to protect it in some way. If i said yippe da doo, and i programmed a program to say yippy da doo, would disnay
land own it

Patrick Dorn 11/21/03 05:01:03 PM EST

SCO doesn't own the rights to Linux, it just thinks it does because thet claim that Linux is tainted with UNIX code that they say they own. So Novel is in the clear in terms of purchasing Suse and distributing Linux.

Sticky Toejam 11/21/03 03:52:59 PM EST

Head over to www.groklaw.net where this has already been hashed over. Remember that just like Star Trek, you have SCO-TOC (SCO - The Original Company) and SCO-TNG (SCO - the next generation). The original agreement was with SCO-TOC and Novell. SCO-TOC _sold_ it's assets to SCO-TNG. As such, the following would seem to be relevant:

The Asset Purchase Agreement states:

The license agreement shall also provide Seller with an unlimited royalty-free, perpetual, worldwide license to the Licensed Technology upon the occurrence of a Change of Control of Buyer described in Section 6.3(c) hereof. In the event of a Change of Control of Seller (as defined in Section 6.6 hereof), the license granted pursuant to the license agreement shall be limited to Seller's products either developed or substantially developed as of the time of the Change of control.

VMS Rocks 11/21/03 03:34:42 PM EST

Yep this is totally amusing and entertaining. SCO makes noise, stock goes up, people make money. Meanwhile, another bunch of lawyers gets rich.

Ultimately it doesn't really matter who wins out on this. The image of Linux is being dragged through the dirt just like MS planned when they bought a license from SCO. SCO had no money to pursue this until the Ballmer / Gates faction got involved.

If the unknown Fortune 1000 victims have any sense, maybe they should just BUY SCO, drop the suits and bury McBride. He could give a rats behind about SCO's IP rights anyway. He's out for money. Wave enough now and he'll go away. It would be a drop in the bucket compared to what the litigation is going to cost over the next decade.

Why make a bunch of scumbag lawyers rich?

Peter Fusco 11/21/03 03:31:28 PM EST

I just finished reading (I think it was on Groklaw) that the non- compete agreement also had some terminology referring to "the present company" or words to that effect. And in essence when Old SCO became new SCO that non- compete agreement became invalid.

Peter Fusco 11/21/03 03:31:05 PM EST

I just finished reading (I think it was on Groklaw) that the non- compete agreement also had some terminology referring to "the present company" or words to that effect. And in essence when Old SCO became new SCO that non- compete agreement became invalid.

reader 11/21/03 03:28:25 PM EST

"Licensed Technology" is Unix, not Linux... Duh.

Jim White 11/21/03 03:24:14 PM EST

No big problemo for Novell. Linux is not "Licensed Technology" (ie "Unix"), as the SCO/IBM suit will demonstrate. This is all or nothing for SCO. If they can own Linux, then sure everybody's gonna take a bath. But the chances of them prevailing is zip.

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