SCO's Finances, Legal Case Take Hits

geomon writes "This afternoon, SCO will host a conference call where they will present '04 third quarter financial data. The news isn't expected to be comforting to SCO investors as they are coming up a bit short; earnings and dividends will take a substantial hit. The only bright spot for the company is the settlement with BayStar, a deal that will leave most of the cash they received from the investment house in the hands of SCO management, if only for a short time." Reader ak_hepcat writes "Groklaw has posted the text for the latest IBM memorandum in its case against SCO. In a nutshell, IBM accuses SCO of not only wrangling the legal process to keep delaying the eventual resolution of this case, but they go so far as to pull the curtain away and show that this table never had any legs to begin with. I'm no marksman, but I can tell when something is full of holes."

There's a better Groklaw article.

[Jaywalk]

I think the more important Groklaw story is this one [groklaw.net]. The part I found telling was:

Pacer indicates that the SCO-Novell hearing on Novell's motion to dismiss is going to be held on September 15 at 2 PM before Judge Kimball . . . That's not only the same day as the SCO v. IBM hearing on IBM's 10th Counterclaim, it's the same time.

Since the same judge is handling both cases, I can't conceive of a situation where he would want to claim the Novell suit should not be dismissed and that the IBM counter-claim should be denied. Continuing the Novell suit would complicate the IBM suit, so trying to handle them both in the same afternoon would be a potload of work. If, on the other hand, he plans to grant the Novell dismissal on the grounds that the copyrights were never transferred, it would allow him to grant IBM's PSJ on the same grounds.

I'm just guessing here, but if I'm right his is very bad for SCO. It would mean that Novell keeps the UNIX copyrights, the IBM case is limited to the Monterey contract and the Red Hat case can proceed with a finding on record that SCO has been blowing smoke about its UNIX IP.

Want to listen ?

[Anonymous Coward]

here you go [yahoo.com]

ahh the beauty of the Internet
and the stock is currently trading at $3.80, 6mo performance is definatly a sell [yahoo.com]

Re:It's still intriguing...

[ClosedSource]

IBM isn't fighting for OSS and they were second only to AT&T in the monopoly department. IBM is the SW patent leader and hasn't taken any steps to reduce their new patent filings or release they current ones into the public domain. IBM is looking out for number one just as it always has and will drop OSS like a bad habit if the winds change.

Analysis at LamLaw

[bstadil]

Look at LamLaws [lamlaw.com] analysis of this.

The take is that IBM's request for Summary Judgement that no SCO copyrighted code exist in Linux will be granted.

Novel is invited so as to protect their interest in the Copyrighted material. Most likely Novel is the owner of any copyrighted material not SCO (OldSCO rather ie Caldera)since it was nver transfered in writing, as required.

Re:Home Simpson?

[dknight]

jumping the springfield gorge on bart's skateboard and missing... and then falling out of the ambulance, and falling down the gorge a second time...

its the Bart the Daredevil episode.

Yes, I have no life.

Re:No Legs? Full of Holes?

[Jaywalk]

but am I to understand that SCO still hasn't ponied up any evidence in the way of source code to show where code was copied?

They tried, but it got shredded [groklaw.net] by IBM's legal team. Basically, they had one of their own employees say that he thought this and that chunk of code was copied, but he bungled his testimony. He should have first removed the "non-copyrightable elements" -- like everything in the public domain or that's part of an open standard. But he cited both public domain and open standard code as if it was all proprietary.

He also got caught out in something in activity that borders on perjury. Consider this quote:

As Dr. Kernighan [IBM's expert] notes, "Mr. Gupta's conclusions of similarity depend on his selecting isolated lines of code from disparate places and putting them together as if contiguous blocks of code were involved (which they are not) and important differences did not exist (which they do)."

I'm not sure that this stuff hits the non-technical eye as hard as it does an old geek like myself, but to me the critcism is damning. If the judge looks at the exhibits and comes to the same conclusion IBM did, SCO is in serious trouble.

results are in and it's not good

[abrotman]

results [yahoo.com]

Re:I wonder what Gene Amdahl thinks?

[the_maddman]

Why's that ironic? They compete with Microsoft, don't they?
IBM Invented FUD in the 1980's. Gene Amdahl, would of course be the guy behind Amdahl computers, which made hardware compatible with IBM's mainframes, and was one the receiving end of a lot of FUD.
You can't even count FUD as a Microsoft innovation.

Earnings report has been released

[Anonymous Coward]

Maybe they posted it ahead of time knowing someone would post the results in the comments, like this: http://biz.yahoo.com/prnews/040831/latu104_1.html [yahoo.com].

Summary: Revenue is $11,025,000 which is way down from 3Q03 revenues of $20,055,000. The SCOsource revenues are $667,000 vs. $7,280,000 in 3Q03. But, the SCOsource revenue was only $11,000 in 2Q04.

Strangely enough, the stock is up 6 cents in after hours trading.

Re:Home Simpson?

[crotherm]

no no no... it is the April Fools Day one where Bart takes a Duff can to the local hardware store to shake it up in the paint mixer. When Homer opens it, it almost kills him. As Homer lies in the hospital bed, he remembers a long string of "D'oh"s clipped from previous episodes, which get him to snap out of the coma and start to strangle Bart.

Re:No Legs? Full of Holes?

[On Lawn]

Okay, I'm just going to ask. That is Dr. Kernighan as in "Kernighan and Ritchie"? That is IBM's expert?

To me it is not a very smart investor who bet against IBM in this matter.

Re:Stock near the 52 week low.......

[autiger]

It is common practice to announce quarterlies and annuals after the close of trading for the day.

Re:Looney Tunes

[Don'tTreadOnMe]

I went back through a month or so of Business Week articles that mentioned Linux: None of them mentioned SCO, and when talking about the bright future for companies doing Linux related work, they never mentioned that these companies might have a problem with intellectual property or stolen code.

That right there says to me that no one in the business world is taking this seriously. So I suspect that it will shrivel up and blow away.

Yes. THAT Dr. Kernighan. (n/t)

[MenTaLguY]

Lameness filter go away, come again another day.

Re:I wonder what Gene Amdahl thinks?

[danb35]

As much as I side with IBM here, it does seem a bit ironic to see IBM complaining about a competitor "perpetuating fear, uncertainty and doubt."

Indeed, and SCO noted as much in their court filings. This led ESR to update the listing for FUD in the Jargon File [catb.org].

Re:No Legs? Full of Holes?

[mikelmoore]

And considering that he was the expert in the case that established the abstraction, filtration and comparison that this court will use to determine copyright infringement, he testimony is a nuke to SCO's 'case'.

Re:Lawyer fees

[DotDotSlasher]

15 million in 5 quarters? At least someone is making money off of SCO.

From the conference call: And SCO is now allocating $31M for the future of their lawsuit. That means they're investing $31M + the $15M already spent. The attorneys have agreed to accept this $31M amount, plus 33% of any settlement (up from 25%), and that's the max that SCO will have to play for their legal counsel. Supposedly the law firms will then by motivated by the final settlement. That leaves $12 for operations.
SCO also say that the lawsuits are progressing as expected, and they look forward to a jury trial in ~14 months.
They were happy to talk about their better Unix revenue, but people only want to ask questions about the lawsuit.

Re:You're Kidding, Right?

[Anonymous Coward]

"n most cases anyway a judge will let the jury decide. Summary judgements are rarely granted unless discovery has proven a FACTUAL point which does not need to litigated. "

That's exactly what IBM is arguing, that there are no facts in dispute for a jury to debate, that SCO hasn't put forth any supposed facts on copyright infringement. SCO's response to the motion is mostly fluff, they still fail to point to any salient facts. Since judges decide law and no facts regarding copyright seem to be in dispute, this case is ripe for a summary judgment.

Re:You're Kidding, Right?

[UnknowingFool]

In it's motion, IBM is pointing out all the inconsistencies in SCO's story. In one case, they argued this and said this, but in this case, they are saying the opposite. By pointing this out, they are forcing SCO into one corner or the other since most judges don't like these tricks. At the same time, they're painting SCO is a bad light.

While there is a lot of chest thumping in many motions, IBM presents some convincing legal arguments. For example the Gupta Declaration. To use an expert witness, you have to establish an expert's credentials. SCO did not do that. Also it must be presented in a timely fashion. SCO did not produce Gupta's Declaration until after IBM asked for Summary Judgement. It's a matter of procedure. Not following procedure alone is sometimes enough to get it thrown out.

Even if it that could be overcome, IBM points out that Gupta did not use the abstraction-comparison-filtration test that the Tenth Circuit has adopted in software copyright cases. This is sort of saying that to get a DNA match in a case, you didn't use one of the standard DNA testing methods but invented your own. That again is enough for it be thrown out.

Barring all that, IBM attacks the Gupta Declaration point by point with a properly certified expert. IBM didn't need to do this last step, but they're being very thorough. On a few examples, IBM points that certain pieces of code that Gupta says are similar are not remotely similiar even to someone who knows nothing about programming.

Re:You're Kidding, Right?

[CmdrGravy]

"I am sure SCO's motions look pretty too"

Well I haven't seen all the originals, maybe they are printed on nice colorful paper and written in beautiful colours, but the motions I have read of SCO have been largely nonsensical and it has been very hard to see what point - if any - they are trying to make.

IANAL but IBM's motions appear to make some very clear points which are then exhaustively backed up throughout the document which is a striking counterpoint to SCO's ramblings.

Some favorite lines

[UnknowingFool]

Most of the memo is legalese but here are a few of my favorite lines:

SCO's opposition to IBM's summary judgment motion is nothing more than a smokescreen to cover the shortcomings of its claims and yet another attempt by SCO to delay (perhaps forever) the resolution of this litigation.
...
Indeed, SCO appears to have lost track of the representations it has made to avoid review of its assertions of copyright infringement in the several courts in which it is litigating.
...
SCO attempts in effect to portray IBM's Tenth Counterclaim -- which seeks a declaration that IBM's Linux activities do not infringe SCO's alleged copyrights -- as a surprise to SCO. SCO, however, has been claiming publicly for more than a year that anyone's -- which obviously includes IBM's -- use of Linux infringes SCO's alleged copyrights.
...
As reviewed here, SCO appears willing to adopt, in court and in the media, whatever position is most expedient under the circumstances, without regard either to consistency or the truth. SCO has spun, and continues to spin, a tangled web of inconsistencies to avoid resolution of the claims it has made against IBM's and others' use of the Linux kernel. SCO's opposition to IBM's motion is just more of the same gamesmanship -- intended solely to procure further delay so that SCO might profit from the fear, uncertainty and doubt that it has fostered regarding Linux.

While this just a motion, IBM seems confident and is calling it like it sees it. Most of /. would agree.

Re:No Legs? Full of Holes?

[pjrc]

If they show code now, they will be demonstrating that they haven't complied with the court's orders.

If you read the (very long) IBM memo, SCO tried this (Sandeep Gupta deposition), and IBM said that and much, much more. Here's basically what IBM said:

• SCO's memo was not in format required by law
• Gupta's evidence was not filed when required (2 court orders) and now it can't be introduced
• Evidence is not from Gupta's personal knowledge
• Gupta is not an expert witness
• Gupta did not follow required legal required procedure for comparing code
• Similarities are only unprotected expression, not copyrightable.
• Some code claimed to be similar is not at all alike, even to a untrained viewer (apparantly exhibits attached).
• Gupta quoted tiny bits out of context and rearranged them to deceptively make linux and sysv look similar, when the sections quoted aren't similar at all.
• Some of the compared code is in the public domain
• Much is "scenes a faire" (dictated by compatibility standards and thus not protected by copyright)
• Some code Gupta compared is not even part of linux kernel
• Gupta only testifies to 300 lines of code, which is not a substantial part of the millions of lines in linux or unix sysv.

If even some of these are true, this last-minute "evidence" doesn't seem like it'll do SCO any good. Then again, we'll know for sure in a couple weeks.

Re:Yet Again

[pjrc]

Please play Devils Advocate

IBM there are no notes or emails relevant to the case from a couple high level executives who were supposedly involved in IBM's linux stratagies.

IBM doesn't want to disclose every tiny unreleased revision to every file in AIX and Dynix over the last 20 years

IBM doesn't have contact info for a bunch of people who aren't IBM employees anymore (including some SCO folks).

Comparing source code is too difficult

Too many third parties contributed to linux and IBM won't tell SCO who they were (they'll only point SCO to the changelogs).

IBM's source control software has just gotta have an easy way to extract everything SCO wants.

and tell us what we are not seeing, give us ONE SHREAD of proof that IBM has done anything wrong

Oh, I'm sorry. You asked for a fact. Well, those are in sort supply these days. But some will probably turn up eventually, if the court orders IBM to let SCO have billions more lines of IBM's code, every email every IBM programmer ever wrote or read, and photocopies of everything every one of their people has ever applied to paper using a pencil or pen. After all that, and 25000 or so man-years to go through it all, we can speculate that maybe, just maybe a fact will turn up.

Re:The ironing is delicious...

[Flower]

It's worse actually. As was pointed out [groklaw.net] at Groklaw by AllParadox, who actually practiced law instead of playing one on /. :

A headnote is a legal analysis by someone who is probably not connected to the case. ....

Headnotes can perfectly contradict the actual findings of the court. <emphasis mine>

And, iirc, SCO did nearly that. They quoted the headnote and got the caselaw wrong. AllParadox put it better than I ever could. This was definitely a "Stupid newbie stunt"

Re:Hah! So much for the famewhore

[Animats]

Then again, we've been waiting 4 years for Enron to settle...

That's been grinding along. Ben Glisan (former Enron treasurer) is in prison. (Inmate #20293-179, Bastrop Federal Correctional Institution). He gave up the Fastows. Lea Fastow is in prison. (Inmate # 20290-179, Houston Federal Detention Center). Andrew Fastow (former Enron CFO) pled guilty and is going to jail soon. He gave up Skilling and Lay (former Enron CEOs). They've been indicted and are out on bail.

It's just like taking down an organized crime operation. Which Enron was. One step at a time, until the guy at the top goes down.

SCOX Conference Call Audio

[Mansing]

A recording of the conference call is available here:

http://www.users.cloud9.net/~terrapn/

Here's a link to the conference call audio...

[g_adams27]

For those who want to listen to the conference call recording, here it is...

RealPlayer:
http://play.rbn.com/?url=shareholder/shareholder/d emand/040831cald.ra&proto=rtsp [rbn.com]

Windows Media Player:
http://play.rbn.com/play.asx?url=shareholder/share holder/wmdemand/040831cald.asf&proto=mms?mswmext=. asx [rbn.com]

Re:No Legs? Full of Holes?

[Anonymous Coward]

Not at all. The GPL is more like a National or State Park open to all visitors, maintained by volunteer park rangers and environmental groups. It is emphatically NOT public domain.

Re:No Legs? Full of Holes?

[UnknowingFool]

Let's see:
In one corner, SCO has Sontag and Gupta, two of their employees. One of them is unknown in his credentials.

In the other corner, IBM has Dr. Brian Kernighan (Princeton) who with Dennis Ritchie wrote the first C programming book. Kernighan has also written seminal books in many other programming guides and languages.

IBM also has Dr. Randall Davis (MIT) whose expert testimony was used in not one but two of the benchmarks that are cited as case law in all software copyright infringement cases (CAI v. Altai and Gates Rubber v. Bando).

I wouldn't say it looks bad for SCO but I would bet a blind money could hammer away at a typewriter and finish writing Hamlet before I would bet SCO would win.

Re:Remember, they're not trying to make a legal ca

[Eggplant62]

Also note that there have been no insider trades since this past April, when the stock started it's nosedive to it's current bargain-basement levels. Here's the proof [yahoo.com]. Prior to April 7, Thomas Raimondi sold off $1,196,507 of stock. Another insider, Reginald Charles Broughton, during the period between 20 Jun 03 and 17 Sep 03, while the stock was on the rise and nearing the top of the bubble, sold off $3,425,458 worth of stock, most of it trading at in excess of $12/share and even as high as $20/share. Pump and dump? You bet ya. I can't wait to see what happens when the SEC goes public with their investigation.

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