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."

Am I Outdated?

[Orange Apple]

Didn't Microsoft invest a lot of money in them? If so thats a "bright spot". Or was that last querter?

Stock near the 52 week low.......

[i_want_you_to_throw_]

and that doesn't inspire confidence either [yahoo.com]. It probably isn't reaching too far to say that SCO ain't long for this world.

SCO isn't the only party that deserves to lose

[Quinn_Inuit]

Their lawyers can also be sanctioned for submitting arguments they knew had no chance at all* of winning. Rule 11 [cornell.edu], anyone?

*N.B.: Before you get worried about closing the courthouse doors to legitimate complaints, that rule is used even less than it probably should be, and only in cases where the lawyer submits a claim (s)he knows or should have known is either misleading, false, or ridiculously frivolous (fails the laugh test).

What do you expect?

[CrashPanic]

This is company that hasn't produced a competitive product in years. And now that everybody see's that there may not be much merit to their IP claims on linux, their license collections will die off too. Their only hope is for a Microsoft to keep funding them to wage this proxy war against linux. Just wait until their are no more good proxies for Microsoft to fund, that's when we'll likely see them jump in the ring flush with a new patent portfolio to swing around.

It's still intriguing...

[Skiron]

... all that time ago when SCO started this:

1. Did they really think they had something?

2. Was it a hope for IBM et al to buy them out and save a failing Company?

3. Did M$ really engineer all this anyway?

Whatever, but the last point is can a court, on whatever decision is reached now, actually stem the tide against this sort of action by large $$$$/££££ in the bank Companies deliberately trying to destroy a free (and perhaps better system), against an otherwise 'couldn't care less to who uses my code' attitude open source movement in the courts?

IBM has money to oppose. What if they didn't and couldn't fight back for OSS? Who could fight the monopolies then?

The next fight is these silly patents. I think that will be BIG trouble for all free people, let allow coders.

Re:Heh. Example from the Motion:

[ackthpt]

and hit them with big ugly damages just for saying it.

It would be rather amusing if IBM ended up owning SCO and whatever IP they have as a result of SCO being unable to pay the damages and going into default. I suppose it's possible, but who could rule out Microsoft (who certainly may see some stake in this, lord knows they've thrown tons of money at more absurd things) picking up the remains, after all, with 5K patents and planning to have 5K more.

Re:No Legs? Full of Holes?

[Ohreally_factor]

Well the deal here is that IBM has SCO between a rock and a hard place. If SCO tries to show code at this point, IBM asks why haven't they shown the code earlier, after numerous court ordered discovery attempts? If they show code now, they will be demonstrating that they haven't complied with the court's orders.

IBM is also foreclosing on their defense of saying that the case isn't about copyright, and therefore IBM shouldn't be allowed to bring this "alien" motion. IBM is doing this by pointing out how SCO has done nothing but characterize their complaint as copyright infringement outside of the courtroom.

IBM has efffectively and devastatingly weakened the overall case while utterly destroying SCO's SCOsource program. And they've made it look easy.

patent hell.

[KingPunk]

see, this is only one high profile case of infringment. regaurdless if it is false or not, it is hell to go through, for EITHER company.
note: microsoft is patenting damn near everything that they can, from the User Interface, how software is behaving, hell even shit that they haven't created yet.
imagine when somebody tries to continue to reverse engineer their stuff.. only the world's most pollitically powerful comany's wrath would be hell
but imagine what their dogs for lawyers would and could do to you. this is going to be a long, drawn out hell.. mark my words

Re:You're Kidding, Right?

[Random BedHead Ed]

Then again, this case is a bit different. SCO is fighting on multiple legal fronts, and the outcome of the Novell suit has a direct impact on whether SCO's claims in the IBM suit will hold water. If the Novell suit goes badly for SCO, some of SCO's IBM claims will vanish. So yes, you're right that a case like this would usually be put before a jury, but it's clear that what'll happen on the 15th could be this:

In all likelihood SCO's copyright claims will be dismissed due to (a) failure in the discovery process, and (b) Novell's claims about the copyright transfer. The result would be a limited contract suit that would indeed probably go to a jury. But the resulting suit would hold little interest for the /. community. In other words, no more SCO stories on this website.

Re:No Legs? Full of Holes?

[black mariah]

SCO's situation is worse than that when it comes to the GPL. Either they say the GPL is invalid, at which point they lose any and all right to distribute the code in the Linux kernel (and other Linux software), or the GPL is valid and they have knowingly and willingly contributed their code to a GPL project (by releasing SCOSource and Caldera... and whatever other Linux-based projects they have). I don't even have an opinion on this case and I can see SCO is fucked.

Re:SCO isn't the only party that deserves to lose

[Anonymous Coward]

IANAL, so I'm curious if David Bois and his firm are in greater jeopardy here because they took an equity position in SCO in deference to cash for legal fees.

Additionally, in having that equity position, in the almost-certain shareholder suits and SEC investigations that would inevitably follow after SCO's case is dismissed and they go bankrupt, would there be some interesting RICO implications if his firm knowingly advanced false claims?

Re:No Legs? Full of Holes?

[Flower]

It gets better. The other expert IBM has is Prof. Randall Davis. He goes over the methodology SCO used to determine copied code and tears apart SCO's claims that they need more code from IBM. When I read it I felt like I was witnessing a clusterbomb being dropped on SCO's entire case. It really is a beautiful piece of work and by the end leaves no doubt that the man is worth every penny of the $550/hour fee he charged IBM.

Re:It's still intriguing...

[Anonymous Coward]

I ran into a college classmate over the weekend who's a law school intern for SCO this summer. He was pretty smug about the whole thing and thinks SCO has an open-and-shut case.

So based on that, I'd guess:
1. Yes. He was saying it was a contract case, not involving copyright. Not sure how that gels with the arguments out of SCO, but hey... IANAL.
2. Yes. My classmate still thinks SCO will be purchased by IBM "soon."
3. Dunno, though the Baystar connection implies they were willing to pump $$ in after it got started.

You wonder about the power of the court. There is considerable power in legal precedent. So I'd *love* to see this case reach decision against SCO and prove the validity of the GPL and free software.

conference call excerpts

[mcguyver]

Alright, here are some brief summaries of conversations during the conference call. (I have too much free time but it's interesting to witness a train wreck).

Caller asks SCO what they can do to protect their shareholders from what may be bad legal advice.
Response is SCO obtained the best firm available for the best legal advice available.

Caller asks would you seek a second opinion from a new firm like you would seek a second opinion from a medical doctor?
Response is anyone with these questions likely has not read all material in front of the courts and they would be unable to generate a conclusion because the paperwork is confidential.

Caller asks what would it take to buy SCO with the poison pill?
The board would need to set a fair price.

Caller asks how many people are employed by SCO.
At the end of the quarter, SCO has 230 people.

Caller asks since beginning on this legal crusade, how much has been paid for legal representation?
Just over $15 million for all law firms for the prior 5 quarters.

SCO currently has $43M in cash. Plans on paying $31M in fees - not sure if this is some baystar thing or legal fee.

Can you summarize the responses from the court that have been positive?
March 6th, Judge said SCO has shown good faith in its discovery process. Ordered IBM to deliver executives emails.
April 19th, SCO received good information from IBM and has been working through that.
Despite judge orders, IBM has not completely fulfilled the order to deliver the information request on March 6th.
Novell case, motion filed to dismiss, motion was denied. A new motion to dismiss was issued and SCO looking forward to dealing with that.
Autozone case, case was stayed but you get 90 days of discovery. SCO is currently going through that process.
Character case that IBM is trying to do of SCO's legacy AT&T contracts is misguided.
Additional hearing will be held on September 14th and 15th.

Caller asks is SCO replacing cash payments to lawyers with sliding scale contingency payments?
Yes. In a certain sense, the long term obligation depends on judgment and settlement amounts.

Re:No Legs? Full of Holes?

[Anonymous Coward]

I'm not sure that this stuff hits the non-technical eye as hard as it does an old geek like myself

You can compare that to a literature copyright infringement: Stephen King's lawyer can cut out the words from "The adventures of Tom Sawyer", mix them up to resemble a page from "The Shining" and accuse Mark Twain of plagiarisation.

Wait a minute...

Re:No Legs? Full of Holes?

[UnknowingFool]

They tried, but it got shredded by IBM's legal team.

It's worse than that. It would be shredded IF SCO can get it admitted into evidence. They made so many mistaked with the Gupta Declaration.
(1) They didn't propery certify Gupta as an expert by establishing his credentials.
(2) They didn't give IBM the Declaration until after IBM asked for Summary Judgement (read: evidence must be presented in a timely manner)
(3) Gupta didn't use the abstraction-comparison-filtration test that the Tenth Circuit has adopted for matters of copyright cases in software. The filtration part of this test is where you have to remove code that cannot be copyrighted (public domain, standards, ideas, etc).
(4) Even if you ignore all that, the code he says is similiar isn't remotely close to being similiar. It's so obvious a nonprogrammer could tell.

There are six pieces that Gupta mentions: (1) "the Read-Copy-Update [(RCU)] routine"; (2) "the user level synchronizations (ULS) routines"; (3) "IPC code"; (4) certain "header and interfaces"; (5) "System V init code"; and (6) "Executable and Linking Format (ELF) code"

IBM points out that for the first two:

To the extent he identifies any similarity at all, Mr. Gupta's analysis is focused almost entirely on unprotectable ideas and concepts. (See Kernighan Decl. 20-21.) Indeed, Mr. Gupta himself claims to identify similar "routines" and "method[s]" that "perform the same ... acts". (Gupta Decl. 3, 5, 7, 10, 11 (describing RCU) and 30, 31, 32, 34, 36 (describing ULS).). Such elements are plainly unprotectable and cannot serve as the basis for a determination of "substantial similarity"

In a nutshell, Gupta says these two pieces of code infringe because they perform the same function to some code in SCO's Unix. IBM validly argues that the function of code is not copyrightable.

For the IPC code (3), SCO is trying to fool the court by making code look similiar by selectively deleting code in between lines of other code. This was noted by Kernighan above.

The "header and interfaces" and "System V init code" aren't even in Linux and are irrelevant according to IBM.

ELF is a specification and a standard and thus falls under the filtration test as not copyrightable.

Re:If there is dispute over the ownership ...

[Dastardly]

the legal presumption is that the copyrights still reside with the original owner: in this case, Novell.

Yes, but I don't think judges often go beyond the minimum needed to decide a case. And, in order to decide the slander of title all the judge needs to rule is that it is questionable whether SCO owns the copyrights, and therefore reasonable and without malice that Novell made the statements that they made.

IANAL

The just thought of a problem though. SCO could now file a contract case regarding who owns the SVR4 copyrights. This could have bad repercussions, in the sense that SCO could get delays in other cases while the new one just gets started.

The problem is if the copyrights are in question. I don't think that decides the RedHat case, but might result in dismissal without prejudice or a continued stay with an injunction telling SCO they must discontinue interfering with RedHats business until the copyright case is decided.

Autozone woudl probably continue to be stayed. And, there may even be the possibility that IBM gets stayed. Although if IBM doesn't request the stay, I am not sure SCO could without severe embarassment.

SCO: "Sorry judge, we submitted this lawsuit too soon. We need to clear up who really owns the copyrights to SVR4. Could we get a stay until the Novell case is decided?"

Maybe they could get a stay on a couple of the counterclaims, and continue with the rest since they characterize their claims as contract claims. Either way whiel SCO submitting a copyright case against Novell would clear everything up eventually, (probably in Novell's favor). I could result in SCO getting more time to bluster.

Dastardly

Falsifying evidence?

[walterbyrd]

>>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.

Would that be falsifying evidence? Isn't that a very serious crime?

Re:No Legs? Full of Holes?

[dbIII]

Public domain means no copyright

SCO are looking at it in terms of property and not copyright - a common confusion with software which has given us both a patent mess and a copyright mess. Look at it in context - public domain for property, the original meaning, is different to copyright terms (which are going to mean different things in every country anyway). SCO saw linux sitting there waiting for them to download it as unclaimed property, and have since tried to claim it in exactly the same way you can claim a pile of books on the side of the road. No one "owned" it, so why not them seems the be the thought process - exactly like fencing off a peice of common land or the recently common tactic of patenting the obvious and charging people for it.