SCO Bankruptcy "Imminent, Inevitable"

mattaw writes "From analysis by Groklaw it seems that SCO may owe Novell nearly all the SCOSource licensing fees, and has been hiding the fact for 3 years. Imminent. Inevitable. Bankruptcy. Those are the words from Novell's lawyers. Perhaps the IBM/SCO case could close earlier than planned? Perhaps we can finally be rid of this specter once and for all?"

Re:Can anyone explain?

[BoneFlower]

Basically, SCO has to pay Novell royalties whenever they license the Unix System V code, it's part of the original contract.

Novell is basically saying that SCO hasn't given them all the royalties SCO owes them.

Re:Can anyone explain?

[Scarblac]

SCO has been acting as if they had bought some sort of IP rights to SysV UNIX from Novell, and sold licenses based on those rights to Sun and Microsoft ("SVRX licenses").

Novell is now pointing at the actual text of the contract, which says that all SCO acquired was the right to act as an agent of Novell - basically, they can sell licenses in Novell's place, then hand over all the money to Novell. After that, Novell will return them 5% of the money as an agent fee.

It all seems pretty undisputable, from following Groklaw. As Novell claims SCO did its job badly so they won't even have to give them the 5% back, they're basically claiming that those cash infusions from Microsoft and Sun belong to Novell. And it's asking the judge to make haste, since this is simply their money, SCO is wasting it, and they'll soon be bankrupt.

Re:I'm excited

[Amazing Quantum Man]

The current SCO is not, and has never been the Santa Cruz Organization.

The current SCO (newSCO) is what used to be Caldera. Santa Cruz (oldSCO) became Tarantella, and was bought by Sun.

It's more than bankruptcy.

[Jaywalk]

Judge Kimball has ruled that the Novell case should go before the IBM case, so the Novell timeline [groklaw.net] is now more important than that of IBM. While it's SCO that sued Novell, the whole show (including IBM) is likely to be shut down by Novell's counterclaims [groklaw.net]. Boiled down, Novell's has nine "claims for relief" and, if granted, there is nothing left for SCO to sue about. You can read them yourself in the PDF, but the basics are:

1. Novell owns the copyrights and not SCO.
2. SCO needs to give Novell a full accounting of unreported money it owes Novell for SVRX licenses.
3. Novell wants to court to order SCO to comply with their contract, which gives all the royalties from SVRX to Novell.
4. Novell has the right to waive SCO's claims on UNIX code. Including those against IBM.
5. Novell wants the court to issue a "declaratory judgment" that Novell has the right to audit SCO's performance to make sure that it doesn't take any more of Novell's money.
6. SCO needs to put all the money it "converted" (i.e., "stole") from those licenses into a constructive trust. (This is the one they're fussing about now. Sun and Microsoft gave SCO a bucket of cash to carry on the lawsuit against Linux under cover of a UNIX license. But SCO is supposed to give UNIX license money to Novell.)
7. Number seven repeats number six and asks for the trust again. Eh, lawyers. Go figure.
8. Number eight asks for the trust again, but adds punitive damages for swiping the money in the first place. Since SCO has already spent most of the cash, this is pretty much just adding insult to injury.
9. Finally, Novell wants a complete accounting of all SVRX agreements or "other agreements relating to royalty bearing products." That's because SCO was claiming that the Sun and Microsoft agreements weren't "real" SVRX agreements, so SCO didn't owe Novell any money. Novell wants an accounting to make sure SCO isn't hiding any more ill-gotten gains.

So, yeah, the cash is a big deal and it's going to bankrupt SCO. Couldn't happen to a more deserving bunch of fellas. But read number four again. If Novell has it's way, the IBM case is gone too because SCO never had the right to sue in the first place.
 
Of course, there are always IBM's counterclaims, but it's unlikely there will be anything left after Novell is done.

Re: Once more (in English).

[Jaywalk]

What everybody agrees on is:

• Novell and SCO signed a countract where "certain rights" to UNIX (specifically System V, Release X - SVRX for short) were transferred to SCO.
• In exchange, SCO would give the royalties for SVRX (minus a 5% handling fee) to Novell.
• Novell claims that the "rights" transferred to SCO do not include the copyrights and that Novell still owns those copyrights. SCO claims that the contract does transfer the copyrights.
• SCO is suing IBM claiming that IBM's contributions to Linux infringe SCO's copyrights in UNIX.
• Since suing IBM for infringing SCO's copyrights doesn't make any sense if SCO doesn't even own those copyrights, SCO had to sue Novell as well for "slander of title" (i.e., claiming you own something you don't).
• Microsoft and Sun gave SCO a ton of cash, theoretically for UNIX licenses, but those with a suspicious turn of mind think it was to fund the anti-Linux lawsuit.

What's happened now is that Novell has gone to the court and said that, no matter who owns the copyrights, SCO owes us 95% of the SVRX royalties. But SCO didn't give us 95% of the money that Sun and Microsoft gave them. Worse still, SCO is spending money like water on the IBM suit. They're asking the court to set up a "constructive trust" to prevent SCO from spending any more of Novell's money. SCO is trying to tell the court that those deals weren't "really" SVRX licenses but something else. Unfortunately the documents available to the public have been so heavily editted that there's no way to tell what the Sun and Microsoft agreements actually say.

It's kind of an end run around the basic issue (who owns the copyrights) but -- if the court finds in Novell's favor -- it will effectively bankrupt SCO and (possibly) bring this ridiculous lawsuit mercifully to an end. For those of us with with suspicious minds, it also has the feel of poetic justice in that the money Microsoft and Sun spent to kill Linux winds up going to a Linux distributor (Novell owns SUSE) to defend a major Linux contributor (IBM).

Ummm....

[rm69990]

Ummmm...I'm the one who submits the vast majority of SCO news lately to Slashdot, and I didn't even bother submitting this. Novell has been saying this, either word for word or using different words, since they filed their counterclaims in July 2005. Novell said this directly in their motion for summary judgment a month or 2 ago. Novell is now just repeating itself in a second filing on the same motion (reply memorandum). I never thought I would tag something on Slashdot as slownewsday on the same day as Macworld....

Re:I don't think they knew.

[Jaywalk]

Why wasn't Novell doing all of this monitoring and watching in the first place? And why didn't they realize they were getting scammed sooner?

Believe it or not, I don't think Novell knew. The original press releases read like something you'd expect from the Three Stooges. First Novell accepted SCO's version and assumed they had sold the copyrights. Then they said they said they didn't sell the copyrights. Then SCO found a piece of paper in their files that Novell couldn't find in their version and sent it to Novell. Novell read the paper and agreed that it looked like they had sold the copyrights. Then Novell's lawyers looked at the paper and said that they didn't. Eventually, somebody dug up the minutes of a meeting for the Board of Directors from something like a decade ago and decided they definitely did not sell the copyrights.

Keep in mind that nobody was much interested in UNIX by this point. The original deal was between the original Santa Cruz Operation and Novell because Novell wanted out of the UNIX biz while Santa Cruz wanted some stuff so they could do a joint project with IBM. That project didn't pan out, so they renamed themselves Tarentella and sold the UNIX business to Caldera. Novell didn't much care who owned the business as long as they got their checks, which both Santa Cruz and Caldera sent them as per the contract.

Caldera didn't want the UNIX business either. They were a Linux business and thought they could convert SCO's UNIX distribution network to selling Linux instead. That didn't work out either; apparently the UNIX resellers didn't want to switch to Linux and Caldera was making more selling UNIX than distributing Linux. So they ditched Linux (and their CEO) and switched to concentrating on UNIX and changed their name to SCO for the name recognition.

But there was no scam -- at least with the UNIX royalties -- until the whole Linux shakedown started. Santa Cruz and Caldera sent Novell the checks and Novell pocketed the money. The Linux shakedown was just supposed to get IBM to buy them out, in which case it would have stayed business as usual. Things didn't hit the fan until after SCO tried to up the ante by threatening to sue Linux users over UNIX rights. And even then it took a while.

I'd have loved to have been in the Novell staff meeting when someone (I've always pictured a balding accountant with a slight paunch) looked up from his notes and said, "Hey, isn't SCO supposed to be giving most of the UNIX money to us?"

Re: Look again.

[Jaywalk]

SCOX has actually risen in price today!

According to Yahoo [yahoo.com] it closed yesterday at $1.24 and spent the day bouncing around between $1.15 and $1.25, finally closing the day $1.17. That's down seven cents. It's a pretty volatile stock, but the trend has definitely been down as the case wound its way through the courts.

Wall Street still amazingly thinks the stock has some value.

This is not exactly true. I haven't seen a "buy" recommendation on this stock in a long time. I think that the reason for the current valuation lies in three things. First of all, there are the day-traders. They like volatile stock because they believe they can time their buying and selling to take advantage of the price swings. If you check that Yahoo link you'll see 39,626 shares changed hands today, compared to the average of 171,160 over the past three months. To me that says that most of the trading is done by day traders trying to outguess the market. If they judged it right today -- buying at $1.15 and selling at $1.25 -- they would have made ten cents a share (minus fees). Of course, they could just as easily have been wrong and lost ten cents a share (and still have to pay the fees).

Then there are the current shareholders or, as they are called on the financial boards, the bagholders. They bought the stock before anybody notice the emperor was naked. The big players are in an awkward position. If they start to sell their large holdings in bulk it will create a run on the market as everyone tries to get out. They might as well hold on to them as not. Maybe a miracle will bail them out as they eye each other nervously hoping nobody else makes the first move.

Then there are the short sellers. These happy souls borrowed some shares and sold them off with a promise to buy them back later and return them. Short-selling can be risky because the stock might skyrocket and leave you stuck with a huge bill. Or there might be a "short squeeze" when a bunch of short sellers are forced to redeem their shares at whatever the current market rate might be, causing an artificial spike in price. But neither of these two occurrences have happened with SCO so they're just grinning and cheering for a bankruptcy. In which case they never have to pay back that loan. SCO is currently the most heavily shorted stock on the market.