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10/17/2003
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SCO Says $50 Million Won't Affect Linux Licensing Battle

It says the investment money will be used across all areas of the business.

SCO Group's pockets got a little deeper when the company closed a $50 million round of funding led by BayStar Capital. SCO Group president and CEO Darl McBride says the money will go toward the enhancement of its Unix operating system and software, the development of Web services, and to fight its ongoing legal battles against companies that infringe upon its intellectual property.

McBride said at a Friday news conference that SCO Group wasn't soliciting investments but that his company couldn't pass up this opportunity to "build a war chest." The CEO said his company had actually turned down potential investors as recently as a few months ago to avoid diluting the company's shares.

Investor appetite for technology companies is returning, says Brian Skiba, managing director and senior analyst at Deutsche Bank. "For the past three years, it's been a very tough time to find investors in technology, but a lot of people think the worst is behind the tech market."

Although McBride said the investment is independent of SCO Group's efforts to enforce its intellectual property rights, the company's SCOsource division continues to seek compensation from companies that distribute and use Linux, the open-source operating system. In March, SCO sued IBM for $3 billion on the grounds that IBM breached a contract with SCO Group by allegedly contributing Unix System V source code to the open-source community. SCO Group has since 1995 owned the rights to Unix and derives revenue by licensing the run-time libraries of Unix System V, originally developed in the 1960s by AT&T Bell Labs.

In August, IBM countersued SCO, alleging, among other things, that SCO has violated the GNU General Public License, under which it accepted Linux contributions and distributed Linux. Red Hat Inc. also has filed a lawsuit against SCO on the grounds that it isn't infringing on any SCO intellectual property and that SCO's claims against Linux could harm Red Hat's business.

With the closing of Thursday's private investment, BayStar owns an aggregate of about 3 million SCO Group shares, representing about 17.5% of the company. SCO Group's cash position also increases to $61 million. BayStar's other investments include Genus Inc., a maker of semiconductor manufacturing equipment, and Neoware Systems Inc., a provider of served-based computing software, as well as several biotechnology and pharmaceuticals companies.

"The honest truth about playing in the courtroom is that whoever's wallet is bigger stands to endure the longest," Deutsche Bank's Skiba says. He also adds that, while BayStar is making a "speculative and risky investment," the firm doesn't inherit any liability for SCO Group's lawsuits in the event the company should lose.

SCO Group also says it will keep the pricing of its SCO Intellectual Property License for Linux at $699 for a single CPU system through the end of the month. The license permits the use of Linux without violating SCO Group's copyrighted Unix System V source code. Beginning in November, the price is expected to jump to $1,399. SCO Group also has yet to send out the threatened invoices asking Linux users to pay for the right to run the operating system.

"We said we wanted to give customers a chance to step up and work with us," McBride said Friday. "We're getting good feedback and a pipeline that's healthy." However, the company hasn't ruled out proactively invoicing Linux users in the future if its licensing program stalls.

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