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Down To Business: SCO Affair: Time To Take Stock (And A Few Shots)

Almost five years, tens of millions of dollars, and several lawsuits have produced what? A few measly lessons.

There's not a lot positive to say about the 4-1/2-year-old legal saga that's been SCO Group vs. most of the computing world. The various principals have diverted tens of millions of dollars into proceedings that don't serve customers a lick, unless you want to argue that clearing Linux's good name is itself a noble effort worth that expense.

Following the Aug. 10 ruling by a federal court judge gutting most of SCO's two main lawsuits--against Linux champions Novell and, it would seem, IBM--it's time to take stock of what we've learned from this sordid affair, and hopefully start putting it behind us.

  • The U.S. legal system can work, even when it comes to discerning complicated subjects like software intellectual property rights. Sure, tech-patent trollers like Forgent Networks, MercExchange, and NTP have garnered their share of court decisions, but over the long haul, IP opportunism isn't much of a business model. Which leads us to lesson No. 2 ...
  • One of the surest ways to kill a prominent tech company is to risk everything on a potential legal windfall to the neglect of your core business. SCO could have had a bright--or at least brighter--future developing UnixWare and OpenServer, and perhaps turning some of those customers onto Linux. Instead, SCO bet the ranch on wringing license fees from Linux customers (which allegedly are running morsels of its Unix code) and collecting on its billion-dollar-plus lawsuits against IBM and Novell.
  • Today, SCO is back to calling itself a technology company rather than an IP defender, emphasizing its Mobile Server middleware in addition to its Unix products. But the damage is done. Having given short shrift to its Unix base and having alienated the powerful Linux community, it's plodding along.

    SCO's fiscal first-half revenue of just $12 million was down 17% from the year-earlier half and down a whopping 66% from the $34.9 million the company reported for the first half of fiscal 2003, when it launched the IBM suit. As for profitability, SCO's net loss narrowed considerably in the first half of this fiscal year, to $2.2 million, but mainly because it's spending less on lawyers these days. (In the first half of 2003, by comparison, it posted net income of $3.8 million.)

    SCO's cash reserves are under further strain following the federal court judge's ruling that the company owes Novell at least some of the money it has collected from its Sun and Microsoft licensing deals. And a week after the judge's ruling, SCO's stock is a candidate (again) for delisting, as the share price has plunged well below Nasdaq's $1 threshold. Rest in peace.

  • To paraphrase the Irish beat cop played by Sean Connery in The Untouchables, don't bring a knife to a gunfight. SCO, despite getting some green from Microsoft, Sun, and others, never had the financial wherewithal to outlast industry titans IBM and Novell in court, and to take on the Linux faithful in the court of public opinion.
  • When wielding knives, better to go after your enemies than your friends. It was strange enough that SCO turned on IBM, one of its biggest customers: IBM's AIX, under license from SCO, is one of the top-selling Unix variants, and IBM supplies many of the servers that run SCO Unix. But SCO also bushwhacked its main growth opportunity: customers migrating from Unix to Linux.
  • Although court rulings can bring some clarity, such complex legal affairs tend to grind on. SCO, while expressing disappointment with the judge's decision in the Novell case, says it will press on, noting that the judge didn't dismiss all of the company's claims. As for SCO's suit against IBM, the same judge has asked the two companies to provide the court with an update by the end of this month on how they think the Novell decision affects their case. Only SCO chief Darl McBride would have the cojones to continue harassing IBM for violating rights that his company doesn't own, but that case is pretty much done regardless.
  • Rob Preston,
    VP/Editor in Chief

    To find out more about Rob Preston, please visit his page.

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