SCOing, SCOing, Gone?
Mar 23, 2005 5:00 AM PT
The press reported a few weeks ago that SCO, the UnixWare purveyor famous for bringing Linux-related lawsuits against IBM and others, was in danger of being delisted from the NASDAQ. This announcement was surprising because most public companies don't risk delisting for not filing their 10-K's. But this is only the end of a series of announcements related to the Utah company's financial woes.
SCO's business distress may be the death knell for the SCO wars -- which may be the closest thing to a reality TV show that has ever happened to the software industry. So it's worth taking a look back.
Because there are plenty of places you can read about the legal aspects of the SCO case (Groklaw is great for technical legal information), the following is not a legal analysis. Rather, it is a remembrance of the media circus and software industry carnival that has been SCO.
A Brief History
Here is a brief timeline of some of the more piquant events surrounding the lawsuit:
- Before June 2002: SCO, like many others, is a struggling software company. Its stock -- like the whole NASDAQ -- is down, and its products are losing market share.
- June 2002: Darl McBride is appointed CEO of the struggling company. McBride makes a bold decision: Instead of putting capital into improving its products, SCO will invest in a lawsuit.
- February 2003: SCO signs a deal with David Boies, noted superlawyer of Boies, Schiller & Flexner, who has made his mark defending IBM in its antitrust suit and arguing Al Gore Jr.'s "hanging chad" case. SCO agrees to give Boies a $1 million retainer, many thousands of shares of SCO stock, and 20 percent of settlement or proceeds in any equity sale. (In the law business, lawyers often accept lawsuits on contingency, but their payoff is usually a percentage of the damage award.) This arrangement will later elicit comments that the point of the lawsuit against IBM is to force it to acquire SCO.
- March 2003: SCO files its suit against IBM.
- May 2003: The Wall Street Journal reports that Microsoft buys SCO Unix license. Some reports set the fee at $10 million.
- May 2003: The FUD begins: SCO sends letters to 1,500 of the world's largest corporations, including the Fortune 500, alleging that the use of Linux may infringe SCO's intellectual property rights.
- May 2003: The "Hey, SCO Sue Me" Petition. Scores of people sign a petition saying, "I am willing to be sued because I am confident that SCO's tactics toward Linux will fail. If I have published my e-mail address as part of this petition, it is so SCO representatives can e-mail me and begin the process of serving me a court order."
- May 2003: There are multiple DDoS attacks on SCO's server, prompting McBride to write an open letter to the open-source community claiming that its members are responsible for the attacks.
- June 2003: Linux supporters stage a protest at SCO's headquarters. Placards read "SCO to Hell" and "All your code base R belongs to us." SCO sends out counter-protesters with signs reading "I [heart] Software Piracy," "Legalize Stupidity -- Support Linux" and "Give Communism a Try -- Use Linux."
- July 2003: Darl McBride announces trip to Japan to meet with consumer electronics giants in the CE Linux Forum. SCO is less vocal about the outcome of the meetings; rumors circulate that they turn him away.
- August 2003: McBride publicly shows examples of allegedly infringing code in Linux; open-source community identifies the code as having been written by others, years before. Bruce Perens writes a withering reply: "SCO further obfuscated the code on this slide by switching it to a Greek font, but that was easily undone. It's entertaining that the SCO folks had no clue that the font-change could be so easily reversed. I'm glad they don't work on my computer security."
- October 2003: BayStar Capital and Royal Bank of Canada invest $50 million in SCO, on the strength of the lawsuit.
- October 2003: When the financing deal closes, McBride's friend and former colleague, Michael Anderer, sends a typo-ridden e-mail requesting a commission on the BayStar investment, claiming this was due for his help arranging the deal through his contacts at Microsoft. The e-mail ends up on OpenSource.org, and as a result Eric Raymond declares SCO to be Microsoft's "sock puppet."
- October 2003: Hewlett-Packard announces it will indemnify Linux customers against SCO's legal claims -- but only if customers make HP their sole provider of Linux support.
- Early 2004: McBride receives death threats, hate mail and a Fed Ex'd box of live worms.
- March 2004: SCO takes the unusual step of suing two of its customers, AutoZone and DaimlerChrysler, both of whom are Linux users.
- May-June 2004: Trouble in paradise: BayStar and Royal Bank of Canada try to gain control of SCO, fail, and sell most of their SCO shares.
- October 2004: SCO announces that its legal bills for the prior quarter were $7.3 million. It projects revenues for the upcoming quarter of only $10-12 million.
- January 2005: Trouble erupts for The Canopy Group, which controls SCO. Former executives sue the company, and the company countersues. Both allege that the other exercised undue influence over Ray Noorda, Canopy's 80-year old founder, due to his failing health.
- February 2005: In a long-awaited decision, the court in the IBM case denies IBM's motion to dismiss, but issues an opinion sharply criticizing SCO. The court found it "astonishing that SCO has not offered any competent evidence to create a disputed fact regarding whether IBM has infringed SCO's alleged copyrights through IBM's Linux activities." The court admonished SCO for choosing "to cavalierly ignore IBM's claims that SCO could not create a disputed fact regarding whether it even owned the relevant copyrights." The court noted "the vast disparity between SCO's public accusations and its actual evidence -- or complete lack thereof."
- February 2005: SCO is threatened with de-listing because it fails to file a Form 10-K for its fiscal year ended Oct. 31, 2004.
I promised I would not discuss the merits of the IBM lawsuit, but I would not be the only one to conclude -- from the facts publicly available -- that the case is flimsy to meritless, and that SCO's recent victory will be short-lived. Once the IBM case is dismissed, the others will fall like dominoes -- except those that are effectively gone already.
Thanks for the Memories
I will be a bit sorry to see SCO go, if only because it will mean an end to the circus. When I was a programmer, back in the Bronze Age, nothing that interesting ever happened. We did not carry placards. We talked about Star Trek a lot, played endless text-based games of Adventure on dumb terminals, and drew structure diagrams which we disregarded because they made the code too slow, but there were no protests and snappy slogans for us. You young guys have all the fun. But I will be glad to see SCO go because it tests one's faith in the legal system to see lawsuits that are all flash and no substance.
Overall, in the end, I will be glad it came and went, because it was a wake-up call for the open-source community and the legal community that forced them to reassess the intellectual property risk issues with open source.
SCO's woes are a cautionary tale -- not because SCO is evil, or because SCO is anti-Linux, or because its CEO tried a lawsuit in the press -- all of which are unfortunate, or in the latter case, annoying. SCO is failing as a business because its products are failing in the marketplace. A company with a failing product line cannot use its business to finance a lawsuit -- at least, not if its legal bills are greater than its profits.
There are a few companies whose only business is to file lawsuits, but SCO was -- at least ostensibly -- a software company. The companies who make it their business to file lawsuits, and succeed, pick their battles more intelligently than SCO. The moral? If your business is software, be a software company. If your business is suing for IP infringement, do that. But if you do both, you had better have a lot of money to burn -- and if you do either, you really ought to file your 10-Ks.
Heather Meeker is a shareholder at the international law firm Greenberg Traurig, LLP, and specializes in intellectual property transactions for software and other technology clients. Ms. Meeker is the co-chair of the Open Source Committee of the Science and Technology Section of the American Bar Association. She advises clients regularly on open-source licensing issues and open-source business strategies.