Novell: SCO insolvency 'imminent, inevitable'

Novell has claimed that The SCO Group, the licensing and consulting firm conducting various legal campaigns over the Linux operating system, is about to go bankrupt.

In a court filing reported this week by legal Web site Groklaw, Novell claimed that SCO should pay it almost all of the Unix licensing revenue it has received from Sun Microsystems and Microsoft. This revenue amounts to almost US$26 million, and was earned by SCO when it sold Unix licenses to Sun and Microsoft in 2003.

This revenue helped SCO to mount a legal battle in support of its claims that IBM violated SCO's intellectual property by including proprietary code from Unix -- on which SCO claims copyright -- in Linux.

Novell argued that it is owed that revenue. In 1995, it transferred Unix and UnixWare to Santa Cruz Operations (now SCO) under a deal called the Asset Purchase Agreement (APA). The deal stated that SCO would hand over 95 percent of all revenue it received from SVRX (Unix System V) license agreements.

In October 2006, Novell filed its claim that SCO must hand over this Unix licensing revenue. SCO has so far refused, saying that the deals with Sun and Microsoft don't relate to the SVRX agreement. SCO also said that such a move would cause it financial harm at a time when it is still fighting the case against IBM.

But in its latest court filing, Novell insists that SCO's financial situation makes it even more important that the US$26 million, minus SCO's 5 percent administration fee, is handed over.

"Contrary to SCO's assertion that a preliminary injunction should be denied because it may accelerate SCO's bankruptcy, SCO's imminent bankruptcy is a compelling reason to grant Novell's motion. When SCO goes into bankruptcy, it will not be because of Novell's motion, but because of its own financial missteps," the software maker stated in its court filing. (The filing, titled "Novell's reply to SCO's opposition to Novell's motion for partial summary judgement or preliminary injunction," is available on Groklaw.)

"For SCO, bankruptcy is inevitable; it characterises its assets as merely those 'remaining' and does not rebut Novell's arguments that its bankruptcy is imminent. Once this bankruptcy occurs, Novell will lose all ability to collect its judgment," Novell added.

SCO, though, has denied that it is on the verge of financial disaster. A company representative reportedly told Internetnews.com that "this is unquestionably Novell FUD and irresponsible of them to make such comments."

SCO is due to release its next financial results on January 17. Previous financial statements have shown that its income from Unix license sales has been falling, with its Linux indemnification program -- which protects companies from being sued for using Linux -- failing to attract any significant interest.

Late last year, SCO's share price fell after a judge ruled that most of its case against IBM should be thrown out.

Graeme Wearden reported for ZDNet UK from London