Another nail in SCO's Linux lawsuit coffin

In a 102-page ruling, Judge Dale A. Kimball eviscerated SCO's claims that it owns the copyright to Unix (see Groklaw's coverage, NYT, WSJ).

In a 102-page ruling, Judge Dale A. Kimball eviscerated SCO's claims that it owns the copyright to Unix (see Groklaw's coverage, NYT, WSJ). For the last several years, SCO has been engaged in lawsuits against IBM and others, claiming that parts of Linux violate its alleged copyrights to Unix. In its lawsuit versus IBM, SCO alleged that IBM contributed portions Unix code owned by SCO to the Linux community.

The ruling, which named Novell as the owner of the Unix and Unixware copyrights, could make SCO give up its four-year effort to extract royalties from Linux providers. Novell acquired Unix from AT&T in 1995.

In March 2004, SCO wanted to charge users for an SCO intellectual property license--$699 per single-processor server--to use Linux and dodge any legal action.

During the same time period, SCO filed lawsuits against auto parts retailer AutoZone for violating SCO's Unix copyrights by running versions of the Linux operating system that "contain code, structure, sequence and/or organization from SCO's proprietary Unix System V code in violation of SCO's copyrights." DaimlerChrysler was also sued for alleged violations of the automotive company's Unix software agreement with SCO.

Both Microsoft and Sun paid SCO for licenses related to the Unix copyright claims in 2003.

I interviewed SCO CEO Darl McBride in March of 2004, and he predicted that his company would surpass Red Hat's leading Linux distribution with its Unix offering.

"If you remember SCO back in the eighties, nineties, was the leading brand for UNIX on Intel. If you think about it in a horse-race metaphor, the UNIX on Intel race was going, SCO was way out ahead. As you head into early 2000s, all of a sudden SCO comes back to the pack and Red Hat shoots past it. OK? And now we are back on our horse and gaining ground again in some major, albeit probably small compared to Red Hat, but at the end of the day, that is the race. Now the question that it is going to come down to you is, we get through the court system and get our claims heard and the jury comes back with the verdict we expect to get, then you're going to see it come back in the other way. We're going to catch up and pass Red Hat again."

Since the lawsuit has been filed, SCO has poured tens of millions into proving its claims and seen a decline in its annual revenues. In the meantime, Red Hat has been growing at a good pace. For its first fiscal quarter ending May 31, 2007, Red Hat generated $118.9 million in revenue, an increase of 42 percent from the year ago quarter and 7 percent above the prior quarter. Net income for the quarter was $16.2 million.

For fiscal year 2004, SCO revenue was $42.8 million and in 2003 generated $79.25 million. Microsoft and Sun contributed more than $13 million in revenue across 2003 and 2004. This year SCO had revenue of $12,029,000, down from $14,469,000 from the prior year, for the first two quarters of its fiscal year.

The company attributed the revenue decrease to competitive pressure on its Unix products and services. More recently SCO has added mobile services to its portfolio, with HipCheck for remote management of Unix and Windows servers and PC and mobile handheld systems. Shout Postcard allows users to combine images, audio and text into a postcards that users can share via e-mail.

Legal costs related to the variety of lawsuits related to it Unix copyright claims were costing several million dollars per quarter, but in the last quarter was only about $1 million as the courts weighed the evidence and the participants the outcome.

In the most recent quarterly earning announcement, McBride said: "Even though competition continues to impact our revenue, we are pleased that our legal costs and operating expenses are lower than the comparable prior periods which improved our financial results. We are committed to our strategy of serving our UNIX customers, developing innovative new mobile technologies and protecting our valuable intellectual property."

SCO' shareholders haven't benefited from the company's lawsuits and intellectual property claims.


The stock price closed at $1.49 on Friday.

Groklaw, which has been highly critical of SCO's legal maneuvers, concluded:

That's Aaaaall, Folks! The court also ruled that "SCO is obligated to recognize Novell's waiver of SCO's claims against IBM and Sequent". That's the ball game. There are a couple of loose ends, but the big picture is, SCO lost. Oh, and it owes Novell a lot of money from the Microsoft and Sun licenses.

SCO hasn't yet responded to the Judge Kimball's ruling. He is asking the involved parties to prepare statements on the status of the case and pending motions by August 31 in light of his finding that Novell's has ownership of the Unix-related copyrights. It's not over, but the Linux community is probably doing some celebrating this weekend...


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