Home & Office

SCO admits it may fold

Having filed for Chapter 11 bankruptcy protection, SCO claims it may go under permanently, depending on how much the court decides it owes Novell
Written by David Meyer, Contributor

The SCO Group may need to wind up its operations after its copyright case against Novell collapsed, prompting it to file for bankruptcy.

In August a federal judge threw out a long-running and very expensive case in which SCO had accused Novell of infringing on Unix and UnixWare copyrights that SCO claimed it owned. A month later SCO filed for Chapter 11 bankruptcy protection, whereby the company's assets are protected from creditors while the company is being reorganised under the supervision of the bankruptcy court.

"As a result of both the court's 10 August, 2007 ruling and our entry into Chapter 11, there is substantial doubt about our ability to continue as a going concern," read part of a filing with the US Securities and Exchange Commission, made on Tuesday.

The final straw in SCO's financial crisis seems to have been the judge's decision that its 2003 licensing of Unix to Sun and Microsoft means that SCO now owes Novell a share of the fees generated by that business. The amount in question still has to be calculated by the court — and Novell's efforts to extract its money are on hold while SCO remains under Chapter 11 protection — but it could be as much as $30m (£15m), which is the amount claimed by Novell, including interest.

"If a significant cash payment is required, or significant assets are put under a constructive trust, the carrying amount of our long-lived assets may not be recovered," read SCO's Tuesday statement, which also conceded the dangers of remaining under Chapter 11 protection for too long. "So long as the Chapter 11 cases continue, our senior management will be required to spend a significant amount of time and effort dealing with the bankruptcy reorganisation instead of focusing exclusively on business operations. A prolonged continuation of the Chapter 11 cases may also require us to seek additional financing. If we require additional financing during the Chapter 11 cases and we are unable to obtain the financing on favourable terms or at all, our chances of successfully reorganising our businesses may be seriously jeopardised."

The filing also confirmed that the judge's decision had scuppered most of SCO's claims against IBM — it had claimed that IBM's inclusion of Unix code in Linux infringed upon SCO's intellectual property — although SCO still intends to pursue a claim against IBM of "unfair competition" arising from the Project Monterey initiative in the late 1990s.

Also revealed in the filing was the scale at which SCO's Unix business has been declining — for which SCO blames Linux. "Revenue from the Unix business decreased by $2,704,000, or 37 percent, for the three months ended 31 July, 2007 compared to the three months ended 31 July, 2006 and revenue from the Unix business decreased by $5,103,000, or 23 percent, for the nine months ended 31 July, 2007 compared to the nine months ended 31 July, 2006."

"The revenue from this business has been declining over the last several years, primarily as a result of increased competition from alternative operating systems, particularly Linux, and from the negative publicity of the SCO litigation. We believe the inclusion of Unix code and derivative works in Linux has been a contributor to the decline in our Unix business because users of Linux generally do not pay for the operating system itself, but pay for services and maintenance. The Linux operating system competes directly with our OpenServer and UnixWare products and has taken significant market share from these products," the statement continued.

Editorial standards