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Decatur Jones' Dion Cornett on SCO |
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Friday, January 30 2004 @ 07:34 AM EST
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Here is the PDF of Dion Cornett's January 13 report on SCO. As you will see, the OSDL legal defense fund, the Novell indemnification, and the Open Source Risk Management vendor-neutral indemnification program seem to him meaningful events, which he believes make it unlikely end users will now want to purchase a license from SCO in 2004. "The 'safe' action for the reasonable executive has switched from license to fight," says the report. Here's a segment.
****************************************************
End-user visibility worsens as Linux community raises defenses
We believe it is now unlikely that SCO will generate meaningful end-user SCOSource revenue in 2004.
Investment Considerations:
- Yesterday an industry consortium of Open Source-related companies (OSDL) announced an IP defense fund for endusers;
- In conjunction with its closing of the SuSE acquisition, Novell announced an indemnification program for its customers;
- We have cut our previous SCOSource revenue estimate of $7 million by 90%;
- Our new FY04 GAAP EPS estimate is a loss of ($.43) down from a $.20 profit;
- Our new target price is $5 down from $8;
- We maintain our Underperform rating.
Investment Summary
Our outlook for SCO has worsened given yesterday’s news that an Open Source industry group has formed a fund that may be used to defend end-users from SCO claims. Contributors to the fund include technology giant Intel (INTC: not rated). Novell (NOVL: Market Perform) piled on late in the day by announcing an indemnification program for its customers. Coupled with Novell’s previous filing of overlapping UNIX copyrights, we believe that end-users, already reticent to license from SCO, now have three justifiable reasons to wait to pay SCO even if SCO’s claims are eventually proven valid.
More blows to SCO’s end-user licensing efforts
We believe yesterday’s news that an industry consortium, Open Source Developments Labs (OSDL), had established a fund to defend end-users against infringement claims, represents the third strike in SCO’s attempts to derive IP-related licensing revenue from end-users. The first couple items detailed in our prior reports include the ambiguity of SCO’s claim over header files and Novell’s copyrighting of duplicitous UNIX software code.
Previous benefit of the doubt goes away
Furthermore, we previously had assumed that SCO would be able to generate $7 million in SCO Source licensing revenue this year. As stated in our prior report, "The ability to win end-user settlements is based on our presumption that SCO will be very careful in choosing its initial targets. Suing the wrong end-user early on, one that is willing to fight, poses several problems for SCO. An end-user willing to fight could mean higher legal fees, management distraction, and further Linux community scrutiny of SCO’s claims. More importantly however, the end-user does not even need to fight to victory to damage SCO’s ability to collect licensing fees. In our opinion, the first end-user that successfully wins a stay of proceedings pending the outcome of the IBM (IBM: not rated) or Red Hat (RHAT: Outperform) cases effectively could shut SCO’s efforts down as detailed in prior reports."
Legal expenses remain even as SCOSource revenue shrinks
Now with the potential for legal costs to be borne by OSDL, whose defense fund contributors include heavyweight Intel, we now believe it may be difficult for SCO to win any settlement. Furthermore the “safe” action appears to have switched sides. Before, many organizations may have been willing to write a five-figure check to avoid legal risks and move on with business. We suspect anyone currently considering such an expenditure may now worry that they will be taken to task for wasting corporate funds. As a consequence, we have reduced our expectation for FY04 SCOSource revenue by 90%. Similarly our estimates for legal expenses have also increased in anticipation of more expensive initial end-user battles. Based on the pace of legal proceedings, it is highly unlikely SCO will be able to post a legal victory against an end-user this calendar year, even if it were to file an end-user lawsuit by mid-February as it discussed.
More entities announce plans to oppose SCO
Later in the day, in what might be described as piling on, it was reported after the market close that Novell would indemnify its Linux customers. The indemnification program would apply to customers purchasing SuSE Enterprise Linux 8.0 after January 13, 2004. The timing of the indemnification corresponds to Novell’s expected and announced completion of SuSE GmBH (In a separate announcement last night Novell announced that the acquisition of SuSE had closed. ) Also this morning, in an interview reported on Groklaw, Daniel Egger, chairman of the Open Source Risk Management Group, announced plans for a vendor-neutral indemnification program. The program would operate similar to insurance for companies supplying and using Open Source code and its agnostic approach is meant to eliminate the vendor lock-in, and potential fragmentation, inherent with vendor specific indemnification.
STOCK OUTLOOK
Increasingly binary outcome steps up risk
With significant end-user licensing fees unlikely and cuts to the core business possibly necessary, the fortunes of SCO’s shareholders are increasingly tied to a victory or loss against IBM. Yet, with the jury stage of the IBM lawsuit not scheduled to commence until April 2005, SCO is at least two years away from a potential win against IBM. Thus, the near-term downside risk to SCO’s shareholders is greater than the upside potential as IBM could conceivably win a motion to dismiss at least portions of SCO’s complaint at almost any time during this same period. The legal doctrine that supports this assertion is that juries decide facts, while judges decide matters of law.
Near-term catalysts lean negative
Over the next few months a number of events offer the potential to drive SCO’s stock price. Yesterday, SCO was required by a Utah judge’s December order to provide with “specificity” to IBM a list of files that form the basis of its complaint. While the materials presented are covered by a protective order, we believe SCO may attempt to release additional details over the next few weeks to bolster its case to the IT community where it appears to be losing the public relations battle as of late based on Linux’s momentum. The risk to SCO is that the Linux community, which consists of potentially thousands of free programming experts for every one expert that SCO hires, is able to quickly counter SCO’s claims. SCO’s management also points to the likely granting of its own motion to compel discovery against IBM and positive responses from its end-user certification letter as other potential near-term catalysts. Negative near-term catalysts include the expected denial of SCO’s motion to dismiss the Red Hat lawsuit and IBM potentially filing to dismiss portions of SCO’s complaint. The filing of an end-user lawsuit will most likely be touted by both bears and bulls on the stock as a positive for their position. We believe that in total the near-term catalysts are generally negative for SCO.
Deteriorating metrics likely to drive price in 2004
Beyond the ebb and flow associated with a tightly-held, volatile stock, with strong opinions on each side, we believe SCO’s stock price direction over the next year, will be dominated by its expected declining financial position. As legal expenses increase with limited offsetting SCOSource revenue, the declining cash balance is likely to become a concern. Furthermore, year-over-year comparisons are likely to be poor starting in April given that the $26 million in SCOSource revenue received from Sun (SUNW: not rated) and Microsoft (MSFT: not rated) is not likely to be repeated. This begs a question for SCO bulls; if an expected $45 stock price is two years away, but that expectation may drop to single digits at any point in the interim, why assume the risk and hold the stock today when fundamentals like cash per share and revenue growth will get worse before they get better? This risk return equation does not require a judgment on whether SCO’s claims are valid and potentially produces higher returns by facilitating a lower entry point and shorter IRR period.
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Authored by: technomom on Friday, January 30 2004 @ 08:03 AM EST |
# We have cut our previous SCOSource revenue estimate of $7 million by 90%;
Wow. That has got to hurt. That means revenue dropping below $1 million.
That's not even going to pay for the pens that Darl is going to need to sign
the surrender papers.
JoAnn
[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 08:03 AM EST |
Here is a story from the Boston Globe
http://www.boston.com/business/globe/articles/2004/01/30/novell_moves_headquarte
rs_to_waltham/
Jack[ Reply to This | # ]
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- OT Novel - Authored by: Anonymous on Friday, January 30 2004 @ 09:11 AM EST
- OT GPL LEGALITY - Authored by: Anonymous on Friday, January 30 2004 @ 02:31 PM EST
- OT Novel - Authored by: brendthess on Friday, January 30 2004 @ 02:40 PM EST
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Authored by: RSC on Friday, January 30 2004 @ 08:04 AM EST |
"Thus, the near-term downside risk to SCO’s shareholders is greater than the
upside potential as IBM could conceivably win a motion to dismiss at least
portions of SCO’s complaint at almost any time during this same period. The
legal doctrine that supports this assertion is that juries decide facts, while
judges decide matters of law."
Even the finacial analysts are
starting to think SCO has not got much chance of winning against IBM.
How
much will this actually effect the stock prices
tho?
RSC
--- ----
An Australian who IS interested. [ Reply to This | # ]
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Authored by: Nick_UK on Friday, January 30 2004 @ 08:04 AM EST |
Just love it :D
The risk to SCO is that the Linux community, which
consists of potentially thousands of free programming experts for every one
expert that SCO hires, is able to quickly counter SCO’s claims.
I
would put that at tens of thousands...
Nick [ Reply to This | # ]
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Authored by: belzecue on Friday, January 30 2004 @ 08:15 AM EST |
Thank you, Dion, for having clear vision when others can't see past the
imaginary dollar signs.[ Reply to This | # ]
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Authored by: TwinDX on Friday, January 30 2004 @ 08:19 AM EST |
Furthermore, year-over-year comparisons are likely to be poor starting in
April given that the $26 million in SCOSource revenue received from Sun
(SUNW: not rated) and Microsoft (MSFT: not rated) is not likely to be
repeated.
And of that $26 million, it looks likely that Novell
will be wanting $23.75 million. So that's, um, $2.25 million there. Not
exactly big league stuff, Darl... [ Reply to This | # ]
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Authored by: Greebo on Friday, January 30 2004 @ 08:25 AM EST |
Hi,
If you read the PDF report you see that not only are they cutting the SCOsource
revenue by 90%, but they also cut the general revenue growth from +15% to flat
for 2005!
If you look at the Cash flow sheet it shows a year on year growth of *-24%* for
2004, and a net income of *-$11M* in 2005.
In other words they are expecting SCO to incur *heavy* losses before things get
better (How can things get better? IBM will drive them into the ground).
If I was an investor i wouldn't touch this with a barge pole, so i really
don't understand why the stock price is on the rise again ? Can any financial
types explain this to me in plain english ?
Cheers,
Greebo[ Reply to This | # ]
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Authored by: maroberts on Friday, January 30 2004 @ 08:25 AM EST |
I wasn't entirely convinced by the pro-Linux report previously posted on this
site, but I liked the write up on this one. It looked at the situation from a
purely mercenary financial standpoint, and summed up most of "SCO's
woes" in a nutshell.
Its nice to someone finally understand most of what Groklaw has been saying for
months now![ Reply to This | # ]
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Authored by: cybervegan on Friday, January 30 2004 @ 08:28 AM EST |
Hopefully we're now seeing the beginning of the nose-dive that will ultimately
end in a crash that will end these rediculous cases.
As SCO's 'evidence' is gradually eroded, there will eventually be nothing
left but the assumption that there 'has to be' some of SCO's IP in Linux, and
that won't hold up in court.
The sooner the better - but it has to be decisive, otherwise another tryer will
step up to the bar to take a pot-shot. Hopefully IBM will help us to show the
world that it's simply not worth trying to steal from the F/OSS community!
-cybervegan
---
Stand and fight we do consider
Reminded of an inner pact between us
That's seen as we go
And ride there
In motion
To fields in debts of honor
Defending
[ Reply to This | # ]
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Authored by: belzecue on Friday, January 30 2004 @ 08:44 AM EST |
This pretty much ensures Dion's removal from SCO's Analyst page, which will leave only the
two Deutsche boys, Brian Skiba and Matthew Kelley. [ Reply to This | # ]
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Authored by: TerryL on Friday, January 30 2004 @ 08:50 AM EST |
Aaarrrggghhhhhhh!!!!!! There's no getting away from them :-)
I came
across this news article, (it's got nothing to do with SCO v the Universe), and
was quietly reading away when something jumped out of the page at me....
http://www.pressi.com/int/re
lease/85034.html
Brian McBride, managing director of T-Mobile
UK, said: ...
Is everyone called McBride going to have to change their
name due to a growing phobia of their surname... :-)
Sorry, the poor guy is
probably no relation but I'm becoming conditioned to react to the
name...
--- All comment and ideas expressed are my own and do
not necessarily reflect those of any other idiot... [ Reply to This | # ]
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Authored by: phrostie on Friday, January 30 2004 @ 08:52 AM EST |
http://news.netcraft.com/archives/2004/01/30/wwwscocom_is_a_weapon_of_mass_destr
uction.html
Much of the commentary on the SCO distributed denial of service scenario,
including our own, has been based on the premise that SCO badly wants to keep
their web site running. This may not be the case: unlike Microsoft, which has a
real business to run and a real need to keep its web site operational, SCO
Executives may not strongly care about the availability of www.sco.com. After
all, Michael Doyle’s half a billion dollar patent win against Microsoft scarcely
hinged on the response times of the Eolas web site.
---
=====
phrostie
Oh I have slipped the surly bonds of DOS
and danced the skies on Linux silvered wings.
http://www.freelists.org/webpage/cad-linux[ Reply to This | # ]
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Authored by: spambait42c on Friday, January 30 2004 @ 09:02 AM EST |
Quoth the raven: IBM could conceivably win a motion to dismiss at least
portions of SCO’s complaint at almost any time during this same period. The
legal doctrine that supports this assertion is that juries decide facts, while
judges decide matters of law.
This raises a question I've been
wondering about. SCOX claims that the original AT&T-vs-IBM contracts, as
amended, mean one thing. IBM and the rational portion of the universe contend
they mean something else.
Is this a question of fact (jury) or law
(judge?)
If it's a question of law, then we could have a decision on it
as soon as IBM submits a motion to dismiss.
If it's a question of 'fact',
what happens? Can the judge rule on a motion based on a question of
facts?
Enquiring minds want to know... [ Reply to This | # ]
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Authored by: jmc on Friday, January 30 2004 @ 09:11 AM EST |
You might want to look here: http://www.computing.co.uk/Com
ment/1152359
Not a bad article IMHO except the FUD about new and old
SCO and being in California has been swallowed.
[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 09:13 AM EST |
One thing that's missing, though probably for good reason, is Novell's claim
to 95% of the Sun & MS revenue. There's no official news of this (other
than the text of the Novell/SCO correspondence) to which Dion could attribute
this, but if Novell presses this claim and prevails (as it likely will in a
countersuit of its own), it would tend to dry up SCO's reserves.
Novell won't win such a suit fast enough to actually collect the money, but
simply filing such a suit would be sufficient for the analysts to cut that
target price from $5 to about $0.50, IMO.[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 09:25 AM EST |
SCO’s management also points to the likely granting of its own motion
to compel discovery against IBM
Mmmm, how likely is
that?
SCO have to specify their case before they get any
discovery from IBM. The Dec 12 order makes that clear. The Judge's comments on
Dec 5 make that clear.
SCO's motion to compel discovery seeks not
background to specific issues of the case, but basically all
history of IBM's AIX, Dynix, etc.
All history is not relevant
to the specific case (if and when SCO specify what it is). All history is
not discoverable. IBM pointed that out. The Judge pointed that out to SCO,
multiple times, on Dec 5.
Oh boy.
SCO either lied to
DJ
Or simply weren't listening to the Judge on Dec 5.
[ Reply to This | # ]
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Authored by: hdw on Friday, January 30 2004 @ 09:39 AM EST |
Looks like Groklaw has become a tool for financial analysts
:)
Also this morning, in an interview reported on Groklaw,
Daniel Egger, chairman of the Open Source Risk Management Group, announced plans
for a vendor-neutral indemnification program.
-- hdw
[ Reply to This | # ]
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Authored by: iZm on Friday, January 30 2004 @ 10:00 AM EST |
I just found this interesting link on the Yahoo message
board bablefish
translation from the
Russian SecurityLab.ru. The
original is here, just
in case you
speaka de lingo. :)
--- Stupidity, like virtue, is its own
reward. [ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 10:02 AM EST |
Here's a link to an interesting Russian article:
http://www.securitylab.ru/42464.html
And the English translation:
http://babelfish.altavista.com/babelfish/urltrurl?lp=ru_en&url=http%3A%2F%2F
www. securityLab.ru%2F42464.html
This would be very amusing if it were true. Does anybody here know any more
about it?[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 10:29 AM EST |
Here is an interesting article at BusinessWeek. Note the estimate at the end of
the article by Deutsche Bank that SCO could hit $185
http://www.businessweek.com/magazine/content/04_05/b3868104_mz063.htm
[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 10:39 AM EST |
I won't even attempt to guess what this means, but I found this interesting
http://biz.yahoo.com/rc/040130/tech_internet_mydoom_1.html
After dissecting the malicious program, security experts got a little closer to
unmasking the perpetrator. The author apparently signed the worm with the name
"Andy" and left the message: "I'm just doing my job, nothing
personal, sorry."
The first infected e-mails detected appear to have originated in Russia, but,
Wood said, it was unclear if they were the engineers behind MyDoom or just early
victims.[ Reply to This | # ]
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Authored by: Jude on Friday, January 30 2004 @ 10:47 AM EST |
The amazing thing is how bad SCO looks, in spite of the report giving
essentially NO consideration to the legal weaknesses in SCO's position.
[ Reply to This | # ]
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Authored by: Scriptwriter on Friday, January 30 2004 @ 10:53 AM EST |
Optimistic, ain't he?
:)
---
He who sells / What isn't his'n / Is headed for / Some time / In prison /
Burma-Shave
irc.fdfnet.net #groklaw[ Reply to This | # ]
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Authored by: jdg on Friday, January 30 2004 @ 11:02 AM EST |
On my way into work this morning, the DJ (105.5FM in Madison, WI) was talking
about the case(!); they were almost off-the-cuff. His commentary was rather
skeptical of SCOG and positive for Linux.
---
SCO is trying to appropriate the "commons"; don't let them[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 11:14 AM EST |
SCO code segments [ Reply to This | # ]
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Authored by: swengr on Friday, January 30 2004 @ 11:20 AM EST |
Not to worry... the IBM lawyer will let Darl use his pen.
*
And ask for it back...
---
Gratis is nice, Libre is an inalienable right.[ Reply to This | # ]
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Authored by: pooky on Friday, January 30 2004 @ 11:20 AM EST |
http://finance.yahoo.com/q?s=SCOX
Down to 14.65 right now, wonder if it will bounce back again like yesterday?
-pooky
---
Veni, vidi, velcro.
"I came, I saw, I stuck around."
[ Reply to This | # ]
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Authored by: cf on Friday, January 30 2004 @ 12:14 PM EST |
Now with the potential for legal costs to be borne by OSDL, whose
defense fund contributors include heavyweight Intel, we now believe it may be
difficult for SCO to win any settlement. Furthermore the “safe” action appears
to have switched sides. Before, many organizations may have been willing to
write a five-figure check to avoid legal risks and move on with business.
(emphasis added)
Huh??? Where are all of these companies willing
to fork over five figures? SCOG certainly hasn't been able to find them, in
spite of all the sabre rattling the past 3/4 year. All the evidence suggests
that only Microsoft and Sun have paid any significant license fees. And their
motives are so transparent that no one else in the industry are willing to play
follow that leader.
Cornett's seems to be backpedaling on his
original analysis here, and it does raise a curious point. Certainly there are
many companies who would spend less on SCOG's licensing fees - as outlandish as
they are - than mounting a legal battle. There have been reports of "ongoing
discussions with important companies" about licensing, yet no one has caved in
under SCOG's threats. Why is that? Even if these companies are confident of
defending themselves in a legal battle, the cost of that defense would dwarf the
license fees.
Cornett's original analysis covered only financial
considerations (and short term at that). I think the missing factor is a moral
factor. I think SCOG's failure to gain licensing revenue is because their
targets are weighing more than financial issues - they are weighing right and
wrong.
They believe it is wrong for SCOG to accuse IBM of stealing
their property while refusing to tell them exactly what was stolen. They
believe it is wrong for SCOG to refuse all attempts to mitigate alleged
infractions while trying to turn them into profit. They believe it is wrong for
SCOG to hold Linux users responsible for actions that - if and only if SCOG's
allegations are ever proven true - they had no part in. They believe it is
wrong for SCOG insiders to reap millions of dollars in personal profit by
actions that guarrantee loss of millions by investors and the eventual demise of
SCOG.
If the outcome of this imbroglio was to be based soley on
everyone doing what is best for them financially, SCOG might have had a chance
at succeeding. Thank heaven there are those left in this world who fight wrong
where they see it, regardless of financial consequenses.
[ Reply to This | # ]
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Authored by: belzecue on Friday, January 30 2004 @ 12:15 PM EST |
Daniel Wallace of Insight Communications says the GPL is indeed
invalid, and why...
[snip]... When SCO's attorney
Mark Heise said copyright law "preempted" the GPL and only allowed "one copy" he
was being somewhat vague. He wasn't referring to the "number of copies," he was
referring to the "number of successors." SCO is indeed correct that the GPL is
invalid...
[ Reply to This | # ]
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- OT: New twist in "GPL is invalid" argument? - Authored by: phrostie on Friday, January 30 2004 @ 12:25 PM EST
- GPL 2.0? - Authored by: Anonymous on Friday, January 30 2004 @ 12:26 PM EST
- GPL 2.0? - Authored by: belzecue on Friday, January 30 2004 @ 12:36 PM EST
- GPL 2.0? - Authored by: Anonymous on Friday, January 30 2004 @ 12:50 PM EST
- GPL 2.0? - Authored by: Anonymous on Friday, January 30 2004 @ 12:40 PM EST
- GPL 2.0? - Authored by: Anonymous on Saturday, January 31 2004 @ 04:44 PM EST
- OT: New twist in "GPL is invalid" argument? - Authored by: Upholder on Friday, January 30 2004 @ 12:35 PM EST
- Written by Maureen O'Gara...duh!! - Authored by: trox on Friday, January 30 2004 @ 12:43 PM EST
- OT: New twist in "GPL is invalid" argument? - Authored by: stanmuffin on Friday, January 30 2004 @ 01:05 PM EST
- Blind them with polysyllabics! - Authored by: Anonymous on Friday, January 30 2004 @ 01:43 PM EST
- OT: New twist in "GPL is invalid" argument? - Authored by: gadget on Friday, January 30 2004 @ 02:07 PM EST
- OT: Parsing the new "GPL is invalid" argument - Authored by: reuben on Friday, January 30 2004 @ 02:12 PM EST
- OT: New twist in "GPL is invalid" argument? - Authored by: Anonymous on Friday, January 30 2004 @ 02:16 PM EST
- OT: New twist in "GPL is invalid" argument? - Authored by: Anonymous on Friday, January 30 2004 @ 02:17 PM EST
- OT: New twist in "GPL is invalid" argument? - Authored by: Anonymous on Friday, January 30 2004 @ 02:31 PM EST
- What are the best arguments for a TalkBack? - Authored by: Thomas Frayne on Friday, January 30 2004 @ 04:37 PM EST
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- FSF: "bring it on!" - Authored by: xtifr on Friday, January 30 2004 @ 07:23 PM EST
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Authored by: Anonymous on Friday, January 30 2004 @ 01:12 PM EST |
This is not the end.
This is not even the beginning of the end.
But it is, perhaps, the end of the beginning.
(Sir Winston Churchill adressing parliament
after the victory at El-Alamain in WW 2)[ Reply to This | # ]
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Authored by: pooky on Friday, January 30 2004 @ 01:48 PM EST |
Okay, I was curious about the MK letters referencing a payment of 6% should
Microsoft enter into a license agreement with The SCO Group. To refresh
everyone, here is the quote from the MK ammendment
letter:
2.SCO and Morgan Keegan agree that, in the event Sun
Microsystems and/or Microsoft enters into a substantial SCOsource licensing
arrangement with SCO during the term of the engagement, that such an event
would fall under provision 1(b) of our Engagement Letter. As such, the
aggregate amounts paid under the license agreements would be subject to the
Contingent Placement Fee, calculated as six (6) percent for a license with
Sun and one (1) percent for a license with Microsoft.
Here's the
text of the engagement letter this references:"
b.In the event that
the Company sells equity and/or debt securities, the Company will pay Morgan
Keegan placement fees (the "Contingent Placement Fees") payable in cash at
closing as follows:
i.Cash equal to six (6) percent of the principal
amount of equity financing (common stock, preferred stock and convertible
preferred stock); plus
ii.Cash equal to three (3) percent of the
principal amount of mezzanine financing (convertible debt, whether subordinated
or not); plus
iii.Cash equal to one (1) percent of the principal amount
of senior debt provided, however, that Morgan Keegan shall not be entitled to
such a fee with respect to senior debt sourced from commercial banks and other
institutional lenders.
Okay, so whatever Microsoft purchased falls
under a clause in SCOG's agreement with Morgan Keenan that refers to the
placement of Equity and/or Debt securities. A contingent placement fee refers to
an instrument that allows SCOG to engage Morgan Keenan's services without
upfront payment. In other words, only if the deals are closed does MK get
anything. Basic so far.
So what does this have to do with licensing?
Here's a quote from an 8K filing:
During the quarter ended April 30, 2003, SCO
entered into a licensing agreement with Microsoft Corporation
(“Microsoft”). The initial licensing agreement allowed
Microsoft, at its election, to exercise two options to allow Microsoft to
acquire expanded licensing rights with respect to SCO’s UNIX source
code. During the quarter ended July 31, 2003, Microsoft exercised and paid
for the first of these options. During SCO’s current quarter, ending
October 31, 2003, Microsoft exercised and paid $8,000,000 for the second
option.
Now it's getting more interesting. The SEC filing says the
license Microsoft bought allowed them to acquire expanded licensing rights to
SCO's UNIX source code. That's a strange way to phrase it. The License provides
the option to acquire rights. It doesn't say that the license provides the
rights, which if I recall is how the Novell - SCO APA is worded with respect to
both expanding existing licensing agreements and signing up new licensees. The
"License" MS bought seems to provide them an option to get additional rights to
UNIX, at an undisclosed fee and on undisclosed terms.
And to make things
more interesting, here's a
quote from Chris Sontag:
Microsoft merely licensed an
"applications interface layer."
So to bring all of this together,
Microsoft paid for a license, treated as a debt security or equity financing,
which they exercised the 1st option of, providing them with the rights to use an
application interface layer. This was reported as income by SCOG in 2003. So how
can this be income if Morgan Keenan is receiving payment for it due to it being
related to being a debt security or equity financing?
Well, here's one definiti
on of a debt security:
A debt security is evidence of a debt. It
is sold to an investor with the promise that it will be paid with or without
interest at the end of a specified period. The debt's issuer, a corporation or a
unit of government, uses the proceeds of its sales to finance various
projects.
Some debts last as little as one day, while others last as long
as forty years. Some are secured by collateral such as revenue or physical
assets.
If the license is a debt security, could the "applications
interface layer" be the colleteral? I would say SCO is not likely to be
considered creditworthy over a long term given their current list of potential
liabilities. So what if the license is equity financing? Equity financing is
defined as the act of selling an interest in your business in return for
capital. SO if this is equity financing, did Microsoft receive some ownership of
SCO Group?
That seems unlikely, since there are more private and direct
ways to achieve that goal. There are a number of scenarios that can take place
in a business that would be defined as equity financing, but I cannot find any
that seem to directly partake in one party purchasing something from the other.
The most likely candidate would be in the terms of a partnership or strategic
alliance. That would be reason indeed to hide the license terms from everyone
since the public impression is otherwise. However, you have to figure that SCOG
executives know that at some point the license terms will be made public through
an SEC filing.
Debt security seems like the more obvious possibility to
me. This raises the question as to whether selling Debt securities are treated
as revenue? Well, selling a debt instrument adds a liability to your portfolio,
as you are expected to repay the debt at some point. Could the "loan" be treated
as income? It probably depends on certain factors that I am not privy to. This
may be where the scheme lies with the license MS bought.
The license
seems to be designed in such a way as to provide SCO with revenue from what is
classified by MK, and paid for as by SCOG, a debt instrument. It is also
designed carefully to avoid paying Novell their 95% share of what is clearly
referred to as acquiring expanded rights, inferring MS already has rights and
thus is an existing licensee as the APA would define.
What you have here
ladies and gentlemen, is an apparent dileberate attempt on the part of SCOG to
defraud Novell out of millions on contractually guaranteed monies. They are
playing around with contract wording to generate something that shouldn't apply
to the APA. Sounds like the general playing around with wording they do with all
their contracts these days doesn't it? Anyone take bets that the contract
interpretations are being done by Boies Schiller and Flexner
LLP?
-pooky --- Veni, vidi, velcro.
"I came, I saw, I
stuck around."
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Authored by: Anonymous on Friday, January 30 2004 @ 01:53 PM EST |
check this out SCO is a Weapon of Mass Destruction at netcraft.com.
Very funny article. [ Reply to This | # ]
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Authored by: Thomas Frayne on Friday, January 30 2004 @ 02:09 PM EST |
In the past, several times we have discussed how to handle ongoing
stories. Top 10 lists, an anchor for a categorized list, etc, have been
suggested. Here is a suggestion for a naming convention that would allow the
Groklaw reader to find the versions of each ongoing story: Name each ongoing
story by a name of the format: date - Current status of ... , with dates like
20040130. This would allow the existing Search facility to find all such
stories or just those on a specific topic. Each ongoing story could consist of
a list of abstracts of the subtopics and links to the best discussions of those
subtopics.
I also suggest that you add a "recommend" button to each
story and comment, usable by a signed in user. When this button is clicked, it
would add to a recommended count, and the highly recommended items could be
listed in the status stories. Later status stories could repeat the most highly
recommended links and replace the lessor ones.
Here are some
recommendations for ongoing stories:
date - Current status of SCO vs
IBM
date - Current status of SCO Financials
date - Current status of SCO vs
Novell
date - Current status of SCO vs Linux and open source
date - Current
status of Redhat vs SCO
date - Current status of SCO vs Unix customers
date -
Current status of SCO PR vs SCO court
I hope to submit a story later
today, 20040130 - Current status of SCO vs IBM based on my responses to
About SCO: Part 1 - IBM case, by:
aug9_2003. I plan to tone it down, as I agreed to do
here.
I still can't
consistently prevent Groklaw from munging my shortcuts. I tried putting a new
line after the , but it did not help. Any other suggestions? I would
appreciate a link to a tutorial on how this works. The link I was trying to
give above
was:
http://www.groklaw.net/comment.php?mode=display&sid=200401290243189&
;type=article&order=&pid=62516
To go to it, copy/paste it to a
navigation toolbar and remove the ";" munge.
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Authored by: tcranbrook on Friday, January 30 2004 @ 03:05 PM EST |
I found this interesting article on Forbes,
The Open Source World. It is in the context of hot areas for venture
capitalist.
It seems that a growing part of the financial community
disagrees with the SCO/MS party line.
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Authored by: murry on Friday, January 30 2004 @ 03:32 PM EST |
Darl's using every opportunity to diss Linux. He was on CNN today (1/30/04) re
his bounty for the virus writer. Read the transcript at
http://www.cnn.com/TRANSCRIPTS/0401/30/lol.01.html.[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 03:36 PM EST |
This link needs to be noted and I do not have time to search to
see if it has already been noted.
SCO Wins Convert to its GPL-is-Invalid Argument
http://www.linuxworld.com/story/43495.htm [ Reply to This | # ]
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Authored by: toolboxnz on Friday, January 30 2004 @ 03:38 PM EST |
Posted by Netcraft: www.sco.com
is a weapon of mass destruction [ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 03:38 PM EST |
Found this interesting tidbit in Business Week:
He can't say he
wasn't warned. In June, 2002, when Darl McBride was getting ready to take over
as chief executive at struggling Caldera International Inc. in Lindon, Utah --
later renamed SCO Group Inc. -- he mused that claiming ownership of some of
the underlying code in the popular Linux computer operating system could keep
the company afloat. Even though Caldera's revenues were declining, it was
losing $5 million per quarter, and its stock had slid below the $1
NASDAQ delisting price, the reaction of outgoing CEO Ransom Love was
instantaneous. "Don't do it," Love says he told McBride. "You don't want to
take on the entire Linux community." [Emphasis added.]
If
this is true, it looks like Darl had it all planned from the moment he took over
Caldera/SCO.[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 03:41 PM EST |
Can anyone hear SCO's Funeral Dirge playing!!
The End is near.......
Once the Stock price begins to plummet, and the Manipulation of the market
becomes as apparent to everone else as to us, will the SEC begin an
Investigation?
Could this force them to actully come clean with some "evidence" to
Prop-up the Stock Price?
It will be interesting to see if DiDiot puts out another
"Independent" Comment this week.
What a wonderfull thing for an Aussie to read when he wakes up on a beautiful
Saturday Morning.[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 03:44 PM EST |
I just noticed an article on linuxworld.com by Maureen O'Gara that is appears
to present a legal basis why the GPL is invalid. Since IANAL (AIDEPOOTV)
Groklaw seemed like the best place to look for an explanation.
The
article is at:
http://www.linuxworld.com/sto
ry/43495_f.htm
I think that Eben Moglen has refuted this claim
already - but why does it reappear just now?
Liquor A.[ Reply to This | # ]
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Authored by: PM on Friday, January 30 2004 @ 05:17 PM EST |
Well, the way it works here, Miles, is to pay the reward
out means that that person will be in jail. So I guess conceivably they could
turn themselves in, go to jail, sit around with their $250,000 and get out.
So I guess maybe that's the way to make money. Since you can't make money with
Linux because it's free, maybe that's the new monetization
system.
See CNN
item.
Darl must have had a hard time keepng a straight face when saying
this, or is he hoping that David Boies can keep him out of jail.
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Authored by: Anonymous on Friday, January 30 2004 @ 05:31 PM EST |
When all is said and done, I think children will be named "Darl" as
often as they are named "Adolph" today.[ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 05:31 PM EST |
From
Business 2.0's 101 Dumbest Moments in Business:
83
How to win friends and influence software
sales.
"Terrorists do things designed to intimidate people,
and we see a lot of that going on all the time—people trying to attack us or
people that we're associated with."—SCO Group CEO Darl McBride,
complaining about the backlash from hundreds of thousands of Linux users
after the former Linux software vendor sued IBM, a major Linux proponent, for
allegedly violating its intellectual-property rights. [ Reply to This | # ]
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Authored by: Anonymous on Friday, January 30 2004 @ 05:55 PM EST |
The Red Hat v. SCO docket (1:03cv772) finally had something added to
it
yesterday:
ORDER: effective immediately the court will not consider
applications
and requests submitted by letter or in a form other than a
motion,
absent express approval by the court; no telephone calls are to
be
made to chambers; emergency matters should be emailed to the court at
the
address provided with no attachments ( signed by Judge Sue
L. Robinson ) copies
to: cnsl. (rd)
I can't tell whether this is actually specific to the
Red Hat case, or
if she made similar orders in all of her pending cases. To
those
more facile with PACER than I: please try to find some of her
other
current cases and see if she told all the other lawyers to stop
calling
her too, or if it's just the Red Hat / SCO lawyers that are
annoying
her.
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Authored by: Anonymous on Monday, February 02 2004 @ 12:40 PM EST |
There is an old saying about wishing too hard for something. You are liable to
get what you wish for.
IANAL, however, as long as there is litgation over the Unix/Linux IP, patents
and copyright issues, these issues will remain "under a cloud." If
SCO files for bankruptcy protection, the company's affairs, including
litigation, will come under the jurisdiction of the banruptcy court. This may
have the effect of prolonging the litigation - perhaps even past 2005.
Maybe even until Longhorn comes to market.
Anonymous
P. S. In an unrelated matter, is Microsoft's "license" a one-time
perpetual license, or is it an annual license? AN annual license would allow
them to pay SCO another $10 million this year.
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