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Cahn Replies to Reservations of Rights by Novell and Oracle, HP and US Trustee - Update
Friday, August 20 2010 @ 12:55 PM EDT

SCO's Chapter 11 Trustee in the bankruptcy has replied to Oracle and Novell's reservation of rights filings regarding his desire to sell off SCO's assets, whatever that means to him. He does now provide more information about that. We learn from footnote 2 that he also got informal responses from the US Trustee's Office and from HP, although later in the document he says his lawyers have resolved some of the OUST's issues and will discuss the rest at the Sale hearing. HP had concerns about "a certain release agreement" between SCO and HP, dated August 15, 2003. Interesting. I don't recall any such document.

So this is Cahn's omnibus reply to them all, with some points regarding each objection. He still wants the sale to go forward, and the hearing on this will be Monday at 3 PM, so I hope some of you can go! The schedule for the day is filed as well, with all the details.

First, Cahn has altered the proposed order to give notice of the identity of the buyer. Like that never occurred to him without folks filing what they did. And he has changed the auction date to accommodate that need to let them know such a detail in time for them to object. Right after the auction he wants to have, he'll let them all know who the highest bidder turns out to be.

As to specific objections, his lawyers are talking to Oracle's, I gather. And to Novell, he replies that a bankrupt is allowed to sell its property. He isn't planning to sell anything SCO doesn't own. Hardy har. Like where is the list that SCO will swear to on the Bible Novell agrees is the right list? There has been almost a decade of dispute over who owns what, after all. They want Novell to *trust* them now that everyone is on the same page? SCO says it will sell either a license or *a sublicense* to use the materials, emphasis on the latter, as per section 2.2 of the APA (meaning the proposed one [PDF], not the one to the 1995 APA), so that is Novell's clue.

But then it gets tricky. Cahn's position is that SCO owns "explicitly or impliedly" -- that last bit being the sticky part -- certain rights, to develop UnixWare, for example, to license or sublicense UNIX technology as per Amendment 2, in his interpretation, and the ownership and copyrights to any new code SCO itself developed after the APA. OK. How about a list on that? For real. How about a list of copyrights? So that is what Cahn proposes selling, "Debtors' rights to exploit and develop Unixware and the Software Business."

Here's the latest:

08/19/2010 - 1155 - Certificate of No Objection Re: Motion for an Order Authorizing the Engagement of King & McCleary, LLC to Perform Certain Tax Return Services (related document(s) 1140 ) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. (Fatell, Bonnie) (Entered: 08/19/2010)

08/19/2010 - 1156 - Omnibus Reply Of The Chapter 11 Trustee To Reservations Of Right And Informal Comments Regarding Motion Of The Chapter 11 Trustee For Order (1) Authorizing The Marketing, Auction And Sale Of Substantially All Of The Debtors Software Business Assets Consistent With Form Asset Purchase Agreement And Free And Clear Of Liens, Claims And Encumbrances, (2) Authorizing Assumption, Assignment, And Sale Of Certain Executory Contracts And Unexpired Leases, (3) Approving Bidding Procedures In Connection With Auction, (4) Establishing Sale Hearing Date And (5) Granting Related Relief (related document(s) 1141 , 1150 , 1151 ) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al. (Attachments: # 1 Exhibit A) (Fatell, Bonnie) (Entered: 08/19/2010)

08/19/2010 - 1157 - Notice of Agenda of Matters Scheduled for Hearing Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. Hearing scheduled for 8/23/2010 at 03:00 PM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. (Fatell, Bonnie) (Entered: 08/19/2010)

Section 2.2 of the proposed APA reads in full like this:
2.2 Grant of License. Pursuant to the License Agreement described in Section 7.2 of this Agreement, Seller shall grant to Buyer a perpetual, non-exclusive, royalty-free license to use the Licensed Properties as provided in the License Agreement.
And Section 7.2 reads:
7.2 Closing Deliverables and Conditions of Seller. the obligations of Buyer under this Agreement are subject to the following conditions being met or waived by Seller and the delivery by Seller at the Closing of each of the following (any one or more of which may be waived in whole or in part by Buyer at is sole option and which conditions are set out herein for the exclusive benefit of Buyer):
There follows a long list, like IP assignments signed by Seller in the form of Exhibit A, attached, an order from the bankruptcy court (the seller can waive *that*?), lease assignment, an assignment and assumption agreed in the form of Exhibit B, a license agreement in the form of Exhibit C, novation and/or change of name agreements, to the extent required, and any other documents the buyer asks for. There are some conditions as well, which the buyer can waive, like the delivery by the seller of the items in this section 7.2 and that seller has fulfilled all "obligations, covenants and agreements of seller required to be performed".

So, I'm looking through a glass darkly, but I begin to discern that what SCO may be proposing is to let someone else buy the license, or in this case the sublicense, so the licensee or sublicensee can do the development work that SCO no longer has engineers in its employ able to do. Is that it? And that list of things that can be waived by the buyer makes me wonder, cynic that I am, if SCO already knows the buyer most likely to succeed.

Update: Wait. If SCO plans to sell only what it owns, how can it sell assets without encumbrances? For example, will the buyer be free from this part of Amendment A to the 1995 APA?

D. Novell and SCO agree to indemnify and hold harmless the other from and against any and all losses, liabilities, judgments, and costs incurred ("Liability") if either causes the other to incur Liability under Section 10 of Amendment No. X to Software Agreement SOFT-00015 as amended, Sublicensing Agreement SUB-00015A as amended, Software Agreement SOFT-00015 Supplement No. 170 as amended, and Substitution Agreement XPER-00015B ("Amendment No. X").
And if there are no assets left, how would SCO fulfill this requirement? You'll find all those documents on our Contracts page, under the IBM header. And what about the APA itself? We recall that the APA gives Novell the authority, at its sole discretion, to direct SCO to waive rights under any SVRX License? What happens to that now? And how can the assets even be sublicensed without encumbrances, when they are positively encrusted with them, like barnacles on a rowboat? For example, under the APA, here's some language about encumbrances:
2.10. Technology. To the knowledge of Seller, as of the date hereof, Seller owns, co-owns or is licensed or otherwise entitled to use rights to all patents, trademarks, trade names, service marks, copyrights, mask work rights, trade secret rights, and other intellectual property rights and any applications therefor, and all maskworks, net lists, schematics, technology, source code, know-how, computer software programs and all other tangible information or material, that are used in the Business as currently conducted (the "Seller Intellectual Property Rights").

The Seller Disclosure Schedule lists, as of the date hereof, (i) all patents, registered copyrights, trademarks, service marks, mask work rights, and any applications therefor, included in the Seller Intellectual Property Rights; (ii) the jurisdictions in which each such Seller Intellectual Property Right has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers; and (iii) which, if any, of such products have been registered for copyright protection with the United States Copyright Office and any foreign offices. The Seller Disclosure Schedule also sets forth a list of license agreements which, to Seller's knowledge, constitutes all license agreements under which Seller licenses as licensee the intellectual property rights of third parties relating to technology or software which is incorporated in existing products of the Business for which products Seller has received revenues in excess of $2,000,000 in the twelve-month period ended July 31, 1995. To Seller's knowledge, Seller is not in material violation of any such license agreement.

With respect to the Business, Seller is not a party to nor is the Business subject to (i) any joint venture contract or arrangement or any other agreement that involves a sharing of profits with other persons other than the payment or receipt of royalties by Seller; (ii) any agreement pursuant to which Seller was obligated to make payment of royalties in the twelve-month period ended July 31, 1995 of $1,000,000 or more; or (iii) any agreement pursuant to which Seller utilizes the intellectual property rights of others in any products currently marketed by seller and which is either non-perpetual or terminable by the licensor thereunder in the event of the Acquisition and which, if terminated, reasonably would be expected to have a material adverse effect on the Business Condition of the Business.

No claims with respect to the Seller Intellectual Property Rights have been communicated in writing to Seller (i) to the effect that the manufacture, sale or use of any product of the Business as now used or offered by Seller infringes on any copyright, patent, trade secret or other intellectual property right of a third party or (ii) challenging the ownership or validity of any of the Seller Intellectual Property Rights, any or all of which claims reasonably would be expected to have a material adverse effect on the Business Condition of the Business. To the knowledge of Seller, as of the date hereof, all patents and registered trademarks, service marks and registered copyrights held by Seller in connection with the Business are valid and subsisting except for failures to be valid and subsisting that reasonably would not be expected to have a material adverse effect on the Business Condition of the Business. Seller does not know of any unauthorized use, infringement or misappropriation of any of the Seller Intellectual Property Rights by any third party that reasonably would be expected to have a material adverse effect on the Business Condition of the Business.

2.11. Title to Properties: Absence of Liens and Encumbrances.

(a) The Seller Disclosure Schedule sets forth a list of all real property owned or, as of the date hereof, leased by Seller for use in connection with the Business and the aggregate annual rental or mortgage payment or other fees payable under any such lease or loan.

(b) Seller has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of the tangible properties and assets, real, personal, and mixed, which are material to the conduct of the Business, free and clear of any liens, charges, pledges, security interests or other encumbrances, except for such of the foregoing as (A) are reflected in the Seller Financial Statements, or (B) arise out of taxes or general or special assessments not in default and payable without penalty or interest or the validity of which is being contested in good faith by appropriate proceedings, or (C) such imperfections of title and encumbrances, if any, which are not substantial in character, amount or extent, and which do not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby.

Can SCO Group make any such claim? SCO owes Novell, will owe IBM, which absolutely does claim SCO is infringing its intellectual property, and so where do all those obligations go? Who pays the piper?

And one comment I noticed raised an interesting question to ask at the hearing: did SCO make any profit from the sale of the mobility assets to Darl McBride, after it paid off all the professional fees? Another suggests that there should at least be a floor, so that the price can't be less than enough to pay off everyone.


Cahn Replies to Reservations of Rights by Novell and Oracle, HP and US Trustee - Update | 334 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
corrections thread
Authored by: designerfx on Friday, August 20 2010 @ 01:10 PM EDT
please post corrections here

[ Reply to This | # ]

news picks thread
Authored by: designerfx on Friday, August 20 2010 @ 01:11 PM EDT
please post news picks threads here with comments

[ Reply to This | # ]

Cahn Replies to Reservations of Rights by Novell and Oracle, HP and US Trustee
Authored by: Anonymous on Friday, August 20 2010 @ 01:12 PM EDT
"Debtors' rights to exploit and develop Unixware and the Software

Good Luck with trying to sell that.

[ Reply to This | # ]

off topic thread
Authored by: designerfx on Friday, August 20 2010 @ 01:13 PM EDT
please post off topic here, with links when possible

[ Reply to This | # ]

comes thread
Authored by: designerfx on Friday, August 20 2010 @ 01:14 PM EDT
when posting an OCR'd document and/or hand done, please be
sure to include the formatting so PJ can copy it

[ Reply to This | # ]

Cahn Replies to Reservations of Rights by Novell and Oracle, HP and US Trustee
Authored by: Anonymous on Friday, August 20 2010 @ 01:47 PM EDT
Don't trust 'em.
SCO is as slick as a bucket of boogers.


[ Reply to This | # ]

I'm confused
Authored by: HockeyPuck on Friday, August 20 2010 @ 01:49 PM EDT
What good is selling off the assets? If I read this correctly, the money from
the sell would go to Seung Ni Capital Partners, LLC, et al. I base this on this
part of the loan agreement (below). And why have they not chimed in on this
sell? I would thing they have a big say in all of this.

SECTION 5.10. Use of Loan Proceeds/Sale of Core Assets/Use of Proceeds from Sale
of Core Asset and Other Assets....

(b) The Borrower may without the prior consent of, but with prior written notice
to, Lender also retain and use fifty percent (50%) of the net proceeds (defined
as gross proceeds from one or more Core Asset Sale(s), less the direct and
reasonable closing fees and expenses of the sale or license transaction) from
any Core Asset Sales and one hundred percent (100%) of the proceeds from the
sale of all other SCO assets (excluding the sale of any rights in the Litigation
and/or any portion of the Litigation proceeds), but the Borrower shall at the
time of any such Core Assets Sale(s) pay the remaining fifty percent (50%) of
such net sales or license proceeds toward retirement and payment of the amount
due under the Note, other than payment of the Loan Fee. Such Note payments shall
not be credited toward payment of the Loan Fee.

[ Reply to This | # ]

If they are sucessful
Authored by: hAckz0r on Friday, August 20 2010 @ 02:09 PM EDT
As contentious as the sale might be, if they actually are successful, they might as well turn out the lights on their way out the door. There would then be no profit capability, at all, and thus no reason to NOT be in Chapter 7.

The question is then, once that money is thrown to the four winds as usual, how could they hope to stay in business? They can't, and knowing so why are they not just paying up and going ch7, unless Cahn has a sort of 'pride issue' with giving up. I doubt it, as pure shame would have worked for most people way before now if pride actually meant something to them.

What I can say is, SCOg has no hope of making a profit with UNIX, so they might as well sell what they can and finish making their nice little 'crater in the ground'. I think the real game plan here is to make SCOg so worthless that nobody will think to pursue the counter charges. I just hope that they don't escape the Justice Department and SEC along the way. It was an intentional and deliberate action on their part, and it should be dealt with in the proper manner. There is a 'proper manner' in the legal system isn't there? Or am I to be disappointed one last time?

DRM - As a "solution", it solves the wrong problem; As a "technology" its only 'logically' infeasible.

[ Reply to This | # ]

Hopefully Novell will raise a few more questions at the hearing
Authored by: s65_sean on Friday, August 20 2010 @ 02:40 PM EDT
One question keeps nagging at me after seeing how the sale of the mobility business to Darl netted the estate a whopping negative couple of hundred thousand dollars after professional fees.

Has Cahn done the due diligence of calculating what the net proceeds to the estate will be after 50% goes to pay the loan, and the vultures professionals get paid for their work in setting up and executing the sale?

[ Reply to This | # ]

sublicense of technology vs
Authored by: Anonymous on Friday, August 20 2010 @ 02:52 PM EDT
...the District Court held that ... Amendment No. 2 to the Novell Santa Cruz APA confirmed that the Debtors had the rights to license (and sub-license) the UNIX technology...
Accordingly, the Trustee intends through a Transaction pursuant to the Form APA, to transfer the assets acquired from Novell and sub-license any rights necessary to continue to exploit and develop the assets acquired from Novell.
Emphasis added. I note the difference between what the court said, "technology", and what SCO thinks it can sell, i.e. the right to develop (what I assume to be) UNIX.

But, the way I see it, the Ch. 11 Trustee is being deliberately vague in order to obtain a broadly worded asset to sell. Later the Trustee can claim that well, *obviously* we were selling a license to the UNIX copyrights. Otherwise, why would they bother?

I fully expect Novell to object to this.

[ Reply to This | # ]

Cahn Replies to Reservations of Rights by Novell and Oracle, HP and US Trustee
Authored by: Anonymous on Friday, August 20 2010 @ 02:53 PM EDT
Just a question...
Since SCO basically reneged on the agreement (having not paid all the royalties
due), do they really own Unix and a license to do derivative work? (Copyrights
aside) Or can Novel reclaim this stuff?

[ Reply to This | # ]

Chap 7 behavior before we get there?
Authored by: Anonymous on Friday, August 20 2010 @ 03:22 PM EDT
I don't get it -- I thought liquidation was a Chapter 7 deal, not Chapter 11,
which is supposed to be "restructuring". Is there some reason I don't
understand here why they would think there is an advantage to doing that now,
rather than later? Some protection from having to pay out the proceeds or
something (to other than the legal guys)?

This looks like yet another circumvention of the law to me, as this has nothing
to do with exiting chap 11 profitable and being able to pay off the legit
creditors (not just Cahn's legal pals).

I must be doing something wrong, in my field I have to earn my pay, not just
steal it from the dying.


[ Reply to This | # ]

Original Sale Restrictions
Authored by: TomWiles on Friday, August 20 2010 @ 03:40 PM EDT
As I remember, there were some very serious restrictions written into the sales
contract at the time of the original purchase from Novell.

I believe there was some speculation on that when the SCO-Caldara sale was

We are going back fifteen years now, maybe P.J. will remember, but I thought
there was two clauses in the original sale the covered the following.

1. What was to be returned to Novell in the event of bankruptcy.

2. SCO could not resell what that had purchased from Novell to some third party
without Novell's approval.

Back when Caldera was acquiring UNIX from SCO, there was chatter about whether
the transaction could be made without the approval of Novell.

Just wondering if anyone has any thoughts on this subject.

I also wonder if Cahn is even aware of the original sales agreement.


[ Reply to This | # ]

Google/Oracle Thread
Authored by: SilverWave on Friday, August 20 2010 @ 03:44 PM EDT

RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

Monday Hearing
Authored by: RFD on Friday, August 20 2010 @ 03:45 PM EDT
I plan to go. Unfortunately, the hearing starts at 3:00 and the clerks office
office closes at 4:00, so it is unlikely I will be able to get a recording of
the hearing.

Eschew obfuscation assiduously.

[ Reply to This | # ]

The strong smell of rotting fish
Authored by: Anonymous on Friday, August 20 2010 @ 04:21 PM EDT

And that list of things that can be waived by the buyer makes me wonder, cynic that I am, if SCO already knows the buyer most likely to succeed.

Indeed. On the face of it, these "assets" are completely worthless.

So something is going on here that we don't understand. The buyer (and I agree with PJ that there's probably one already lined up) knows something that is not known to the public.

[ Reply to This | # ]

"A certain release agreement"
Authored by: Anonymous on Friday, August 20 2010 @ 04:33 PM EDT
'HP had concerns about "a certain release agreement" between SCO and
HP, dated August 15, 2003. Interesting. I don't recall any such document.'

I have a vague recollection that, when it was suing IBM and making all this
public noise, one of the things that they said was that HP was clean. Maybe HP
was smart enough to get that in writing.


[ Reply to This | # ]

Cahn's Plan
Authored by: Anonymous on Friday, August 20 2010 @ 05:14 PM EDT
Clearly Cahn intends to press forward with the lawsuits. If he wanted to wrap up
the lawsuits it would be Chapter 7 with the asset sale. With the reservations in
the asset sale he intends to hold onto whatever rights are required to pursue
the lawsuits.

I would hope Novell/creditors etal require that the sale not be completed unless
it brings in enough money to satisfy all current post-petition debts and be
enough to fund the legal process for several years. The several years worth of
funding is required to go forward with the lawsuits.

At the hearing Cahn should be pressed to specify a minimum sale value that would
be satisfactory and then elaborate on why such a minimum is sufficient.

Given that
a) SCO is currently ~$1M behind on post-petition debt payments
b) owes a bunch of legal costs to Novell
c) owes a bunch of other non-traceable but converted money to Novell
d) this sale is going to generate a lot of professional fees that must be paid

Also I would hope someone asks if the sale of MEinc to Darl was a profit or loss
for SCO given all the professional work required. How much were the professional
fees involved in the sale? Way more than $30K, likely more than the $100k sale.
Is it not very lucky there was another bidder?

[ Reply to This | # ]

Right for tSCOg to use GPL code in their product line has been lost?
Authored by: bbaston on Friday, August 20 2010 @ 07:59 PM EDT
tSCOg has violated the GPL in asserting its claims against IBM and in particular by asserting its SCOsource "business" model, as the (delayed) Linux arbitration may formalize.

So, shouldn't another "ding" on rights that tSCOg may sell -- include the high probability that their entire product line must EXCLUDE the right to use any GPL code?

That should make the package rather worthless without MAJOR development. I hope the buyer is advised of this little problem.

imaybewrong, iamnotalawyertoo, icantremembernow, iamveryold

[ Reply to This | # ]

Much ado
Authored by: webster on Saturday, August 21 2010 @ 12:50 AM EDT

SCO must really resent PJ sniffing through their past and hounding them with
appropriate questions. She must be an incredible resource for both parties
though SCO would gladly sacrifice her contributions. She’s fair, against SCO
and right.

There is nothing new in the bankruptcy. SCO was picked for their role precisely
because they had nothing to lose after they made something from nothing. The
creditors and the adverse parties can just go away or waste their lives trying
to collect from SCO. It will never happen.

SCO has played Gross who doesn’t care. Whether they take him out back or up to
the District Court, it doesn’t matter. There will be nothing from SCO no matter
how Gross rules.

What does Cahn know? Is there some formulaic settlement offer that he can take
at any time? What did he learn in his preliminary Rule One investigation,
before he accepted the trusteeship, that there would be enough scratch for
himself and his law firm to make all this worthwhile? Did some of the SCO
behinders promise support such as loans and deals?

SCO can die or play out this bankruptcy. They have suffered another mortal
wound. They are playing for another lightning strike and a miracle cure from
their beloved Circuit Court. But the writer McConnell is gone from the Circuit,
and his two silent partners sit twiddling beneath their robes brooding that now
another judge and a jury have failed to see the brilliance of their exceptional
trailblazing through parole evidence and exclusion lists in their strain for
ambiguity. The jury saw through it almost immediately. No one is more thrilled
than the Circuit that Novell is asking to dismiss this appeal. Novell can
appeal to the Supremes at the end again if SCO were to win another reversal, and
then the third trial, by judge andor jury, and then another Circuit triumph.
This seems like speculative madness, but who would have thought it would have
gone this far? Along the same vein, consider that this case has a high profile.
The judges and law clerks are aware of it. What if the Supremes want a piece
of this action and deny Novell’s motion to dismiss. The Circuit would stain
their robes. The Supremes could chastise and reverse the Circuit citing the
jury and the original scholar, Judge Kimball.

The action has moved away. All SCO can do is run its issues past the Circuit.
Unlike its first appeal, judicial bias is against them. In their first appeal
they enjoyed an appellate bias against summary judgments. In the second they
are against a bias in favor of the jury verdict unless there is a gross error
that tainted the fundamental fairness of a three week trial. This action could
use some speed and spice like a peek behind the veil.



[ Reply to This | # ]

"floor price" == reserve
Authored by: Anonymous on Saturday, August 21 2010 @ 01:44 AM EDT
In an auction, the minimum bid for which a seller will sell an item is a
"reserve." If the reserve is not met, the sale does not occur. The
auctioneer does not announce the reserve, so as not to prejudice the bids; s/he
announces only that the reserve is not met, hence the highest bid is void. If
the reserve is met, the sale proceeds normally.

[ Reply to This | # ]

This Is A Bait-And-Switch Shell Game
Authored by: sproggit on Saturday, August 21 2010 @ 03:40 AM EDT
The more Cahn gets involved, the less I like the idea.

This is a bait-and-switch tactic because, like others before it, he files
motions before the Court to see how the other parties will react, then adjusts
his tactics to wriggle past any objections they may raise. That's just plain

I see the following issues with what Judge Cahn is proposing.

1. Pre-Existing Unix Licenses
Part of the original sale called for Santa Cruz to collect revenue from existing
Unix Licenses and to pass 100% of that revenue to Novell, who would in turn
credit Santa Cruz with an administration fee. The obligation to pass over that
revenue to Novell is surely an encumbrance or obligation of some kind, within
the form of legal language used in such contracts. Cahn's proposal makes no
mention of that in this document.

2. What Does The SCO Group Own In Code Terms?
The latest version of Unixware (I think 6.0 or 7.0) was released by The SCO
Group in the period since 2003. Let us imagine for the sake of discussion that
it contains (in total) 10,000,000 lines of source code. We know that Novell owns
the copyrights on the original code base - that has just been established by
jury trial.

So does that mean that the portion of Unixware that actually belongs to The SCO
Group is, in fact, only the portion of those theoretical 10,000,000 lines that
they have actually re-written themselves?

And if *that* is the case, what is to stop Novell from exercising some of their
rights to the bit that they own, and saying that they do not give consent for it
to be taken forward by the company that The SCO Group now plans to sell to.
Essentially (and I simplify hugely) it means that The SCO Group only owns fixes
and small enhancements made to the bulk of the code base. Unless, of course,
they have substantially re-written everything (which I doubt).

Finally, noone is going to question Cahn's rights and obligations to try and
raise revenue for The SCO Group, but let's briefly turn that question around and
ask what he can possibly expect the remainder of the company to be able to do
once this asset is sold. The mobility products went to Darl. There is nothing
else left. Even Judge Gross Injustice must surely see that if this sale ever
went through, there would be nothing but a Chapter 7 Shell left?

Whereas, if The SCO Group were to abandon the litigation strategy, cut their
expenses and focus on revenue from maintenance and small code enhancements, they
might actually be able to generate a small revenue stream that would pay off
their creditors in say 5-10 years. It's not miraculous, but it's achievable.

I am starting to think that Cahn is as bad, or worse, than Darl.

[ Reply to This | # ]

The Hessian Sack, Part Deux: Rites of Conveyance.
Authored by: Ian Al on Saturday, August 21 2010 @ 05:44 AM EDT
Bill and Ben, the copyright men, who are not the brightest tools in the potting
shed, ask Ed some pertinent questions.

Bill: So the poke contains all the assets that we will be bidding for. Can we
see inside?

Ed: No.

Bill: But the assets are to be sold, as seen.

Ed: That's right.

Bill: The bag is moving. Is there a pig in there? It's a painted pig, isn't it?

Ben: Garn, he's shaking the bag!

Ben: Bill, there may be magic beans inside. Shall we bid the cow?

Bill: Is that smoke coming from the sack?

Ed: This may be, in part, a fire sale. On the other hand, some of the assets may
just be 'hot'. You must make up your own minds from what you can see.

Here's my problem. The poke is quite likely to contain the source code for some
versions of SVrX, the manuals and copyrights for the manuals for SVrX and the
new copyright materials in UnixWare and OpenServer created by Santa Cruz and
SCOG. It won't contain the SVrX contracts that existed at the time of the
Novell-Santa Cruz APA because I understand that Ed is keeping the agency
agreement and royalty-payment deal with Novell. The poke will not contain the
bulk of the SVrX copyrights that SCOG told the court make up a significant part
of both UnixWare and OpenServer. Those belong to Novell.

Ed tells us that not all of the assets from the original APA are in the poke,
but he will not tell us which copyright licences actually are in the poke. Ms.
Amadia told the court that there was an explicit license to the copyrights. (I
know it is in a transcript because I remember her saying it was not implicit: it
was explicit. I have searched for this, but have not located it.)

I have five questions;

1) If an Asset Purchase Agreement includes licences to copyright material that
impose restrictions, can those licences be sold-on without encumbrances and
without the copyright holders agreement?

2) What are the copyright licence terms given in the original APA, with

3) What are the copyright licence terms inside the poke, and can they be legally
conveyed to the buyer? Do those terms include sub-licencing and the freedom to
allow the buyer to allow its customers for the product binaries to have access
to the Novell copyright code for maintenance and development purposes (i.e. not
for further sublicencing)?

4) The original APA allowed Santa Cruz and then SCOG to make unlimited copies of
the Novell, SVrX, copyright materials without reference to Novell and sell them
to their binary product customers for internal use, only. Can this right be
sold-on and is it included in the poke?

5) Are the buyers and their customers obliged to keep the SVrX code secret?

My answer to these questions is that I have no answer. They do seem to me to be
a vital area to be clarified if anyone wants to continue with the UnixWare and
OpenServer business.

Ian Al
SCOG, what ever happened to them? Whatever, it was less than they deserve.

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Cahn Replies to Reservations of Rights by Novell and Oracle, HP and US Trustee - Update
Authored by: Anonymous on Saturday, August 21 2010 @ 10:39 AM EDT
"HP had concerns about "a certain release agreement" between SCO
and HP, dated August 15, 2003. Interesting."

If I remember properly, early on in this whole mess, in an interview somewhere,
when asked about HP, SCO said they were in compliance. I suspect it was
something like a "gentlemen's agreement" that SCO would not go after
HP, but if there were a sale of assets, HP might have problems with the new
owners. After all, HP has been distributing Linux on it's machines for years
now, and we see that SCO still has not given up it's dreams of bazillions, so
presumably HP could be a target.

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Something to bring up at a BK hearing
Authored by: benw on Saturday, August 21 2010 @ 03:14 PM EDT
The company owes millions in both pre- and post-litigation debt, and is
responsible for a lot of improperly converted Novell money to boot. On the other
side of the ledger is the fact that no-one has ever approached SCO with an
interest in buying whatever they have or claim to have. All of their attempts at
"sale" have involved seeking out shadowy "buyers" or
actually creating them, or suspiciously seeming to know who they are in advance
of a proposed "auction". How is is defensible to file a
"plan" that includes "identify stalking-horse bidder" as one
of its steps? There's no evidence of any entity simply saying "I want this,
and here's what I'm offering for it."

There has been no credible attempt at filing a reorganization plan.

Financial statements (MORs) have been consistently filed late.

The estate -- the pre-petition creditors -- has had the debt it holds
subordinated in favor of a company insider.

At what point can all of this be brought to bear to have the BK court's
decisions overturned? What can be done to get these aspects of the case in front
of a real court instead of a bankruptcy one, to have the BK judge's decisions
examined and the whole formulation of this sleazy Delaware flag-of-convenience
scam subjected to federal justice?

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I have a decision to make.
Authored by: benw on Saturday, August 21 2010 @ 03:31 PM EDT
I'm starting a new web business, or I'm a senior corporate IT guy, or I have
responsibility for IT for a mom'n'pop company. I'm even a student or hobbyist. I
need to consider which operating system I'm going to use. I have three basic

1: An OS distributed under some sort of FLOSS license, such as Linux or BSD.

2: One distributed under a locked-down, proprietary license, such as Mac OS or

3: One distributed under the terms of SCO's malevolent, litigious performance
art, such as OpenServer.

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Just another licensee
Authored by: Anonymous on Saturday, August 21 2010 @ 06:27 PM EDT
Given this APA, the eventual purchaser will have no more rights than any other
source code licensee - they'll just have paid off the royalty stream in advance
with whatever they pay for this. SCO even retains rights to the source, along
with the agency agreement and the litigation.

One wonders then, since the purchaser appears to all intents and purposes as
another source code licensee, does Novell get veto power over the eventual

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Looking At The Books
Authored by: sproggit on Sunday, August 22 2010 @ 04:58 AM EDT
As I skimmed this article this morning, looking at the comments that have been added since I last reviewed it, I was struck by the way that Blank Rome and the other companies retained by Judge Edward Cahn, all seem to be taking more and more money out of the SCO estate. At this point I don't have the precise total of sums paid, but I suspect it would be an offensively large amount.

I thought it would be interesting to look at the state of SCO's finances in the period of time that Judge Cahn has been at the helm. So I went and looked. On the face of it, the numbers surprised me.

Cahn filed his deposit with the Court on 11th September, 2009. You can read the Groklaw article here.

After Cahn became the Chapter 11 Trustee, the next set of MORs - Monthly Operating Reports - to be filed were listed on Groklaw on 24th December, 2009. You can read the Groklaw article here.

Finally, working chronologically backwards from today, the most recent set of MORs were filed with the Bankruptcy Court on 12th August, 2010. You can find them linked from this article here.

So, what do the numbers tell us? Unfortunately, I'm not a trained accountant and probably not the best person to ask this question! But I do see a few interesting things...

For example...

On July 31st 2009, Total Assets were quoted as $6,826,950
On June 30st 2010, Total Assets were quoted as $5,603,529

Now, that to me says that in the 11 months that span the two reports, The SCO Group have seen an attrition in their net worth of $1,223,940.

Of course, it's never that simple. Don't forget, for example, that on March 5th, 2010, Ralph Yarro, by means of yet another "Capital Partners" front - I mean, financing - company got the approval of the Bankruptcy Court to loan The SCO Group up to $2,000,000 to enable them to continue the litigation against Novell. The article on March 5th is just a one-line statement to say that Judge Gross found the terms "fair and reasonable" (hardy har har) without detailing what they were. I had a quick look but I didn't see the details listed any time up to the end of March.

Now, because the approved Yarro loan was "up to" $2,000,000, we do not know if that full amount was actually provided. I guess we're going to have to work our way through the MORs covering every month and see what that tells us. But given that Yarro loaned the corpse *something*, it's fair to say that their operating loss over the 11 month period I have quoted would have been even more significant had that loan not taken place.

So what we have here, unquestionably, is a situation in which Yarro and, essentially "un-named others" - hey, as daft as this sounds it could be anyone contriburting to Seung Yi Capital Partners - have kept the company afloat to continue the litigation.

This interests me because I am reasonably confident that the evidence at hand shows that without the cash injection, SCO are dead in the water. For some strange reason, Judge Gross doesn't see this. He's like the storekeeper in Monty Python's infamous "Dead Parrot" sketch. But attempting to be serious for just a little bit longer, at what point are Judge Cahn and Judge Gross going to accept that, absent Ralph Yarro's loan, SCO would be finished.

Shortly after taking over, Judge Cahn made some bold statements to the Bankruptcy Court, one of which was that the thought he had returned the company to profitable operations (by, among other things, firing Darl McBride). Now, almost a year later, the published numbers do not support his earlier claim.

Is anyone going to be able to call him on this? Is anyone going to be able to challenge whether or not the strategy being followed really is in the best interest of either the company or those the company still owes vast sums of money? Evidence on hand suggests that SCO are now less able and less likely to be able to pay what they owe. To me, that suggests that what Judges Gross and Cahn need to do is wind up the remainders, go to Chapter 7, and pay the creditors before there's nothing left. Let's see them argue differently. All we need is for someone to file a motion with the Bankruptcy Court to make that assertion and challenge the Court to do something about it.... Yeah, right...

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Is IBM asleep at the switch?
Authored by: Anonymous on Sunday, August 22 2010 @ 07:59 AM EDT
With the SCO confidence game being taken to new heights by their replacement con
man, it would seem to my thinking to be about the right time for IBM to weigh in
with all those high-paid bankruptcy experts we were told at one time they had on
staff. Are they still somehow waiting for the right moment, or are they all
really so powerless against the SCO bankruptcy game?

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I'm at the end of my whits...
Authored by: HockeyPuck on Sunday, August 22 2010 @ 09:26 AM EDT
This whole litigation (circuit and bankruptcy) is getting on my nerves. I was
very interested how the system works and how this case played out. But now, this
case is depressing. SCO has lost... that should be the end of it. But on and on
we go. We use valuable resources to follow and report on this case. But after
all the arguments against SCO, it still goes on.

I believe in this situation there should be an arbitrator that puts his foot
down and says "enough is enough". You lost, pay up. THEN try to recoup
the money. I love America and I think the judicial system tries hard to be just.
Almost too just (note all the SCO leeway in trial).

This is wasting court time and resources that should be handling REAL cases. I
want to think this is the right thing to do. But in the end, I lose sleep on all
the wasted resources. This case is turning into a cottage industry. For crying
out loud; when will it end. PJ, thanks for educating the ignorant.

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Cahn Replies to Reservations of Rights by Novell and Oracle, HP and US Trustee - Update
Authored by: Anonymous on Sunday, August 22 2010 @ 09:27 AM EDT
Speaking of the Mobility Business, how is our friend Darl doing nowadays?

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Selections from transcript of July 27, 2009 bankruptcy proceedings: 01
Authored by: Gringo on Sunday, August 22 2010 @ 10:35 AM EDT

This morning I am reading over the transcript from the July 27, 2009 proceedings in front of Judge Gross in Wilmington, Deleware involving SCO's Motion to Sell substantially all of their assets under 363 and IBM's, Novell's, and the U.S. Trustee's Motion to Convert the cases.

I am seeing things that are making my eyes pop out. I will paste a few things as I go along, with little or no comment, as I think the reasons I paste things should be obvious to the astute reader.

MR. HARRINGTON: Good morning, Your Honor, William Harrington.

THE COURT: Good morning.

MR. HARRINGTON: From the Office of the United States Trustee pinch hitting for Joseph McMahon today. Your Honor, I wanted to just get up briefly. There's been a lot of talk mainly from the Debtors about what would happen sort of post sale and some sort of structured dismissal but that hasn't really been defined. There's no motion on the table. I know Your Honor has read our motion. Our motion is very simple.


MR. HARRINGTON: And I don't think the Debtor really disputes what's contained in our motion, although they sort of disputed it today. I don't think they dispute there's a continuing loss here. The reasonable likelihood of rehabilitation, I think they were sketchy as to what's going to happen with that. And the code talks about a plan, Your Honor and the Debtors being able to propose a plan to prove unusual circumstances and the best interest of the creditors. That's not being discussed by the Creditors -- by the Debtors. And we have serious concerns regarding some sort of structured dismissal that doesn't follow the code, Your Honor.

There's two ways, there's I guess three ways to get rid of a case in bankruptcy and the first is a plan. And that's what is contemplated under the code in Chapter 11 that you'll get out through a plan of reorganization. We're not -- no one's talking about doing that here. The second is to convert the case and let a Chapter 7 go through the claims and evaluate the claims and their distributions. And then third would be a straight dismissal with no sort of structure to it in certain circumstances.

So I did want to get up and rise because there is sort of a lingering discussion of a structured dismissal here with no sort of an amorphous structured dismissal. It's been mentioned, but there's no kind of discussion as to what form that would take. And we believe, Your Honor, the two ways out here are reorganization plan or a Chapter 7 Trustee. And that's why we move for conversion. Thank you, Your Honor.

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Selections from transcript of July 27, 2009 bankruptcy proceedings: 02
Authored by: Gringo on Sunday, August 22 2010 @ 10:37 AM EDT

Adam Lewis on behalf of Novell...

The sale doesn't take into account the Purchase Agreement which we believe has to be assumed in order to be able to sign the SVRX contracts and that hasn't happened.

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Selections from transcript of July 27, 2009 bankruptcy proceedings: 03
Authored by: Gringo on Sunday, August 22 2010 @ 10:43 AM EDT

MR. SPECTOR: Putting aside the U.S. Trustee's Motion for the time being, these motions by IBM and Novell to convert the cases to Chapter 7 and even more so their objections to the sale to Unxis are baseless. Moreover, their reasons for filing the motions have nothing to do with their interest as alleged creditors hoping to be paid for their claims. Their active in these cases for one reason only and that is to put SCO out of business in order to kill SCO's lawsuits against them. These parties who call themselves creditors are subverting the purpose of Chapter 11, namely to keep a business in business in order to pay the just debts, preserve jobs, provide a return to stockholders if we're fortunate enough to have a solvent case.

IBM and Novell want to crush SCO and soon before the Court of Appeals can vindicate it. They know that once that happens, they will have to face juries to answer for what they have done to SCO.

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Selections from transcript of July 27, 2009 bankruptcy proceedings: 04
Authored by: Gringo on Sunday, August 22 2010 @ 10:51 AM EDT

MR. SPECTOR: There's one other thing and that is [a Chapter 7] Trustee could sell this business, the Unix's business. Well you'll hear testimony that says no, they can't. If this Court converted to Chapter 7, the cadre of engineers working there for 20 years or more as a group coming from AT&T labs and other predecessors that developed this, they're going to scatter to the winds. And when that happens, an operating system business has very little value when the knowhow is gone, the people that develop this stuff is gone. And so the Chapter 7 Trustee is going to have an empty hull to sell if this case converts. The best way to sell, the only real way to sell this kind of a business is as an operating company which we're doing now.

Thanks to Cahn's Gross incompetence, it is too late now. He fired all the engineers long ago.

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Selections from transcript of July 27, 2009 bankruptcy proceedings: 05
Authored by: Gringo on Sunday, August 22 2010 @ 10:55 AM EDT

MR. SPECTOR: Finally, I'm compelled to address certain points raised in Novell's and IBM's replies very briefly. First, that if SCO wins in the Tenth Circuit, it must means we'll go to trial years from now and it will be on and on forever.
Well, no we won't, we're telling you we'd like to just get out. If the Novell judgment is overturned, we're out. If the sale is approved, we're out. So it's not like this case will linger any longer than it has.

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Selections from transcript of July 27, 2009 bankruptcy proceedings: 06
Authored by: Gringo on Sunday, August 22 2010 @ 11:01 AM EDT

MR. SPECTOR: Mr. Beltran an independent distributor of SCO products will testify in the latter case by deposition about the public interest in SCO's survival. Most important, public interest is one of the other unusual circumstances that cases have indicated.

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