decoration decoration
Stories

GROKLAW
When you want to know more...
decoration
For layout only
Home
Archives
Site Map
Search
About Groklaw
Awards
Legal Research
Timelines
ApplevSamsung
ApplevSamsung p.2
ArchiveExplorer
Autozone
Bilski
Cases
Cast: Lawyers
Comes v. MS
Contracts/Documents
Courts
DRM
Gordon v MS
GPL
Grokdoc
HTML How To
IPI v RH
IV v. Google
Legal Docs
Lodsys
MS Litigations
MSvB&N
News Picks
Novell v. MS
Novell-MS Deal
ODF/OOXML
OOXML Appeals
OraclevGoogle
Patents
ProjectMonterey
Psystar
Quote Database
Red Hat v SCO
Salus Book
SCEA v Hotz
SCO Appeals
SCO Bankruptcy
SCO Financials
SCO Overview
SCO v IBM
SCO v Novell
SCO:Soup2Nuts
SCOsource
Sean Daly
Software Patents
Switch to Linux
Transcripts
Unix Books
Your contributions keep Groklaw going.
To donate to Groklaw 2.0:

Groklaw Gear

Click here to send an email to the editor of this weblog.


Contact PJ

Click here to email PJ. You won't find me on Facebook Donate Paypal


User Functions

Username:

Password:

Don't have an account yet? Sign up as a New User

No Legal Advice

The information on Groklaw is not intended to constitute legal advice. While Mark is a lawyer and he has asked other lawyers and law students to contribute articles, all of these articles are offered to help educate, not to provide specific legal advice. They are not your lawyers.

Here's Groklaw's comments policy.


What's New

STORIES
No new stories

COMMENTS last 48 hrs
No new comments


Sponsors

Hosting:
hosted by ibiblio

On servers donated to ibiblio by AMD.

Webmaster
Methinks He Doth Protest Too Much
Friday, August 15 2003 @ 07:54 AM EDT

Or else he doth need to get his story straight.

Bloomberg News has an article, appearing in The Salt Lake Tribune, reporting that Darl McBride says that SCO's CFO submitted a sales plan in January "months before legal action was contemplated", presumably as proof that there is no connection between the stock sales and the lawsuit:

"Chief Financial Officer Robert Bench began the selling by SCO insiders, four days after SCO filed the suit against IBM. Bench is selling to help pay a $150,000 tax bill, McBride said. Under the Sarbanes-Oxley law, companies are no longer able to loan executives money to pay taxes or other expenses.

"Bench submitted a sale plan in January, months before any legal action against IBM was contemplated, McBride said. His agreement called for the sales to begin on March 8. He planned to sell 5,000 shares a month for the next 12 months, according to the plan."

Now, I'm no stock expert, but as for SCO not "contemplating" any legal action in January, here are some news stories from January of 2003 that I believe indicate that they were contemplating legal action in that month. All emphasis added by me.

It was on January 10 that the story first broke, in an article entitled, "SCO Threatens to Press IP Claims on Linux", by Maureen O'Gara:

"Informed sources, who would only talk on the guarantee of anonymity, say SCO has been proposing to charge users $96 per CPU for a so-called one-time System 5 for Linux software license to protect their systems from SCO-enforced patent issues if they ante up as soon as demand is made. . . .

"Sources say the scheme, which pretty much sounds like a protection racket - we won't sue if you pay -- isn't engraved in stone but an undated weeks-old draft SCO press release that details the plan and was read to us has been quietly making the rounds. At press time, we got word that a major player, believed to be IBM, thought it had dissuaded SCO from going through with the idea.

"A usually reliable source swears a SCO executive told him that SCO has hired the redoubtable David Boies, who prosecuted the Microsoft antitrust case for the Justice Department, to press infringement claims not against users but against the other Linux distributions."

If IBM, or whoever it was, was having discussions with them at that time, they are in a position presumably to testify as to the content of those discussions and as to the truthfulness of McBride's assertion that they were not contemplating legal action until "months" after January.

EWeek mentioned the January date too, in a story published later:

"The company in January hired high-profile attorney David Boies and his law firm to investigate whether Windows, Mac OS X, Linux and versions of BSD infringed on the Unix intellectual property it owned."

They hired an attorney regarding infringement of IP, but they were not contemplating litigation at all? Here is another:

"Rumors escaping the Lindon, Utah-based company as early as mid-January had suggested the company may be gearing up to sue one or more of its competing Linux distributors, such as Red Hat, in the near future. The speculation intensified when SCOsource, the intellectual property-licensing wing of the company, was announced during LinuxWorld in late January. In part, that announcement acknowledge the retaining of star attorney David Boies by SCOsource for research and protection of SCO's patents,' providing many observers of an ominous feeling about what SCO was up to."

Stephen Shankland, in an article entitled "SCO fees may hit some Linux users", wrote this on January 14:

"The company, which is seeking untapped revenue from customers who migrated from SCO Unix to Linux but are still using SCO Unix software components, plans to detail its efforts in the coming weeks or months. SCO Chief Executive Darl McBride created an organization last fall 'to formalize the licensing of our intellectual property,' according to a company presentation seen by News.com and according to sources close to SCO.

"'SCO is concerned about violations of our software license copyrights. SCO pays royalties on software, and we're asking companies/customers to do the same,' according to the October presentation. . . .

"Chris Sontag, hired in October as senior vice president of SCO's Operating Systems division, leads the intellectual property organization, sources said. Earlier in his career, Sontag led marketing and product development for Novell, a once-powerful operating system seller with ties to SCO. . . .

"'Our Unix IP is a significant asset. And for several months, we have been holding internal discussions, exploring a wide range of possible strategies concerning this asset,' the company said in a statement Monday. SCO hasn't decided how exactly to collect more Unix revenue, the company added. . . ."

Here's their press release back in January, on the 22nd:

"The SCO(R) Group (SCO) (Nasdaq: SCOX), a leading provider of Linux and UNIX business software solutions, today announced that it has created a new business division to manage the licensing of its UNIX intellectual property. . . .

"Appointment of Boies, Schiller and Flexner

"As part of SCO's plans to protect its intellectual property, the company has retained David Boies of the law firm Boies, Schiller and Flexner for research and protection of SCO's patents, copyrights and other intellectual property."

On January 30, LWN.net reported an interview with a SCO spokesman:

"Rumors have been circulating for a few weeks: SCO, it is said, has hired a fancy law firm and will be pursuing intellectual property claims against Linux users and distributors. . . .

"What will SCO do if it finds something? As might be expected, the company is not willing to say much: 'If we found unlicensed use of our intellectual property in a product like Linux, any action we would take would have to be based on the scope, source and impact of the violation. We do not feel we can rule out any particular response without impairing our fiduciary responsibility to our stockholders to protect their property. Certainly our first choice in helping to resolve this issue would not to be heavy handed in our response.'"

On January 23, 2003, Internet News had a "Are Linux Users Infringing on SCO's Property?":

"'Anybody that does not have intellectual property issues related to SCO can sleep well at night, but for anyone violating our IP we are going to be more aggressive enforcing our rights than we have in the past,' Chris Sontag, SCO senior vice president for operating systems, told internetnews.com . . . .

"Still, the move had been hinted at earlier, prompting some observers of the Linux scene to wonder whether SCO wasn't simply fishing for financial settlements from companies looking to avoid a lawsuit. . . .

"SCO's chief executive, McBride, has played it somewhat coy, acknowledging that Boies was hired (Boies is known for taking on Microsoft on behalf of the Justice Department in its antitrust case, and for defending Napster) but telling the media only that he was 'not prepared to answer' what course of action the company was going to be taking."

Not answering is not the same as not contemplating. In March, Peter Galli wrote in eWeek that discussions had been going on with SCO and IBM since early December. But in January they still were not "contemplating" legal action? I don't think that word means what he thinks it means. Here's what McBride said back then:

"McBride said the bottom line was that SCO owned the source code to Unix and the right to that operating system. IBM had taken AIX and made it available to the Linux community in an unlawful way.

"'IBM has been happily giving part of the AIX code away to the Linux community, but the problem is that they don't own the AIX code,' he said. 'And so it's a huge problem for us. We have been talking to IBM in this regard since early December and have reached an impasse. This was thus the only way forward for us.' . . .

"While McBride said SCO expects much of the $10 million in licensing revenue to be raised amicably, it was willing to litigate in order to enforce its IP and other rights."

When they announced the establishement of SCOsource, they said this, on January 22:

"'The most substantial intellectual property in UNIX comes from SCO,' said Chris Sontag, Senior Vice President for Operating Systems and SCOsource, The SCO Group. 'While Linux is an Open Source product, it shares philosophy, architecture and APIs with UNIX. Starting today, SCO's libraries will be available to third-party application developers, OS vendors, hardware providers, services vendors, and end-users. SCO will help customers legitimately combine Linux and UNIX technology to run thousands of UNIX applications. SCOsource plans to create other new licensing programs to make our rich inventory of UNIX System technology available to the market.'

"As part of SCO's plans to protect its intellectual property, the company has retained David Boies of the law firm Boies, Schiller and Flexner for research and protection of SCO's patents, copyrights and other intellectual property."

Now, it's possible that Bloomberg News misquoted McBride, and he didn't say that Bench filed his plan in January "months before" they "contemplated" legal action. In that case, it brings us right back to the question of the timing of all this. But if the quotation is accurate, the assertion doesn't appear to match the facts. I believe there is a word for that. The real question in my own mind is one nobody seems to be asking, namely why did SCO decide to change its policy and pay in stock when it did? SCO's comments on all this can be read here but it leaves questions in my mind still.

Today's 3rd-Quarter Financials

Speaking of changes, there was a change of procedure in today's teleconference. When SCO announced its first-quarter results on Feb. 26, it publicly invited anyone to listen in live by simply calling in. The number was listed on their web site. When it announced its second-quarter earnings, the procedure was the same. But today, in contrast, if you wished to participate, you first had to provide an email address. There was no number listed publicly. Alternatively, you could listen to a webcast, if you had certain proprietary software. Whatever could have made them make this change if they are so upbeat about their finances? Whatever the motive, the result has to be the capability to select the audience, I would think, and screen out naysayers. I don't know if SCO used that capability, because I didn't attend, but I am simply recording that they changed their procedure.

[ Update: SCO's press release regarding insider transactions:

The SCO Group Comments on Insider Transactions

LINDON, Utah, Aug 14, 2003 -- The SCO Group, Inc. (Nasdaq: SCOX) encourages its directors and executive officers to sell the stock held by them through plans designed to qualify for the protections provided by Rule 10b5-1 under the Securities Exchange Act of 1934.

The 10b5-1 plans provide for future sales of stock, at predetermined times and in amounts and under conditions specified in the plans, without subsequent instructions from the participants. These plans have been adopted by the following individuals: Robert Bench, CFO; Jeff Hunsaker, Sr. VP Marketing; Reg Broughton, Sr. VP International Sales; and Michael Olson, VP Finance/Controller. These plans have been implemented primarily for the purpose of providing liquidity to the participants to meet sizable personal tax liabilities resulting from the vesting of restricted stock awards.

During the three months ended July 31, 2003, individuals selling under approved 10b5-1 plans sold 88,000 shares of the Company's common stock. Two other executive officers sold 29,616 shares during the same three-month period in Company approved open trading windows. For the upcoming three-month period to end on October 31, 2003, the above-referenced executive officers may sell up to 141,000 shares of the Company's common stock under current 10b5-1 plans if the conditions of the various plans are met. No other directors or executive officers have implemented a 10b5-1 trading plan to sell shares of the Company's stock during the next three months.

Our directors and executive officers beneficially hold approximately 6,005,000 shares and options to acquire an additional 2,016,000 shares.

End update.]

  


Methinks He Doth Protest Too Much | 25 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 05:51 AM EDT
Jan 1st? The http://www.sys-con.co m/linux/articlenews.cfm?id=381 is dated 1/10/03 right at the top. I think i mentioned Jan 10th when i first posted the link too. Did she publish the story earlier somewhere else?
Supa

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 05:58 AM EDT
More comedy stylings http://www.slt rib.com/2003/Aug/08152003/business/84062.asp

including quotes from both Darl, and my all time favorite, DiDio


quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 06:16 AM EDT
The dreams of grandure certainley did mount since Jan too eh.

"$96 per CPU" Jan - > "$699 per CPU" Aug-> "$1399 per CPU" Oct

Must be thoese escalating lawyer bills.


Supa

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 07:01 AM EDT
Well when it started it was sort-of about some UNIX libraries. Check the SCOsource presentation

Since then, the issue seems to have expanded greatly

I half wonder if Boies and co., thought they were still litigating the original issue (although one big hole in this theory is the original complaint doesn't appear this). I mean, from what I've heard, it's not like Boies surfs the web


quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 08:05 AM EDT
http:// news.zdnet.co.uk/business/legal/0,39020651,39115731,00.htm
quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 08:18 AM EDT
Quote from SCO's lawyers http://www.vnunet.com/News/1143022
quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 08:30 AM EDT
Well if Boies did surf the web as a lawyer im sure he would be horrified at the sight of the growing log of "on the record" contradictions his clients espoused that he will have to atol for later in court. This Boies appears to have a bad luck streak going. I know im still in shock MS got off so lightly. In the words of Marge Simpson about Lionel Hutz.... "We really should stop hiring him"

Hutz: Well, you good folks can rest easy now because you've come to the very best in legal representation. Skinner: Uh, excuse me, is there an Orange Julius stand on this floor? Hutz: I'll sell you this one, it's almost full. Skinner: Well, why don't I drink out of a toilet bowl. Hutz: He'll be back. And as for your case, don't you worry. I've argued in front of every judge in this state -- often as a lawyer. [drinks his Orange Julius]

Perhaps the EU will show him how it should have been done.


Supa

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 09:06 AM EDT
I just checked the prices and SCO so back down below $10.00. Thank you God. style="height: 2px; width: 20%; margin-left: 0px; margin-right: auto;">Alex
Roston

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 09:46 AM EDT
Has anyone considered forwarding this information to the SEC. I can't believe
that SCO hasn't made it onto their radar screen yet, but it may be worth the
effort. After Enron, Worldcom and others they have got to be a bit jumpy esp.
with the economy still in the dumper.
Mike BMW

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 09:52 AM EDT
<>

Cute, you can make a verbal contract but you can't permit someone to use a copyrighted work without WRITTEN consent. I guess non-enforcement of a copyright holders rights doesn't count as written consent? That would change a lot of case law! I wonder if they work for stock options too!


Fooboy

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 09:53 AM EDT
"These rights include copying, authorising derivative works, modifying and
distributing the copyrighted material, while an interest in copyrighted material
cannot be transferred unless expressly authorised in writing, they said."
Quote didn't appear!!!
Fooboy

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 10:00 AM EDT
http://sdtimes.com/news/084/story3 .htm
quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 02:22 PM EDT
I think one can and should make a very strong 'public good' arguments for the need for the existance of open source code. After all it is just about the purest form of a public good in existance. The public has a over riding interest in its continued existance and development.

It has been demonstrated for nearly ten years that open source code *can* coexist peacefully with proprietary code. The fact that proprietary modules can overlay open source programs proves this.

Finally, it has also been shown that a profit can be made from the sale of services associated with open source code. Cygnus Solutions, RedHat and SuSe are only three examples. There are many more with more coming to light daily which completely discredits SCO Group's contention that open source development is a "failed business model."

Many have recognized the value of 'peer review' in the development methodology of open source programs. This is a process used by scientist throughout the world. Peer review has served humanity well over the years.

Society would be immensly poorer if the courts blundered and failed to recognise, acknowledge and protect open source code and methodology.


PhilTR

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 03:31 PM EDT
"In March, the company sued IBM for $1 billion -- an amount later amended to $50 billion -- over alleged contractual violations related to Big Blue's marketing of a purportedly tainted version of Linux. "

Is this a typo?? When did the ante go to $50B??


Steve Martin

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 04:29 PM EDT
ecprod, my understanding is it's $3bn+ in the actual amended complaint

$50bn is a figure McBride mentioned in an interview. SCO seems to think they are entitled to ALL IBM's revenues (software, hardware and services) which were in some way related to UNIX, AIX. and/or Linux.

New links for today:

Lawyers, Raymond + Linus on SCO's GPL idea (a good read i think) http://linuxtoda y.com/infrastructure/2003081502226NWCYLL

Does McBride have the support of IT (as he claimed) for his pay up or SCO will sue you campaign http://www.computerworld.com/softwaretopics/os/linux/story/0,10801,84078 ,00.html

Hunsaker exercises 5000 share options at $1.12, and immediately sells at $10. http://www.sec.gov/Archives/edgar/data/1102542/0001102542030000 51/xslF345X02/edgardoc.xml


quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 04:39 PM EDT
http://finance.messages.yahoo.com/bbs?.mm=FN&act ion=m&board=1600684464&tid=cald&sid=1600684464&mid=28692
quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 04:42 PM EDT
More Didio http://www.ecommercet imes.com/perl/story/31357.html http://www.technewswor ld.com/perl/story/31357.html
quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 07:28 PM EDT
From the ecommerce story, quoting Didio:

"IBM, Red Hat and the open-source community as a whole must address the issues of licensing and indemnification to ensure the long-term success of the open-source movement, she said. For large enterprises, particularly in vertical markets, such as financial services, legal indemnification is a requirement, not an elective," DiDio noted. "

Question: Which company provides actual legal indemnification now? Are financial service firms demanding this, or is this just more cluelessness?


Nick

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 07:41 PM EDT
Excellent question, Nick. I have been wondering the same thing. If anyone
knows or can provide any particulars, I'd be very interested to hear from
you.
pj

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 09:01 PM EDT
Nick and PJ,

Re: indeminifacation issues.

Seems that this question came up just a couple of weeks ago, when Microsoft said the would indemify users of MSSQL (their version of Sybase, however they call it)that had been hit in the patent dispute, and they lost...(for now)

As for DiDio's comments, pure FUD, Merrill Lynch (I think) has been using GNU/Linux for a few years. And Schwab recently announced that were starting to deploy the penguin...

#include <stdio.h>

main (){ printf ("standard disclaimern"); printf ("not a lawyer, not a paralegal, just a codern"); }


D.

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 15 2003 @ 10:12 PM EDT
Nick >>> Question: Which company provides actual legal indemnification now? Are financial service firms demanding this, or is this just more cluelessness? <<<

Yeah, just echoing D. Several of the big NY banks have been very vocal about their Linux support with sysadmins / procurement people writing advocacy and semi-tech articles, so I don't think the 'financial services sector demands indemnification' is "the truth".


Sanjeev

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Saturday, August 16 2003 @ 09:22 PM EDT
Did anyone hear in the conference call that SCO is reporting its IBM trial expenses as a cost of sales for SCO Source in its financial statements? Can any accountants comment on whether or not that is usual?

Does this indicate that they perceive the IBM case as a big marketing campaign? Does it mean the trial is the "good" being sold to SUN and Microsoft?

Relatedly, can the webcast be accessed other than through the SCO website?


r.a.

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 22 2003 @ 05:28 AM EDT
Here a couple of links which might be relevant to determine when SCO started thinking about suing IBM

http://www.inter netnews.com/dev-news/article.php/2106421

McBride stressed that SCO began negotiating with IBM some time last December, but chose to enter litigation because "negotiations had reached an impasse and a settlement could not be reached amicably."

http://www.eweek.com/a rticle2/0,3959,922913,00.asp

"IBM has been happily giving part of the AIX code away to the Linux community, but the problem is that they don't own the AIX code," McBride said. "It's a huge problem for us. We have been talking to IBM in this regard since early December and have reached an impasse. This was thus the only way forward for us."


quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 22 2003 @ 05:29 AM EDT
Here a couple of links which might be relevant to determine when SCO started thinking about suing IBM

http://www.inter netnews.com/dev-news/article.php/2106421

McBride stressed that SCO began negotiating with IBM some time last December, but chose to enter litigation because "negotiations had reached an impasse and a settlement could not be reached amicably."

http://www.eweek.com/a rticle2/0,3959,922913,00.asp

"IBM has been happily giving part of the AIX code away to the Linux community, but the problem is that they don't own the AIX code," McBride said. "It's a huge problem for us. We have been talking to IBM in this regard since early December and have reached an impasse. This was thus the only way forward for us."


quatermass

[ Reply to This | # ]

radiocomment
Authored by: Anonymous on Friday, August 22 2003 @ 05:38 AM EDT
Is was the increasing stokc price important to SCO?

ht tp://www.zdnet.com.au/newstech/os/story/0,2000048630,20274933,00.htm

SCO is in negotiations to buy two smaller companies that will bolster its SCOx plan, McBride said. Acquisitions have become easier because of the company's increasing stock price, he added. The company's stock climbed from US$4.75 on May 16 to a high on US$8.89 on May 22, shortly after SCO announced the Microsoft license deal."


quatermass

[ Reply to This | # ]

Groklaw © Copyright 2003-2013 Pamela Jones.
All trademarks and copyrights on this page are owned by their respective owners.
Comments are owned by the individual posters.

PJ's articles are licensed under a Creative Commons License. ( Details )