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Transcript of SCO Teleconference May 30, 2003
Saturday, November 01 2003 @ 06:45 AM EST

Here is a transcript of SCO's May 30, 2003 teleconference. It is provided to us thanks to Karsten Self, who is the maintainer of, where you may also read the transcript. They also have an ogg file you can listen to here. If you note any errors, post them or email me, so we can create as accurate a transcript as possible. It is searchable now and can be included in our Quote Database. Thank you, Karsten.

What stands out from the transcript, aside from the discussion of Novell and copyright and the confirmation that SCO sent IBM its letter notifying them that their AIX license would be "terminated" the same day they filed the lawsuit, is McBride stating that they decided to enforce their legal rights back in the fall of 2002. ("Last fall we set on a course to go down the path of enforcing our rights in this Unix business.")

So they planned to enforce from the fall of 2002. Yet, when reporters began to question them about insider trades in August, McBride and others indicated that Robert Bench's "pre-set"sales plan was set up prior to any plans to sue IBM. McBride said that Robert Bench, who was the first to set his sales plan up, did so in January:

"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."

These two statements do not seem at first glance to be compatible, unless I am missing something. Perhaps it's another instance of being literally true words but misleading statements, at the same time.


SCO Conference Call
Friday, May 30, 1pm US/Eastern


Operator: Good day ladies and gentlemen and welcome to the SCO Group press conference. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Blake Stowell. Please go ahead.


Stowell: Thanks. Thanks everyone for joining our call today. I wanted to just give you some background information before we get started. We are not making any of the materials that will be presented on the phone today over the web, but we will have a recording of this teleconference available within a couple of hours following the call. I will turn the time over to Darl McBride, our president and CEO, and Chris Sontag is also participating on this call, he's our senior vice president over at SCOSource, our intellectual property division. Ah, we will have a Q&A following a statement which Darl will read, and then we'll take your questions. So with that we'll turn the time over to Darl.


McBride: OK, thanks Blake. Thanks for joining us today. Over the last few weeks a great deal of confusion has been generated about SCO's enforcement actions and the Unix operating system rights we own. I would like to clarify these matters.


SCO's enforcement actions embodied in the suit against IBM and our letter to 1500 commercial Linux users are based on the contract rights that flow from SCO's 30,000 Unix System V licenses with more than 6,000 entities. Our actions to date are based on this extensive set of licensing and sublicensing agreements. None of SCO's enforcement actions to date have been based on copyrights or patents. There has been no assertion by Novell or anyone else that SCO does not hold these contract rights.


As to the copyrights, I have two points to make. First, the copyrights are not important to our current enforcement actions. Second, we have stated in the past, and we reiterate today, that we own the Unix copyrights and the rights to enforce these copyrights. Novell has publicly challenged our position with regard to copyrights. We strongly disagree with Novell's position, and view it as a desperate measure to curry favor with the Linux community. I have turned the Novell matter over to our attorneys; over the coming weeks, we will take all steps we deem appropriate to rectify the issues.


Some of you may be familiar with the text of the 1995 SCO-Novell agreement, since it was contained in a prior SEC filing. To underscore to you the broad set of rights we hold, let me summarize a few of these provisions. Firstly, we own, this is SCO, SCO owns all rights in ownership in Unix and Unixware. All versions, and all copies, all updates, including Unix and Unixware source code. SCO owns all claims arising against any parties relating to any rights, property, or assets in the business of Unix and Unixware. SCO owns all software and sublicensing agreements, including the source code, and sublicensing agreements with OEMs, end-users, and educational customers. The total number of these agreements is approximately 30,000. Again, those were pulled from the text of the agreement.


Now let's move on. Let me explain why SCO has decided to base our initial enforcement actions on our Unix rights. Among our Unix assets, SCO owns all of the Unix licensing agreements and sublicensing agreements. There are approximately 30,000 such agreements with over 6,000 entities. These licensees include virtually all major hardware vendors, many software vendors. These sublicensees include a very large number of the of the Fortune 2000 companies, and many companies around the world. Each and every one of these licenses and sublicenses contain a substantial set of rights and obligations for the licensee and sublicensees. These license agreements impose a standard of care that applies not only to the company, but also to all of its employees. These agreements address obligations that pertain not only to the original source code, but also to the code embodied in the derivative works produced by the licensee. So in other words, significant portions of SCO's Unix contract rights extend not only to the source code, but also to the many derivative works of that code.


The rights SCO holds in connection with these license and sublicense agreements are substantial. Because of their number and the the stature of the licensees and sublicensees, the reach SCO has is broad and deep. For these reasons, SCO has proactively chosen to base its current enforcement actions on this set of rights. We do not rule out the possibility of subsequent enforcement actions taken on, on the basis of copyright, but at this point we have elected not to do so.


A second question which was raised this week was whether SCO has evidence of Unix System V and derivative code having found its way into Linux and the Linux kernel. The answer is a resounding "Yes!"


We have had three groups reviewing this matter for us over recent months. Each of these groups has come back independently with evidence of Unix code and derivative code, methods, and concepts having been improperly donated into Linux. These findings are the subject of ongoing litigation, so there are limitations to what we are able to disclose, and under what conditions we may be able to disclose them. Starting next week, we will provide viewing opportunities under non-disclosure agreements, for our Unix licensees, as well as certain software analysts and members of the press. We hope this step will be of benefit to the software community as they will have an opportunity to see the tip of the iceberg of the evidence that SCO has gathered.


That is our prepared statement, ah, this point we will open it up for some questions.


Voice: Turn the time over to the operator.


Operator: Thank you. Ladies and gentlemen, if you would like to ask a question today, you may do so by pressing the star key, followed by the digit one on your touch-tone telephone. Once again, that was star one. If you are on a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If at any time you find that your question has been answered, you may remove yourself by pressing the pound key. Once again, that was star one to ask a question, and pound to remove yourself. We'll pause for only a moment to assemble our roster.


We'll take our first question from Robert Maina (?) from Cooper-Beech (?) Capital.

Maina: Yes, ah, good afternoon. My question pertains to whether or not this, your differences with Novell have impeded your ability to settle your claims with IBM or any of the other large ah, companies out there who you are currently negotiating with.


Sontag: Chris Sontag. Very simple answer. We believe we have the full rights to the Unix and Unix operating system business, and have all rights to the source code, the contracts, and the claims, and the business, which gives us the full authority to be able to to reach agreements and conclusions and claims that we make with customers.


McBride: All the things that we're working on today are directly fall from the rights we have within our contracts, and so the answer is that we have no problem reaching agreements based on the current discussions we have going on.


Operator: We'll take our next question from Maureen O'Gara, with Client/Server News.


O'Gara: What does it mean when you say that you turned the Novell matter over to the attorneys to rectify the issues?


McBride: As it relates to, ah, let's just be way up front on this whole copyright issue. As we've said very clearly, the copyright issues are not important to our current enforcement actions. And everything that we're talking about in the marketplace. This goes back to the last question: do we have the ability to go settle the agreements we have based on the current contract rights? Absolutely yes. To the extent that we looked at copyright issues down the road, wherein Novell is making claims that are counter to our position, we are prepared to go to get resolution on that. And I can't say more about exactly what that is right now, that's up to the attorneys, we'll be glad to let you talk to them, they're not on the call today.


Operator: We'll take our next question from Joe Barr with


Barr: Hello.

McBride: Hello Joe.

Barr: SCO claims if I understand correctly, that they're being damaged by the presence of their intellectual property in the Linux kernel. If that's true, are you not you contributing to that damage, to the ongoing damage, by refusal to show the code?


Sontag: Well, the answer is we will be showing some of that evidence starting next week, and we are very confident in the evidence that we have, we will be showing direct lines of code from our Unix and Unixware source in Linux, in the Linux kernel. We will also be showing derivative works code that is not appropriate to be, ah, in Linux, that we will also be showing, as well as excerpts from the appropriate contracts to back up our claims.


Operator: We'll take our next question from Dennis Powell with Linux and Main.


Powell: Good afternoon.

McBride: Hello, Dennis.

Powell: A couple of questions real quickly. One is, it seems as if SCO has pretty much rolled all the company dice on this one set of litigation. If you lose as, as many seem to think you will, then what's left of the company?


McBride: The ah, the business prospects for SCO right now are very positive. Last fall we set on a course to go down the path of enforcing our rights in this Unix business. There's only one company in the world that can stand up and say that they own 30,000 contracts relating to large OEM vendors of Unix and most of the Fortune 1000 or 2000 customers that are using ah, Unix and one of our licensees. It's an incredible position to be in, and since we have started down this path, SCO's business prospects have been going great. We announced a couple of days ago record earnings for the company. Since we've gone back and really re-enforced our position around Unix, and started re-enforcing our rights. We've gotten on a track that's not just the last couple of quarters have been good, our prospects going forward are, are very impressive.


Operator: We'll go next to Amy Wohl with Wohl Associates.

McBride: Good afternoon, Amy.


Wohl: Good afternoon Darl. I'd like to try to understand the text that you read from the Novell-SCO contract...

McBride: Yes.

Wohl: When you bought the Unix code and source code. I note that what you were reading from did not specifically mention copyrights and patents. Is that simply what you chose to read off, or does it not actually mention copyrights and patents in the contract that you signed at that time?


McBride: With respect to copyrights and patents, there are 56 pages of Novell-SCO document there. The majority of the contract very clearly shows intent that all of the copyrights, contracts, relating to this business are covered as relates to SCO going to market. And with respect to claims that Novell is making that don't reinforce that point, we'll be settling those issues in, in court. But let's go back and reinforce: our point right now is we've gone down a track that we don't have any issues with copyright or patent with respect to any claims that we have made. It is a situation where you have a lot of things that you could go out and do. What happens is the contract rights that we have are senior in position, and are so extensive and broad in their nature that when you're holding a couple of aces it doesn't make sense to go down and focus on a seven and a five that you might have in your hand. Not to say that there's not some value in the seven and the five, but clearly with our contract rights and the software license agreements and the source code, we are holding aces and those are the hand that we're playing.


Operator: We'll take our next question from Hiawatha Bray with Boston Globe.


Bray: Ah, hello there, I'm still unclear on a couple of things. You said something a little earlier that seemed to imply that you are standing by your view that you have the copyright for Unix, and that what Novell is saying is flatly incorrect. Did I read you correctly on that one?


McBride: We clearly have a dispute over that issue. There are eight pages or so, I can't remember how many pages, there are pages and pages of copyrights that are part of the agreement that are covered under the business that we acquired. And so very clearly, there is contract language here that says we have the copyright coverage to go out and sell this business. But let's go back to the copyright issue again, which is: this does not relate to the current actions that we have. We have the full right to go enforce the Unix and Unixware business. The source code, the contracts, the legal claims. And so as, as you look at that, the rights that flow from the contract are very strong relating to where we are. To the extent that we want to look at a copyright issue down the road, we have our attorneys working on that issue, they'll work on that with Novell, but that has zero percent to do with any current claims that we have in the marketplace.


Operator: We'll take our next question from David Politis with Utah Tech Watch.


McBride: Hello, David.

Politis: Good morning, Darl, how are you?

McBride: Good.

Politis: Hey, uh, I'm curious. You're a former Novell executive. Were you caught off-guard by this? Were you surprised at what Novell did this week?



McBride: Here is what was surprising, David. We had a meeting scheduled with Novell's executives, in this case their vice chairman, Chris Stone, who said that he was going to come over and take a look at the.... He had called the week before and said, you know, "what's going about the source code you're claiming is inside Linux?" And we said "hey, come on over and we'll be glad to show those to you". And so we set up a time, the time was set for 11:00 on Tuesday. Tuesday came and went, or actually, 11:00 came and went, they didn't show up. The secretary called back and said, "Hey, did you ever talk to Chris?", no, haven't talked to Chris yet, we're still waiting. And then later on that evening we found out that Chris had been busy putting a statement together saying we need to have Novell, that Novell was demanding that SCO step up and show us the code. So that was the part that was a little bit surprising. On the day that we were supposed to be showing them the code, we were set to do that. The other part that was a little bit dissapointing was the feedback that I had received later that Novell had in fact timed the, their announcement to coincide with our earnings release on Wednesday morning to try and screw that up.

So, yeah, as a former Novell executive, yeah, we've had a relationship with these guys for a long time, we, you know, have been working on things, we have a relationship on this and other items, we've been working on how to do a variety of things, and when we say Novell, I want that the Novell people who are listening to this realize that I'm not talking about all the people here in Utah County I've had eight-year relationships with. We have a couple of people who've kind of reversed course here, and we're dealing with that.

But I guess the short answer to your question David, was: yes, it was a surprise.


Operator: We'll take our next question from T.C. Doyle, with VAR Business Magazine

McBride: Hi, T.C.


Doyle: Hi, all. Thanks for taking my question. Just a point of clarification if I may. At this juncture, based on what you've seen, based the testing and the three groups that you've had looking at the various codebases have done, is there any legitimate Unix code out there that you can see? Meaning: is there any way anybody could be using the Linux codebase in a legitimate fashion without violating what you guys have?


Sontag: This is Chris again. We have, you know, in, in our analysis of a lot of the Linux source code, obviously we're dealing with multiple versions of Linux over many years, and huge amounts of source code. We have mostly focused on the source code in the last couple of years, and, you know, have only taken certain snapshots of certain areas, and just about in all cases we've identified in every major version significant issues for which we are concerned. Is there extremely old versions that may not be of issue? We do not know at this time. But, you know, we hope to ultimately get our arms around all of the versions of Linux and what may be of issue. Yeah, We're specifically concerned, you know, about version 2.4 and beyond of the Linux kernel.


Operator: We'll take the next question from Kyle Kruger (sp?) with Apollo Capital.

Kruger: Ah, yes, can you comment, Darl or Chris, on Novell's assertion that you have tried on several occasions to acquire additional intellectual property rights? I guess primarily the patents from them over the last several months.


McBride: Sure, I'd be glad to comment on that. With respect to talking to them about patents, that's a strange one. Because many of these patents actually go all the back to AT&T. So the answer is we've never had a discussion of anything about patents. We have a 56...however many pages agreement that is, with Novell, where it's very clear that Novell sold to SCO the Unix and Unixware businesses. And, and their, you know, the fact that there's this one statement that's not directly in alignment with every other part of the statements is what caused me to approach them last year to, to try and get alignment. There was never a question of _purchasing_ anything, there was a question of clarifying contract language that's there. In fact, if you read the letter that we sent the, Chris, I believe you sent it to them, it says...


Sontag: This letter clarifies the intent of the parties.

McBride: So we sent them a letter, and asked them if they would sign, you know, again, we've known these guys, and it was a question of, you know, will, "would you clarify this", and if not, then, you know, we still, it doesn't change the fact that the rest of the document is in SCO's favor. So that was all it was about, it was a clarification, and there has never been once any approach with respect to purchasing anything. You know, you pay more than a hundred million dollars for something, you don't have to expect to go back and pay for it again.


Operator: We'll take our next question from George Weiss with Gartner.


Weiss: Yeah, Hi.

McBride: Hi, George.

Weiss: I have a couple of questions if possible. One is with regard to the letter you said you're serving IBM with, and demanding that they are in compliance with your contract otherwise you will revoke their license in June.

McBride: Right.

Weiss: What is the scenario or the process by which an outcome will be brought to bear there if you don't have the full courtroom judgment by that time, meaning that it is still a process in litigation and that there is no judgment either for or against you?

McBride: Yeah, and before you leave, George, ask your second one, I'll cut off after this answer, so just.... You got your second one now?

Weiss: The second question is whether Linus Torvalds and other people, experts in the Linux community, have made any effort to collaborate with you to review the code and put extra teeth into seeing if there is a breach or misappropriation of SCO's code. And whether there's any possible resolution that if they were to find it, they could excise that code and come back into compliance.


Sontag: Hello, this is Chris. I'll go ahead and answer, George, your first question. And, with regard to the letter we sent to IBM, we sent that on March 7th, the same day we filed the lawsuit. Which, as we have in our contract with IBM, we have the right to be able to revoke their AIX license if they breach their contract. We gave them notice that they had breached their contract and started that 100 day clock which concludes on June 13. We fully expect to follow through with demands of that letter, and our legal team has a number of options regarding how we will move forward beyond June 13, and we'll save that for that date. Our hope that IBM will, you know, comply with our demands.


McBride: With respect to the second question, we have not heard anything from Linus Torvalds at this point. In, in the last week we have had other Linux community leaders contact us, and we have gone out and said we're going to start making available the problems that are out there in Linux. I have had a couple of people that have picked up the phone and called me.


Operator: Ladies and gentlemen, due to time constraints, we will take our final question from Stephen Vaughan Nichols with LinuxToday.


Nichols: Hi there. Two questions actually. One is that in both SCO and Caldera's separate history before they came together to form SCO, first SCO through Project Monterey worked with IBM to merge Unix and AIX together into a product AIX 5L for Itanium at the time. A project which came to naught as far as commercially concerned. Also Caldera having bought the source code from Novell, er, rather from SCO, Phipps Connolly (?) in public statements then said that they were going to be working to merge Unix and Linux together. Therefore, both companies apart and then together are on public record of trying to bring Unix functionality, and one presumes, Unix code into Linux. Until recently that was a main thrust of Caldera/SCO's business. That being the case, you have this very mixed history here working together with Unix _and_ Linux, Unix AIX and IBM. In what way can you demonstrate that at some point or the other that SCO engineers themselves did not, working on exactly what their mission was at the time, trying to, merge the codebases together.


McBride: So, it, it is an interesting history when you go back and look at this. And if you go back to SCO's history, for twenty years, the original SCO, Santa Cruz Operation, was very focussed on Unix on Intel, and built a great business in, in that regard. Project Monterey was an attempt by SCO and IBM, after IBM approached SCO, to try and get the these... to go to the next step on how this would all evolve. Basically, during that period of time, SCO sidetracked its, its independent efforts, got heavily involved with IBM, worked for two years, and once the development project was done, essentially IBM walked away from the deal. And so we were left with picking up pieces. At that time, it's when the company was sold, you know, Santa Cruz Operations sold that business to Caldera.


Now, with respect to, ah, where we are in the business right now, the thing that's, that's very powerful from SCO's perspective, is: through all of this we have maintained the core Unix ownership, and the thing that we're talking about today is SCO owns the Unix operating system. It has, it owns all the rights to the Unix and Unixware business, including the source code, the contracts, all legal claims that come out of this. And so while on the Linux side of things, ah, you do have some Unix on Intel capability that's showing up over there, there are significant issues right now. The, the Linux community that is in the know on these issues, understands what the issues are. They know that there is code in there. They know that there are contract issues. I, I think the reason that this has become such a big issue is because everybody out there that really knows, understands that SCO has a strong position. And, and the question is: how is this going to get resolved? Is it gonna to get resolved by people ah, attacking, us and coming out there and trying to, to shut us down, before this can be, ah, played out in a full court hearing, or is, er, how _is_ it going to go forward? We know we have a very strong set of claims. We feel very comfortable with where we are in our position. We understand that the, the heat is intense from a number of folks, and the battle is fierce. But we are gonna to continue down this path because in the end, we have the legal rights to do so, and it is our crown jewels. This is what we're fighting for.

So, with, with all that said, we appreciate all of you joining us here today. The final statement I guess I would make is that: as we go forward, the month of June is "show and tell" time. Everybody's been clamoring for the code, you know, "show us two lines of code". We're not going to show _two_ lines of code, we're going to show _hundreds_ of lines of code. And that is just the tip of the iceberg of what's in this. We're not going to show all of the code because of the legal issues that we have going on. But we _will show you the code_. Now, as we go forward, you know, customers as, essentially, we have sent the letters out to customers. We have had customers clamoring for, uh, being able to see the code, and the statements that are coming back in is: we need to understand: if the System V code is showing up inside of the Linux kernel, then that is going to change the playing field. Whereas initially we said this will come out at the appropriate time in the court hearings, uh, well, we're going to start now to get that out there. Customers do not want to wait two or three years to wait and see the code in the court hearings. So we're being responsive to those customer requests, and we look forward to that.


And I guess the final thing that I would say is, uh, anyone who is a Unix V licensee, who would be a hardware or software vendor, or who is a sublicensee, who would be many major corporation around the world, we will make every effort to accommodate being able to show you that code. Media and analysts, a number of you have been asking for this, we will show you as well. It will have to be done under confidentiality agreements, otherwise we are breaking our own agreements that this is confidentially protected material. To the extent that you can get those sort of nondisclosure agreements signed on your side, then absolutely we'll show you the same thing. So we're stepping forward with the request, the demands that have come in. And again, starting next week, going through the month of June, we'll be happy to show the code, and we will go from there.

We're happy with the progress we've made today, we look forward to moving things down the field, and thank you for joining us today.


Operator: Once again, ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, you may now disconnect at this time.


Transcribed by Karsten M. Self, maintainer of

May be copied, distributed, and/or modified freely, with this attribution.

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