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Teleconference McBride, Boies, Bench - Transcript
Wednesday, November 19 2003 @ 03:22 AM EST

Here is a transcript of Tuesday's teleconference with Darl McBride, David Boies, and Robert Bench. UPDATE SCO now is providing an mp3 here.

Questions from: Andy Schopick (Nutmeg Securities), Jonathan Berr (Bloomberg News), David Bank (Wall St. Journal), Scott Phillips (Merrill Lynch), Brian Skiba (Deutsche Bank), David Politis, Paula Rooney (CRN), Larry Greenemeier (Information Week Magazine), Larry Sullivan (Capital International), Matt Whipp (Dennis Publishing). Dion Cornett (Decatur Jones) also was recognized for a question, but there was a problem with the phone line and the question could not be heard.

This was a group effort, and I wish to thank everyone: especially Markus Baertschi, who made it all possible, and Nick, LHJ, eamacnaghten, Fruny, Thad Beier, James, PM, freeio, Clifton Hyatt, Scriptwriter, mickeym, Jude, elrond_2003, Bill Sharrock, mac586, radicimo, and mflaster. It's fun when there is a group, and it sure goes faster. Our turn-around time on this project was exceptional. Thanks, everyone. Let's do this again some time.

****************************************

Introductory Remarks by Darl McBride

McBride: . . .rights and related intellectual property. On a related note, in connection with our recent 50 million dollar private equity placement completed on October 16, we will provide our law firms with 400,000 shares of SCO common stock and 1 million dollars in cash. This consideration will result in a charge to earnings of approximately 8.9 million dollars in our 4th quarter that ended October 31, 2003. This 8.9 million dollar charge is comprised of a non-cash expense of 7.9 million related to the issuance of the 400,000 shares I mentioned, and a cash expense of 1 million dollars.

I would like to add that I am very pleased to have Mr. Boies and his law firm, and his colleagues join us as significant share holders in SCO. Also in connection with the October 16th private placement, we will record a non-cash charge in Q4 that is the result of an accounting treatment known as Beneficial Conversion Feature. As you may recall we set the conversion price for the October offering at $16.93 per share which was the 5 day average of SCO shares prior to that offering. On the day we actually closed the transaction the closing price of SCO was $19.89, so the intrinsic value of the difference between the conversion price and the closing price will result in a non-cash charge to our Q4 earnings of 8.7 million dollars.

Importantly, we are reaffirming today, our prior guidance, and expect revenue for the 4th quarter to be in the range of 22 to 25 million. Uh, with the exception of the above noted earnings charges connected with our October equity offering, we expect that our operating expenses for the 4th quarter will be similar to the previous quarter.

We are in the middle of our annual financial audit, which should be completed in the next several weeks. We look forward to providing you with full details on our fiscal 4th quarter and year-end results during our teleconference scheduled for December 8th.

Finally, I'd like to comment on the additional copyright issues we referenced in our press release. For the last several months, we have consistently stated and maintained that our System V code [clears throat] is in Linux. We have been careful and responsible in the manner in which we have addressed these issues with the software industry, with Linux end users, and with members of the open-source community. The claims that SCO has are both broad and deep. These claims touch not, just not IBM, but other vendors as well. They also touch certain industry consortia, and corporate Linux end users. Our claims are not trivial. The violations of our intellectual property are not easily repaired. As we have stated over the last several months, it is our intention to vigorously protect and enforce SCO's intellectual property, our System V source code, and our copyrights. We are now fully prepared to do that. As a result of our October private placement, we have a significant war chest to fund this effort. As a result of the expanded scope of representation of Boies, Schiller & Flexner and their associated firms, we have more than ample legal talent and resource for this effort.

So at this point, we would be glad to take any questions that you have for myself, or David, or for Bob Bench, our CFO.

Moderator: As this time, if you'd like to register your site for a question, simply touch star and 1 on your touch tone phone. To withdraw that queston at any time, press the pound key. Once again, if you'd like to ask a question, simply press star and one on your touch tone phone. We'll take a moment for our first questioner to queue. We'll take our first question from Dion Tornett [sic]of Decatur Jones. Go ahead, sir. Your line is open. . . .

McBride: Go ahead, Dion.

Moderator: Mr. Tornett? Are you online?

McBride: Sounds like he's not there.

Moderator: Ok, we'll take our next question from Andy Schopick from Nutmeg Securities. Go ahead sir.

Schopick: Thank you. Gentlemen, what I would like to understand is what was, and where did, the impetus for this agreement originate ? Secondarily, if I may, do I understand that the payments to your attorneys are in addition to their regular and normal hourly billings and not tied to any ultimate outcome of this litigation?

Bob Bench: Maybe I can take that, Darl ?

Darl McBride: Yeah, go ahead Bob.

Bench: Our agreement there with the law firms is contingent in nature. We entered into that agreement in February of this year. It includes the payment of 20% fee on proceeds from events related to the protection of SCO's intellectual property rights.

Schopick: Yes. However, this most recent announcement, if I understand it correctly, does provide for a million dollars in cash and the issuance of 400,000 shares of SCO stock. That doesn't seem to be contingent upon anything.

Bench: The contingency in those events as we've disclosed previously include settlements, judgments, certain licensing fees, and the sale of the company, during the pendancy of litigation or through settlement and can include events such as the equity event that just occurred.

Schopick: Can? Or does ?

Bench: Err, you know, the future issues with this agreement have not yet been memorialized but they include events such as these, if and when they occur, and as you can recognize, a contingency agreement such as this, that is far-reaching, has many future events that may or may not occur and we really consider this much like a partnership as we move forward to protect SCO's intellectual property, and we would expect future events not dissimilar to come into place and we will, we will reach agreement on those as they, as they come about.

Schopick: Will there be a million dollar cash payment that will be recorded on your profit and loss, on your income statement, to reflect this agreement ?

Bench: Yes, that will recorded on, in our Q4 as stated in our press release.

Schopick: So it is not contingent ?

Bench: That event has already con . . . has already occurred, so it was contingent.

Schopick: And the issuance of the 400.000 shares was also tied to prior contingencies ?

Bench: That's right.

Schopick: OK. Thank you.

Moderator: Our next question will come from Jonathan Berr, from Bloomberg News. Go ahead please.

Berr: Oh, hi. Mister . . . Darl?

McBride: Yes.

Berr: OK, I... I was wondering if you could sort of give an update on where your li-, you know, the sales of the licenses are coming from and Linux users, how that's going along, and also for Mister Boies could you tell me how often your firm accepts fees or does business in a way that you do business with SCO? Is this unusual for your firm or not?

McBride: I'll take the first one there, David. We have been off meeting for the last several months with large corporate linux end users. The pipeline is very healthy there. We have done additional signups for linux end-user licenses. We haven't published those at this point. We have a number of folks that are in the evaluation process, and we definitely have a lot of interest in what's going on there.

Berr: Can you give me any num-, any more specific numbers?

McBride: We're not publishing those at this point in time. We are, are going through the process of, and, you know, at this time we are not coming out with additional numbers.

Berr: OK, and Mister Boies, can you answer the other question?

Boies: Sure. I, I think the summary answer would be that this is not usual but it is not unique either. The firm has a variety of ways it bills. Sometimes we bill on a normal, standard hourly basis; I would say that that is a minority of what we bill. We also bill sometimes with an engagement fee at the beginning of a representation, followed by normal hourly fees. Sometimes we do it strictly on a contingency fee basis, and then sometimes we do it on some mixture.

Berr: Gentlemen, there's been suspicion, you know, from linux users, that you guys are being funded, this litigation is being funded by Microsoft, or that you have been coordinating with Microsoft. I was wondering if Darl or Mister Boies would either care to address that?

Boies: I have not had any conversation, nor, in so far as I know, and I think I would know, has anybody from my firm had any conversation, either with Microsoft, or with Microsoft representatives. This has been entirely litigation that we have undertaken on behalf of SCO. and, obviously, the recent equity transaction, Dollar Series A Preferred transaction, is something that as I think Darl indicated, will provide adequate financing for the litigation without looking to any other companies.

Berr: OK.

McBride: SCO's perspective: We're one hundred percent driving our strategy here, uh, there is no connection with Microsoft on this. It, it is a favorite topic of the open source community. People love talking about this, because there are natural interests here. Anybody who owns an operating system that thinks it shouldn't be for free, uh, would naturally fall on this side of the table that SCO is on. So it is not just Microsoft, it is Wind River Systems, it's Sun Microsystems, essentially anybody who thinks that their valuable intellectual property in an operating system should have a price tag on it naturally lines up with SCO on this.

Berr: OK, that's all I have.

Moderator: Yeah, our next question will come from David Bank with Wall Street Journal. Go ahead, sir.

David Bank: Hi, two kind of related questions: First, back to the first question, if the payment that you've just recorded was a contingency, what was the settlement or event or something that triggered the contingency, and if it's rather for something going forward and you talk about a big expansion of the effort, what do you mean by the big expansion? What are you doing next?

Darl McBride: Yeah, let me take on the expansion side of this, David. When we came out with the agreement with David's firm earlier this year, in the, I believe the February/January time frame, we talked about protecting SCO's intellectual property, that basically turned into a scope that was very focused around IBM and the contract issues that we had with IBM and the related parties. We are on a very good course with that scope, we're set to be in a Utah federal court room for a jury trial about 17 months from now, April 2005 is when that will be heard, we're very pleased with the progress there, we're going through discovery, we're deposing witnesses, we like the course that that is on and David can speak more about where we are on the litigation side, but overall from a company standpoint we feel very good about that. Along the way, over the last several months, once we had the copyright issue resolved where fully we had clarity around the copyright ownership on UNIX and System V source code, we've gone in, we've done a deep dive into Linux, we've compared the source code of Linux with UNIX every which way but Tuesday, we've come out with a number of violations that relate to those copyrights and what you're seeing now is a memorialization of David's firm getting on board to go out and really enforce and protect our copyrights as it relates to the Linux operating system, so that's where we are now, getting David on board to go after this. This is not going to be something that is going to be measured in years, we do have copyrights out there now that are being broken, we have a situation with other settlement agreements with respect to the BSD case from a few years ago where we do have a legal settlement, we're in strong shape to go out and start enforcing these now and this is really what David and his team are going to be expanding their focus around.

David Bank: Uh huh. So the funds that you are providing them and the shares are for this expanded effort going forward? Am I just not understanding what contingency . . .

Darl McBride: We view this is an overall partnership here, David, as we look at the Boies firm. When we signed them up early on, our market cap was I think down around $17 million dollars, and we said we're going to go out and enforce our intellectual property, and as the company is successful along the way, there are going to be contingent events that happen. And if we have a license fee, as we succeed then the Boies firm will succeed. As we have success in the courtroom, the Boies firm will also share in that success. As we have an ability to bring money into the company in this particular case by putting consideration into David's hands we are now fully stocked to go after this next wave of enforcement issues.

David Bank: OK, am I just not understanding the technical meaning of 'contingency'? I thought that came after some kind of settlement came in. This sounds like it's before. So maybe I'm not understanding what 'contingency' means.

Darl McBride: Well, I think we did have, I guess what I'm focusing on here is we've had some successful events occur. We've had some licensing events occur and we've shared that with David. We've had some successful events to get some money in here, we've shared that with David. That's going to help us go out and fight this next battle, OK? So we've went out and said we're setting up for the long haul here, we've raised $50 million, we didn't raise $50 million to get CD interest sitting over in the bank. We've brought this money in . . . now in this case we're able to -- David's coming in at a partnership level, he's coming in, he's taking stock for the most part, he's coming in with his firm and we're going after this in a very strong partnership way, so we couldn't be more pleased with getting him on board with this strong partnership arrangement.

David Bank: OK.

David Boies: David Bank, this is David Boies.

David Bank: Hi.

David Boies: How ya doing?

David Bank: Good.

David Boies: I think the key thing as Darl is saying is the contingency is not simply a contingency with a final resolution. There are a series of contingent events, some of which have already occurred, which is why you have the stock and cash being paid, and we've agreed to take a obviously very substantial portion of what we would otherwise receive in the form of stock because we have confidence in where the company is going.

David Bank: OK. OK.

Moderator: Thank you, our next question will come from Scott Phillips, from Merrill Lynch. Go ahead, your line is open.

Scott Phillips: Ah, thanks. This question is for Mr. Boies. I wonder if you could bring us up to speed as to where we're at in terms of... I guess litigating and forcing the violation ? One would expect that we probably name a marquee defendant, maybe perhaps a Fortune-class company, who has a good deal of this Linux code in place and has not paid any licensing fees on to SCO, to move the case forward. Where are we along these lines and what, as investors, should we be looking for going forward here?

David Boies: Well, I think that your anticipation is exactly right. Which is that one of the things we will be looking to do is to identify a defendant that we believe will illustrate the nature of the problem. I don't want to try to identify that defendant on this call, for obvious reasons. But I think that you're exactly right, that that is an additional aspect of what will be happening. Now we're gonna continue to rigorously prosecute the existing litigation against IBM, but you will be seeing in the near term, and again I don't want to get into the specifics of the identification of the defendant or the specifics of the timing, but you will be seeing the identification of a significant user that has not paid license fees and is in fact using the proprietary and copyrighted material.

Scott Phillips: I appreciate the fact that you don't want to announce who might be on the short list . . .

Boies: We don't want them to duck the subpoena! [laughs]

Phillips: [laughs] Right, exactly. But you know,help, for the benefit of investors and the people on this call, conceptually are we thinking in terms of months, quarters, years? You know, what should we be thinking of in terms of when we could expect some motion along these lines . . .?

Boies: [interrupts] Well, I think you'd certainly be seeing that within the next 90 days.

Philips: Ok. Alright, well, that's gonna be interesting. Thank you very much. Good luck.

McBride

Boies: Thank you.

McBride: Next?

Moderator: And our next question will come from Brian Skiba with Deutsche Bank. Go ahead.

Brian Skiba: OK, great. yeah, just following up on actually the last call there, the last question, you guys approached about 1,500 companies earlier on this year and, you know, notified them that there may be some kind of an issue or a problem here. Would be right in assuming that those 1,500 would be the same kind of class of company that you would be looking at in terms of the next steps to pursue a remedy on this?

Darl McBride: That is the right starting point, Brian. We will start there. That's not going to be the ending point, but clearly large customers that have, that are using a lot of Linux machines inside of their environment would be the starting point for us.

Skiba: And, just in terms of, you know, in the event that those large customers also happen to be Hewlett-Packard customers, and Hewlett-Packard has, you know, stated that they're going to provide an indemnity to customers under certain situations. How do you see that playing out there in the, you know, will you be approaching directly the customer or Hewlett-Packard? How will that work?

McBride: Right. You know, HP is a good partner of ours as it relates to our UNIX offerings. We tried to work things out with them, to clean up the Linux problems that we see out in the marketplace. The issue is, it was going to be on the order of hundreds of millions of dollars to get a cleanup program in place, and I believe the financial decision on the HP side was, you know, they can write a lot of indemnification or they can cover a lot of expenses, be it through license fees that they're approached with from their customers or whether it's through litigation. I don't know yet from HP's perspective whether they want their customers to send them over an invoice that they would then pay on, or whether they are going to prefer that the HP Linux end user receives a lawsuit and then they follow up on that. So, that would be an HP question, but I was told it was going to be one of those two areas.

Skiba: And one last thing Darl, is the RTU license fee, in the event that you're going after these companies, is this a $1.400, $700, $200 type of fee per server? What kind of number are you --

McBride: We're talking on the order of $700 to $1,400. We have extended the $700, the $699 number, through the end of this calendar year, and as we continue to work through these issues, that's the kind of price we're still targeting. But there is an accelerated where it eventually kicks up to $1,399.

Skiba: OK. Thank you.

McBride: Yup.

Moderator: Our next question will come from David Politis.

Darl: Hi David.

Moderator: Just one second please . . .there.

David Politis: Bob, I have a question for you specifically to start off. Will you clarify again the contingency relationship with Boies, Flexner, Boies, Schiller, I'm sorry.. It's 20% based upon three different events occurring. Is that correct?

Bench: Thanks, David. There may be a number of events but some of those events that are specific would be any settlements, judgments, license fees, the sale of the company. And as I mentioned there may be future events which have not yet been memorialized but that will come about in the future. And thatís why I said that this, uh, this has to be an agreement that is somewhat flexible for those future events that may or may not occur.

David Politis: Understand that. And then, in connection with that, then, if my math is correct, 20% of 50 million dollars comes out to about 10 Million dollars, is that right?

Darl: Ah, yes.

David Politis: Yes. So does this nearly 10 million dollar contingent payment, is that tied back into the 50 million dollars that was announced here back in October, as far as a private placement?

Bench: I think that and and all of the benefits that have been derived and some of the other contingencies. But yes, that's certainly an event.

David Politis: OK. And then, a totally different question and this can be either for you, Darl, or you, David, Iím curious to know, given the announcements of last week, does your preliminary research suggest that any previous owner of the UNIX IP, the contracts, the copyrights, gave permission to anyone as far as modification of UNIX code or derivation of UNIX code into LINUX, specifically, for example, Linus Torvalds?

Darl McBride: I was with you until you said specifically Linus Torvalds. So, are you asking if Linus has rights to make modifications?

David Politis: Iím asking a couple of things. First of all, does your research suggest that any of the previous owners of the UNIXÖ

Darl McBride: [interrupts] The answer to that one is simply NO. Like in the case of Novell. When SCO bought the property from Novell, there was non-compete language in there that would preempt Novell from competing against the core offerings of SCO. UNIX is a core offering of SCO. Linux is a knock-off of UNIX. There couldnít be a more straight reading of a non-compete issue. When the Novell SuSE deal is complete, we will take the appropriate measures to enforce that non-compete at that point in time.

David Politis: And this same thing, to your understanding, traces back to AT&T when they had it as their UNIX Systems Laboratory?

Darl McBride: The same issue went from ATT to Novell. However, we do hold the exclusive ownership rights on those and there is a non-compete in place along the way to protect that.

David Politis: So, then, to extend your answer, would it also make sense to suggest that you do not believe that Mr. Torvalds had any permission to actually modify or to make a derivative work?

Darl McBride: No, we donít get any contract reading on that whatsoever.

David Politis: OK. All right, Thanks, Darl.

Moderator: Our next question will come from Paula Rooney with CRN, go ahead please.

Paula Rooney: Thanks. Darl, I think you just answered my question, but um, so it's decided that you will be suing Novell, or have you already started submitting that paperwork?

Darl McBride: I don't think it, I don't know that it necessarily turns into a lawsuit, uh, it depends on how Novell responds. Um, our, our view on it is that there is nothing to respond to yet because their transaction is not complete. When their transaction is complete, I guess it's not even a given that they will be violating a non-compete. I guess they could, um, choose to not, um, put a competitive, um product in the marketplace, meaning Linux. Um, but, to the extent that they complete the transaction, and they do what they say they are gonna do in terms of taking SUSE in, going out and competing with us, um, then yes, we'll take the appropriate measures and see how they respond.

Paula Rooney: And um, how many lawsuits do you have now? And against which vendors? I think we've got IBM, Red Hat...

Darl McBride: We have one lawsuit, out there right now, it's against IBM.

Paula Rooney: And what is the status of the Red Hat issue?

Darl McBride: The Red Hat issue is currently with a Delaware judge, and we're, we're waiting right now for some, some, some feedback from her, as I understand it.

Paula Rooney: Okay. Now Novell currently does sell Linux product in the marketplace, why not just move now?

Darl McBride: Ah, ah, you know they don't do a Linux distribution. They have Linux-related products, that's much different than, again you have to go back to the contract reading which is competing against the core products of SCO's business. When you do a Linux distribution you are directly in the middle of the crosshairs of SCO's core product.

Paula Rooney: Um-hmm, but you will be going after Novell, given that there is no settlement on a non-compete, purely a non-compete issue?

Darl McBride: All I'm saying is that we have a non-compete protection in our contract with Novell, and so to the extent that we have to enforce those once the acquisition is complete over there, then we will be prepared to do that.

Paula Rooney: Okay, thank you.

Moderator: Our next question will come from Larry Greenmeier with Information Week Magazine. Go ahead, please.

Larry: I just wanted to confirm the 400,000 shares that SCO is giving to the Boies law firm. What percentage, then, will Boies own of SCO, as a whole?

Darl McBride: Oh gosh. Bob, can you do a quick, ah, calculation on that against our fully-diluted?

Robert Bench: Ah, yeah, it's about 2.. 2 to 3 percent.

Larry: Does the Boies firm have ownership in any other software companies, or is this a, a unique arrangement, based on upon the, the, you know, law firm - client uh, relationship that's ... that's in place?

Boies: I, I don't think, umm, individual partners obviously have a lot of individual investments. The firm does not have this kind of investment in any other software company in this category. There would be internet companies, um, companies providing various internet services, um, that we have and do represent, where we would have an interest in the company either directly or through options or warrants.

Larry: Ok, so it's not unique in terms of technology companies paying lawyers in, in stock?

Boies:Right. Uh, er, um, ... I think it is ... I think it is, um, um, that is a true statement. Ah, um, and I think the implication of your question, which is that this is primarily something that happens with technology companies is correct. It is not ... it is not, um, exclusive to technology companies, but that's where it happens most often.

Larry: All right, thank you.

Moderator: Our next question comes from Harry [sic] Sullivan with Capital [International]. Go ahead please.

Sullivan: Yes, Larry Sullivan. Couple of questions. One, if the company is sold, what is the mechanism that pays the Boies law firm the additional 20%. Do you issue new shares? That's the first question.

The second question is, the Linux community is saying that they want to take the code out of Linux, and as you go through the IBM lawsuit, if you have to disclose the elements that are part of Unix that have been contributed into Linux, won't the Linux community just simply rewrite that? So what is the mechanism to disclose that code without losing your confidentiality?

And then the third question regards the legal milestones. You talked about some events. You talked about within 90 days identifying a defendent to illustrate the infringement. You talked about a, the legal case beginning in April of 2005. Can you just sort of walk us through all the milestones that we should put on our calendar to monitor, to gauge the success of the process?

Bench: Maybe, Darl, I could take the 1st question.

McBride: OK.

Bench: In a sale of the company there could be proceeds, Larry, from several ways. That could be stock of a new company, if they use stock to acquire this company, or a cash transaction. And the Boies firms would determine which method of consideration at that point in time. So a fairly simple methodology there.

McBride: (crosstalk) . . . other questions. We have gone through and shown the Linux community a bunch of code. We sat down in August and we shared with them the derivative works code that was out there and one sample file that was out there on a direct copyright infringement. The Linux community has said they have removed the copyright-infringed file. That was a very small number of the infringements we see out there, which will address the coming up version of the 2.6 kernel. It doesn't address the fact that the 2.4 kernel is out there today. Companies are copying, sharing, spreading that around. That, essentially, is not cleaned up, it is still out there as an issue. But more importantly, what we are announcing today is a substantial number of copyright issues that relate to a settlement agreement that is already in place around the BSD settlement from the 1994 time frame. As we move forward, we will be outlining those issues.

From a time line standpoint, one thing that you can expect to see from us, Larry, this is again separate from the IBM issues and the contract issues there -- by the way, we have shared the code in question there with IBM under the litigation event - they know what we're talking about over there. On the copyright front, expect us to be showing this to the end-use customers as we go forward as one event, and then also the, as David mentioned, you know, the set of customers that we will follow up on, in the time frame that David talked about.

Sullivan: OK, so is the endgame here that you will end up having to disclose everything that's included in Linux, you would hopefully get a very large payment from IBM, and then all of that infringing code would be remedied by the Linux community as they rewrite it, and then, thereafter there would be no claim? I guess I'm not understanding...

McBride: Yeah, as far as the claims go. You know, the sample code that we trotted out, not the sample, the one little file that we trotted out in August, we would agree that that was one that you could clean up easy, you could take it out. It's hard to take it out of versions that are out there now being spread around inside of organizations. That's a separate issue. But what we're talking about now are two sets of issues that are both broad and deep in terms of how substantial they touch and affect Linux. The one set of issues has to do with IBM's contract and derivative works. That is on a fuse for about a year and a half, and during that period of time then we will have some legal, something on a legal paper we can point to and everybody can say, OK that's how it turned out. If it turns out the way SCO is saying, the ability to yank a million lines of code, roughly, out of a five million-line kernel that's there today is substantial. When you take out the SMP, when you take out NUMA, when you take out RCU, you're talking not about hardened, unbreakable Linux. You're not talking about Linux that will run in an enterprise if you take all of that code out. So that's going to be a fundamental question they would have to ask at that point in time. Do we want to turn the clock back? Do we want to turn Linux back to where it was in the 90's? Or do we want to keep going, and pay some kind of an ongoing royalty fee to SCO.

In the short term, coming up over the next weeks and months, we are looking at these copyright issues that are touching end users. The GPL forces the copyright issues down on the end-user. And in that particular case, we will be showing code that is not easily remedied. And over the coming weeks here, you will see us outlining that, spelling that out, and then we'll see where they want to go from there.

Sullivan: OK, thank you very much.

McBride Right. (Whispering.)

Moderator: Our next question comes from Matt Whipp with Dennis Publishing.

Whipp: Hi, there. Just a quick question about the Linux invoicing. A month ago, I was talking to Blake and he said that SCO stopped invoicing commercial end users of Linux because he was very satisfied with the way things are going. He still seems to be satisfied with the way things are going, so can you sort of explain why you are bringing the legal firm in to making sure these things go a bit better?

McBride: Yeah. I think we never really did issue an invoicing plan. I know there was talk of that. What we have done instead of just sending out mass invoices, I mean the real issue with sending out mass invoices where you don't know exactly what everybody is using is, you know, you run the risk of not getting the invoice correct. We don't want to take that risk. So what we're doing instead is we are following up with companies on a one-on-one basis. We're going through their issues, we're working with them, and then based on that, we'll issue an invoice to them more individually and tailor-made. To the extent we go through these one-on-one issues with customers, and they choose to say I'd rather have a court hearing on this, so we can see if your issues hold up in a courtroom, then that's where the partnership we are announcing today with David kicks into gear, we hand those over to David, he takes that side of it and then we go down the litigation path.

Whipp: OK but not . . .so, I mean would you say something has changed in the amount of people are coming forward? Or? What is the the reason for this new policy, is really my question?

McBride: Well, the issue right now is, we've said if you go back to what we talked about in July, we were going to give people a period of time to license up. We have had some people license. Then we said we're going to move them into a litigation phase, so it is license or litigate, and what we're announcing today is that phase.

Whipp: OK, so this was kind of a scheduled thing all along?

McBride: Yes.

Whipp: OK. thanks.

CONCLUDING REMARKS

McBride: Ok, I believe that was the last call. Well, thanks to you for joining us here today. I guess just to summarize, we really do have two legal fronts here. One is the contract issue for IBM. You can set your clock for April 11th, 2005 on that issue. Uh, we feel good with the progress that's being made there. The second front has to do with copyright infringement issues at the end-user level that are tied into the use of Linux. That time frame for resolution, you can measure that in months and quarters... not in years. We've brought on the Boies firm to help us go out with that. SCO is extremely pleased with the value that it has received from David Boies and his team. We look forward to our continued partnership with him as we move forward to this important phase of resolving our IP ownership issues of UNIX that we have vis-a-vis the Linux operating environment. Thank you for joining us today.


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