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To read comments to this article, go here
A Little Context on the Stock
Wednesday, May 02 2007 @ 11:15 AM EDT

I know there is a lot of feverish interest in the delisting notice SCO got from Nasdaq, because I am getting a lot of email. But here's why I am not joining in much. First, I know nothing about the stock market, so I'd be foolish to pretend to understand one thing about it.

Second, I remember what SCO said back in 2003 in a quarterly filing with the SEC:

LIQUIDITY AND CAPITAL RESOURCES -- Since inception, we have funded our operations primarily through loans from our major stockholder and through sales of common and preferred stock. During the first two quarters of 2003, our operations produced positive cash flow for the first time in our history. Although we believe that we will have sufficient financial resources to fund operations for the remainder of fiscal year 2003, however, if we are unable to continue to generate positive cash from operations we will not be able to implement our business plan without additional funding, which may not be available to us.

So I figure SCO will find a way to keep going. The major stockholder is, presumably, Ralph Yarro, the Chairman of the Board. So, while it may be of casual interest to me to hear about a possible delisting, what I care about is the litigation. That's my beat, and I can't see SCO not funding that to the bitter end by hook or by crook, so to speak.

However, part of what we are doing here at Groklaw is telling every significant bit of SCO's story, and it is notable that the stock is now lower in price than it was when the litigation saga began, as you can see from this interview in November of 2003 when McBride crowed about the stock price going up to Barbara Darrow of CRN. You will remember Ms. Darrow, from Microsoft's list of "balanced" journalists. Anyway, McBride told her that the stock had jumped from about a dollar to $14 at that point. Yesterday, SCO closed at 0.83. So, after all those notebooks of media clippings, the stock is lower in price today than when it all began. That doesn't mean some folks didn't make out like bandits along the way.

Here's a snip from the interview:

CRN:You're paying David Boies [of Boies, Schiller & Flexner LLP] about $9 million to pursue your claims against IBM?

Darl McBride: We are giving him 400,000 shares of stock and $1 million in cash. When I said we have $60 some million in cash [on hand at SCO], reduce the cash by $1 million and we take non-cash charge. David comes on, he's now a shareholder, he's rowing with us, and let's face it, he's added significant value to our company since February. Our stock was around a buck, now it's $14. That's some of the best money we've spent, not even money, some of the best stock we've issued. Now we're broadening our scope and going after the cleanup project. The breadth of damage that's been done here, it's like cleaning up the Exxon Valdez... the code violation that is going on inside of Linux between derivative work, copyrighted work, it's not unsubstantial.

Ah, yes. The good old days, when SCO could say whatever it wished and it would get published like God's words on stone tablets.

So. Where is that code violation, SCO? That mountain?

No. Really. Exactly where? Line, file, and version please. Thanks.

As you'll recall, the Boies Schiller firm later decided it preferred stone cold cash up front instead of stock. Maybe it saw some handwriting on the wall? If so, it was suitably advised. There's another little snip I can't resist reminding you about. SCO has pushed the idea that the only reason Open Source members have taken a stand against SCO's litigation tactics is because IBM makes us do it. Notice that Darrow expressed otherwise:

CRN:Are you trying to evangelize them [VARs] to speak out in your behalf? It's clear the open source crowd needs no encouragement to tell their side of the story.

McBride: My first reaction was we needed to create a counterbalance [to the vocal open sourcers]. We're on the side of the silent majority...but at the end of the day it's around who's right. We're rock solid on our claims... and we're not sitting here day in day out trying to counter the stones being thrown at us. We have a business to run. Our employees are reenergized around the movement back to Unix, reenergized around the role SCO is playing... . Our roots in the Unix business are strong and won't be blown over by a little bit of Linux wind.

CRN: Conspiracy theorists say you guys are acting as Microsoft's pawn against open source and the General Public License [GPL]. Can you comment?

McBride: The funny part is we didn't even talk to Microsoft about this outside the normal public interest level things... when we talk to them it's about what's happening in the marketplace. [I know] there is this feeling that something's happening here....

CRN: What is the 'Chicago 7'?

McBride: All the big guys, HP, IBM, Oracle, etc. (For more on the Chicago 7, see story.) Or look at the massive amount of money IBM is pushing into Linux companies all over the world.... IBM is the master of creating an illusion that they're being attacked by this big brutal bully SCO when they're the ones attacking us. They're the ones doing all the behind-the-scenes work.

Well. I wouldn't say *all*. I believe I have chronicled some behind-the-scenes work by SCO and the gang. And Darl did say he saw a need to create a "counterbalance". Whatever did he have in mind? Funny about that word "balance". I don't think it means what they think it does. But if I were Novell, I'd want to know more about exactly how SCO did create a counterbalance, because I'd want to measure excessive publication in the slander of title counterclaim. If SCO used others and encouraged others to push SCO's message, it might just matter to the case. [ Update: I might, for example, be interested in who three blind mice is in real life. Look at his output and his endurance in attacking me, despite my having answered him on that last link, and then consider his argument that no one would volunteer one's time without being paid money.]

And as for SCO's fantasy about the so-called Chicago 7, all of them have now testified that SCO is simply wrong about what happened and who said what. There was no conspiracy. Once again, it was, it seems, more about what McBride imagined than anything in reality. And I've just carefully traced for you proof that SCO's unfounded paranoia about Groklaw and its nonexistent "untoward relationship" with IBM was entirely inside SCO's imagination.

A little truthiness on McBride's part there, I'd say, as to Microsoft. Not even that. Mike Anderer and BayStar's Lawrence Goldfarb have already told us about Microsoft's role, so it's hardly a "conspiracy *theory*" that Microsoft was enthralled with the idea of SCO suing IBM and saw an opportunity to be helpful. I'd call it more a line of evidence in the litigation. Unfortunately, Mr. Anderer's deposition is sealed. "We didn't even talk to Microsoft about this..." Wow, Darl. Wow, indeed.

Anyway, that's the story about the delisting. As Steven J. Vaughan-Nichols points out, there are many steps to go even if a delisting does happen, so it's not anything firm, by any means. And SCO won't stop in the litigation, I don't believe, until the court stops them or they go into bankruptcy and the trustee hits the brakes.

I loved the detail in the Darrow interview where Darl says that the lawyers were "sharpening their steak knives" to go after the GPL. Mwahahahahaha... It's a funny thing, but it seems to be very hard for lawyers to understand the GPL. They are like Keystone Kops in their pursuit. Maybe it was a good thing they don't understand it. It keeps them cutting away furiously at the plate instead of the steak.

Anyway, I hope SCO stays listed, personally, and smack dab in the spotlight. I prefer to track publicly traded companies. It's a lot easier. Finally, just to be clear about what this was all about, I give you the wisdom of Darl McBride:

McBride: ... Our belief is that SCO has great opportunity in the future to let Linux keep going, not to put it on its back but for us to get a transaction fee every time it's sold. That's really our goal.

A noble dream, indeed, m'lord. To be paid for other people's work, contrary to their expressed wishes, without having to do any work yourself. Whatever happened to making money the old-fashioned way? That part of SCO's dream is dead and buried, I'd say. No, wait! It lives! It is resurrected in the Microsoft dream to be paid for patents it claims it holds covering functionality in some unnamed applications that run on Linux. Or something like that. Microsoft has been a little vague on the details. I certainly think the Supreme Court's recent ruling on obviousness opens up a rich and fun-filled future [note Legal Pad's Roger Parloff's take, also in News Picks]. Like the FAT patent, for just one example. That was the issue PubPat raised on that patent, obviousness, as well as prior art. Although the USPTO in the reexamination process finally upheld the patent, that was under the old patent understanding of obviousness, and it wasn't in a court of law. The new Supreme Court ruling seems to open a door to take a closer look at all previously issued patents under the newly declared standard. Vonage, for example, has already filed a request for a retrial, based on the Supreme Court's decision on obviousness. Even after the FAT patent was upheld at the USPTO, PubPat's Daniel Ravicher said this:

Public Patent Foundation President Dan Ravicher said his organization disagreed with the Patent Office's conclusions and offered a broader critique.

"Microsoft has won a debate where they were the only party allowed to speak, in that the patent re-examination process bars the public from rebutting arguments made by Microsoft," he told CNET News.com. "We still believe these patents are invalid and that a process that gave the public equal time to present its positions would result in them being found as such."

Like in court, I believe he meant. I think it's clear there will never be another FAT patent properly issued. That brings to mind the soon-to-begin Peer to Patent review project. Microsoft has agreed to have the project examine some of its patent applications, and it is a sponsor of the project and a participant since October:

The Institute for Information Law & Policy at New York Law School announced today that companies holding more than 6% of the total number of this year's patents will submit their patent applications for "open peer review" under a pilot project at the United States Patent and Trademark Office (USPTO). GE, HP, IBM, Microsoft and Red Hat, the Lead Sponsors of the "Community Patent Review" initiative, will allow some of their patent applications to be reviewed by the public and consent to have public commentary submitted directly to the USPTO for official consideration. The pilot will launch in early 2007 and focus on published but not-yet-granted patent applications relating to computer software.

Microsoft is perhaps going over its list and checking it twice as we speak. But I know if Microsoft asked me to sign any patent peace agreement, I'd now certainly insist on them providing some evidence that the specific patents claimed would stand up to obviousness scrutiny. And I would certainly make them be specific, precisely because of the new ruling by the highest court. None of that "maybe someday a patent somehow might be infringed" stuff. Ah, the larks ahead! O frabjous day! Thank you, Supreme Court.

I hope you also noticed that FSF's Brett Smith yesterday on Groklaw said:

Microsoft provides coupons for SUSE to companies, who then go to Novell to redeem the coupons and get their copy of the software. Those coupons procure the conveyance of lots of free software.

Our lawyers have seen the terms of the deal under NDA—unfortunately, they're still secret—but they're confident that Microsoft is already conveying GPLed software under this agreement. The coupons are the most direct proof; there is some other evidence to support that idea as well.

The patent bullying has definitely diminished in scope and conceivable effectiveness, I'd say, as of this week.

The question is how much will SCO have to pay for saying such things to the media? That Darrow interview helps IBM to quantify as of November of 2003:

VARBusiness: Are customers changing their Linux purchasing pattern since SCO sent out warning letters?

McBride: A research report came out saying 80 percent of users had not slowed down. Our take on that is 20 percent have. So one out of five. We sent out our letter three to four months ago and in that period, one out of five have changed. We think that's significant. We only mailed letters out to 1,500 companies. I would argue that is one out of five out there...it could be 100 percent of all[the companies] we sent it to, we don't think that's actually the case. Anecdotally, I can tell you... it has an impact. People are concerned. One transportation company said, 'We don't want to be on the wrong side of you guys on this. What do we do to get clean?'

So, at least that's a nice starting point for IBM. Ah, the mainstream media. How much of what Darl said came true? Um...nothing so far? So, where were the hard-hitting questions asking him to substantiate *anything* he said? Ladies and gentlemen of the jury, I rest my case.


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