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Darl's Dreams for the Future Amplified
Thursday, June 19 2008 @ 12:42 PM EDT

Yesterday, we reported that Darl McBride said that the plan for a reorganization is to spin off the "Unix assets" and leave him behind as CEO of the remnants of the company, that is, of the litigation. There are more details in the Daily Herald today, and apparently that is only one possibility:
Among proposals considered for the new reorganization plan is a possible spinoff or sale of SCO's Unix business, and allowing SCO to focus exclusively on its litigation with IBM and others....

"SCO is interested in selling the Unix business so it can continue unhindered by the litigation, that's one of the plans being considered," McBride said. "After reviewing the strength of the Unix customer base and Unix technology, Norris decided to buy the Unix business, and may spin it off into a separate company with a new name and new owners. SCO may become a holding company for ongoing litigation."

Hmm. A holding company with no assets? And when they lose, they will pay how? From the details, I think the dream is to pay Novell off from the proceeds of suing new Linux users, in a kind of a renewed SCOsource effort, if the Utah court rules a certain way. That would be ironic. Let me show you what I notice.

At the court hearing, SCO's lawyer said SCO could pay off any debt, even if it took ten years. But if they lose, what will they use to pay it off with? Or is that the plan, to have nothing to pay Novell with?

I think this might be telling us the plan: perhaps they want to be in a position to have nothing to lose, with nothing to pay Novell with immediately, so they set up a payment plan and then sue other people who do have assets, Linux-using companies, over claims involving whatever copyrights they think they have post-1995 and, depending on how the Utah court rules, with a renewed SCOsource.

I have formed the impression that to SCO Linux is an irresistible treasure box, filled with gold they crave so intensely, the dream won't die. And somebody wants Linux to be under a cloud, by hook or by crook, so delay is a plus. It's obviously not just Darl.

Of course, this is SCO talking, and that means it might be as ephemeral as the summer breeze wafting through my office today. Some of what he said makes little sense to me. Darl says, for example, that it might take 6 to 8 weeks to get the documents for a plan ready to file, starting with the moment the judge in Utah issues his ruling in SCO v. Novell. Like SCO can't possibly prepare them now for various contingencies, since the amount is unknown but quantifiable at its lowest and highest end. I know. They are trying to economize so they don't run through all of Novell's money. Har har. Speaking as a paralegal, I can tell you that lawyers do that all the time, prepare documents with various paragraphs that stay or go, depending on what happens in negotiations.

Unless SCO knows there will be no deal at all if SCO doesn't win certain things in the Utah litigation. Hmm. Now there's a thought. One thing is crystalizing: Stephen Norris and friends don't appear so eager after all.

It does seem to me that Novell is right, that this is all largely about delay, with a gambler's willingness to accept any odds rather than quit. Gamblers are like that. And the judge in Delaware is going along with delay for now, so delay it is. I don't personally care about delay. I decided years ago, I am here for the entire ride, and I want to be there to watch the end game.

Something SCO's lawyer said at the hearing takes on more meaning to me now. Here's what our reporter at the hearing MikeD told us Spector said to the judge:

He spoke about the fact that "How much - if anything" SCO owes Novell from the Utah case has not been decided. He spoke about how this was a unique bankruptcy case. SCO received a devastating litigation result last year in Utah. There are many uncertainties that have not been decided beyond just the financial aspects of the Utah case regarding what they do or do not own.

See how he is indicating that the amount owed to Novell is not the only uncertainty? So, what else? What pops into my mind is the question of whether or not SCOsource was about System V or whether the court accepts SCO's argument at trial that it was licensing what SCO owns, not what Novell was found to own. There are other uncertainties, too, but this is the one that stands out to me in connection with SCO going forward as a litigation company. If Utah rules that the smaller SCOsource licenses, like EV1's, were not SysV licenses, presumably SCO could begin going after future licensees. It might indicate that they hope to free SCO up to start bullying folks again, with SCOsource or a renamed cousin. That was Darl's dream, after all, billions from Linux, without having to do a thing. Here's what Darl said at his deposition on March 27, 2007 [PDF] in SCO v. Novell:

Oh, we had -- usually I would sit down and go through it on the white board with Chris or Bob Bench. You know, guys on the finance side. We would kind of lay out what the number of units of Linux were that were in the marketplace against what our list price was for the SCOsource license, reduced by any kind of discounts that we might give for volume or for being an early adopter. And it was usually a pretty big number that we were talking about....

I remember that the models were showing -- we would look at IDC numbers, and there were X millions of servers and growing at a certain rate. And I remember specifically 4 million servers going to 6 million servers over some time frame. I'd have to go back and refresh what the time frames were, but I remember bracketing if you've got 4 million servers against our list price of $700, you multipy that out, you get $2.8 billion. If you go up to the full list -- or the list price against the 6 million then you are talking about $4.2 billion. So it was always -- it's a ridiculously big number. So okay. I guess we could get finite on whether the number is $5 billion or $1 billion or $6 billion. The point is it was a lot of money for the company, and the size of company that we were.

In short, SCO would like to spin off the business of selling Unix assets and focus on its real interest, being an IP troll. IP trolls have no assets that anyone can go after. It's how it works. They set up that way deliberately, and that is one reason so many are calling for a change to patent law. Maybe someone needs to look at copyright law too. Currently, it seems to inspire greed, for starters.

SCO, then, is planning to set itself up as a copyright troll, or so I now believe. That would make them free to bully with no financial consequences to themselves. What is the worst that can happen if you have no assets but some copyrights? Unless there is a way to pierce the corporate veil, which there may be, for IBM and Novell and the current victims of the dream. Here's an article that mentions, for example, a couple of issues that make it possible to pierce the veil:

Corporate shareholders and officers are generally insulated from personal liability for the corporation's debts. This limited liability is metaphorically known as the "corporate veil." But the veil is not an absolute shield. Under certain circumstances, a court may pierce it to hold a shareholder or officer personally liable. Piercing is most commonly done when a corporation is the shareholder's "alter ego" and is a sham or fašade used to evade creditors or commit fraud.

That might end up being a necessary effort, looking at the current SCO strategy, if I've understood it correctly. They won't stop unless someone forces them to stop. I don't see anything else that would disincentivize SCOfolk. So hopefully Novell and IBM and Red Hat are doing some creative contingency planning of their own.


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