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What To Do About SCO? Let's Spend More Money on Professional Advisors
Saturday, October 03 2009 @ 10:06 PM EDT

I have a friend whose theory of life is that when you are down to your last $100, rather than skimping, you should go out and spend it on a luxurious, wonderful meal, because afterwards you'll think of something. SCO's Chapter 11 Trustee must be a kindred spirit.

Mr. Cahn has filed with the bankruptcy court an application to hire a financial advisor/investment banker, Ocean Park Advisors, to advise him on what he should do about SCO. Should they reorganize, sell off and shut down or what? It's complicated. Not to mention expensive. Wait. Does SCO have any money it doesn't already owe to someone?

Here are the filings, including also a quarterly bill from Pachulski Stang:

10/02/2009 - 923 - Application to Employ Ocean Park Advisors LLC as Financial Advisor and Investment Banker Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. Hearing scheduled for 10/23/2009 at 10:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 10/16/2009. (Attachments: # 1 Notice # 2 Exhibit A # 3 Proposed Form of Order # 4 Certificate of Service) (Fatell, Bonnie) (Entered: 10/02/2009)

10/02/2009 - 924 - Quarterly Application for Compensation (Seventh) and Reimbursement of Expenses of Pachulski Stang Ziehl & Jones LLP, as Co-Counsel to the Debtors and Debtors in Possession, for the Period from April 1, 2009 through June 30, 2009 Filed by Pachulski Stang Ziehl & Jones LLP. Objections due by 10/22/2009. (Attachments: # 1 Notice # 2 Exhibit A # 3 Exhibit B # 4 Exhibit C # 5 Proposed Form of Order # 6 Certificate of Service and Service List - Fee Application# 7 Certificate of Service and Service List - Notice Only) (Jones, Laura Davis) (Entered: 10/02/2009)

In the application, it says this is the why of it:
7. Prior to the Petition Date, sales of the Debtors' UNIX-based products and services were declining due to financial difficulties and other factors, which culminated in the filing of these chapter 11 cases. In addition, there has been negative publicity surrounding the litigation relating to the Debtors' ownership of UNIX and related copyrights that has, to some degree, hampered the Debtors' ability to compete in the marketplace.
That's not why. The company never made a profit ever, except the quarters when Sun and Microsoft got SCOsource licenses. Most of us have never believed that was about obtaining Debtors' UNIX-based products. We saw it more as an anticompetitive misuse by proxy of the courts. And we don't believe SCO owns UNIX or the copyrights.

Which marketplace, by the way? The litigation lottery? You need a competitive offering to compete, and SCO chose to use the Sun and Microsoft money to pay lawyers instead of techies. People noticed.

I think SCO has been bawling about its lot in life, but why has there been "negative publicity" surrounding the litigation? The main reason is because Darl McBride filled a couple of notebooks, which he proudly brought onstage in 2003, with his allegations about mountains of code allegedly improperly copied into Linux. He got a lot of favorable press at first, but then SCO couldn't prove their allegations. That mountain melted like the Wicked Witch of the West into a puddle of more or less nothing when exposed to the bright light of discovery.

That can lead to bad PR. But SCO isn't the victim of that story; it was the initiator. Cluebat for you: If everyone is saying that SCO is a donkey, might it be wise to consider whether it is just possible SCO *is* a donkey? Six years later, SCO still hasn't shown the public the code they promised they *already had* in 2003. What might that mean?

If SCO wishes to alter the negative PR, show the code. Oh, and prove the copyright ownership. By that I mean, prove the provenance of the code, each hop starting with AT&T for each file claimed, if any. No. Do it, if you can. I'll bet you can't. The old stuff SCO is talking about is, I believe, supposedly in SYSV4.2. Prove the ownership of errno.h, for example. I'd like to see that. Then ask yourself, is there any valid copyright on it, let alone who owns it. SCO smeared the good name of Linus Torvalds, after all. That leads to negative publicity right there.

Show the code, and while you are at it, please explain why it's acceptable legally to insist that allegedly infringed copyrighted code remain in Linux with SCO charging license fees to time indefinite on code no one wants, instead of showing the code so it can be removed? Is that how copyright law works? Since when? That's even if SCO owned the copyrights. A scheme like that invites derision. And it did.

The filing continues:

8. Since the Appointment Date, the Trustee has spent considerable time familiarizing himself with the Debtors' operations, financial condition and pending litigation. The Trustee has determined, in the exercise of his business judgment, that the complexity of the financial difficulties require him to employ experienced professionals to render the Services in connection with these chapter 11 cases.
Good idea. But what kind of professionals? How about some techies? And don't pay them a thing. Money twists some people into willing knots. Just ask any UNIX graybeards or Linux kernel guys any technical question at all about the merits of SCO's case, and you'll get only one answer, the one Linus gave a long time ago: They are full of it.

Not understanding the technical side of this litigation is the only thing that I think can lead to any confusion. So if you'd like a friendly tip, find technical advisors and then you'll know exactly what to do.

Instead they hope to hire advice about how to either get SCO on its feet, hardy har, or sell off its assets. SCO didn't find a buyer for its patent, I gather, since that is one task listed as a possibility. And then here comes a mention of Mr. Norris again, believe it or not, and after the court already told us that the prior "offer" was not made in good faith.

Well, if at first you don't succeed, try, try again, I gather. I'd look into those financials rather carefully if I were you. Then follow the money. We'd all like to know who it is that is so determined to shackle Linux to a troll.... oops.... I mean to a toll bridge.

So, what are the terms? This is a deal worked out between the Chapter 11 trustee and OPA, as they refer to Ocean Park Advisors, recognizing "the substantial efforts that will be required of OPA." SCO is a hard sell, all right. You can read the various tasks contemplated on page 4 of the application, things like reviewing SCO's "business, operations and financial results" -- that sounds like a gloomy prospect -- and then advising the Trustee about "potential Financing Transactions" or maybe coming up with a plan to restructure the debts or liquidate the assets.

They'll be paid on an hourly basis, with the Managing Director getting $400-$500 an hour, the VP $250-400, etc. down the line. There is a retainer of $40,000, which I assume comes from the money the Utah District Court ruled was owed to Novell. What about "Sell Side Services" compensation?

Sell Side Services refer to things like "determining the value of its intellectual property". *That* might take a while. Also it would include "evaluating potential purchasers" and maybe conducting an auction. Well, look on the bright side. At least Berger Singerman won't be running the auction.

Sell Side is maybe not going to happen. But if OPA is asked to do any such tasks, they clean up quite nicely. First they get a retainer of $30,000. If the sale doesn't close within 90 days, they get another $30,000. That might slow things down, don't you think? How about a bonus instead for doing it quickly? But get this: the retainers are "fully earned upon payment thereof, whether or not a successful Sale Transaction occurs". Nice work if you can get it. This is a case where it pays *not* to work at all.

If they work on a Norris deal, there's no retainer obligation. I guess that would mean that Norris is being given the inside track, in that it's cheaper to sell to Norris than to anyone else. Not that SCO hasn't paid a fortune already on Norris deals.

If they sell that patent for the Trustee, OPA gets 15% of the deal, but with a minimum "Success Fee" of $60,000. Why anyone would buy a patent until after the Supreme Court rules in Bilski is a mystery to me. So that might be a well-earned 60 grand.

If the Trustee "consummates an Asset Transaction," OPA gets $150,000 as a "Success Fee" plus 1.5% of the Aggregate Consideration. By that last they mean this, defined on page 7:

(c) For purposes hereof, the term "Aggregate Consideration" means (x) the total amount of cash and the fair market value (on the date of payment) of all of the property paid and payable (including amounts paid and payable in respect of convertible securities, preferred equity securities, warrants, stock appreciation rights, option or similar rights, whether or not vested, plus (y) the principal amount of all indebtedness for borrowed money or other liabilities of the Company and/or other relevant entities, as applicable, as set forth on the most recent balance sheet, or, in the case of the sale of assets, all indebtedness for borrowed money or other liabilities assumed by the third party.

Aggregate Consideration shall also include the aggregate amount of any dividends or other distributions declared by the Company and/or other relevant entities, as applicable, after the date hereof, and, in the case of the sale of assets, the net value of any current assets not sold by the Company and/or other relevant entities, as applicable. Aggregate Consideration shall also include all amounts paid and payable in respect of any license, royalty, non-competition or lease agreements.

For purposes of calculating Aggregate Consideration, (i) all equity interests will be deemed transferred where a Sale Transaction is effected by the transfer of equity interests, (a) constituting more than 30% of the then outstanding equity securities of or equity interest in the relevant entity, or (b) possessing more than 30% of the then outstanding voting power of the outstanding equity securities of or equity interest in the relevant entitity, and (ii) the value of securities (whether debt or equity) that are freely tradable in an established public market will be determined on the basis of the average closing price in such market for the 10 trading days....

I give up. There is no way to hand type such stuff and stay awake. So read the rest as it drones on and one in the PDF. But you catch the drift. No? I read it that they know how to think of every last way to get every last dime owed them. They didn't just have to type it; they had to think of it all. That's not a bad thing in and of itself, but when SCO has no money to pay its debts now, one can't help but wonder when the money spigot for professionals gets turned off.

Like I say, just go into the server room and ask your techies what SCO's claims are worth. They'll tell you. For free. And in the end, when they're proven right, you won't have to pay them a "Success Fee" either.

Yes, I'm kidding around. But underneath, there is a serious point. The key to evaluating SCO's worth is to grasp the tech, know the history of UNIX and Linux, and understand how the GPL works. Because the simple truth as I see it is, the GPL scuttles SCO claims, all of them, no matter who owns the copyrights. If OPA wants to know why the GPL has that effect, I suggest contacting the Software Freedom Law Center. They can explain it to you.


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