SCO -- reaping the litigation whirlwind |

SCO -- reaping the litigation whirlwind


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It's Spring 2003.  I'm the Red Hat general counsel.  Total Red Hat revenues the prior year were less than $100 million.  Red Hat's loss on continuing operations was $17 million.  Only the year before did Red Hat launch its Advanced Server offering, the predecessor to Red Hat Enterprise Linux.  SCO Group is offering both its proprietary UNIX operating system and open source Linux operating system.  SCO's total revenues in their prior fiscal year were over $60 million, and their loss on operations was $24 million.  One could argue that based purely on their financial positions these two companies were about in the same place in Spring 2003. 

That was about to change.It was in Spring 2003 that SCO decided to sue IBM for, among other things, copyright infringement and breach of contract, and it was the beginning of the end of SCO.  Although SCO appears to have not yet quenched its thirst for litigation defeats, yesterday marked the latest and perhaps most important.  Yesterday, in one of the many pending cases involving SCO, a jury concluded that Novell, not SCO owns the copyright in the UNIX code which was, at one time, the property of AT&T.Let's review the string of SCO setbacks:

  • Case against Autozone dismissed with prejudice.
  • Still faces claims from UnitedLinux in Switzerland.
  • Case against DaimlerChrysler dismissed without prejudice.
  • SCO loses copyright claim to Novell, gutting much of their case.
  • SCO files for bankruptcy and remains in Chapter 11 two and a half years later.
  • SCO still faces IBM counterclaims; case stayed pending outcome of bankruptcy.
  • SCO still faces Red Hat claims; case stayed pending outcome of bankruptcy.

And where does SCO stand financially today?  In their last filed public annual financial report from more than a year ago SCO had revenues of $16 million, a loss from operations of $6 million, and only $2 million in current assets less current liabilities.Seven years ago SCO's management team took a flyer.  They thought they could tax Linux out of existence.  They thought they would become rich suing IBM.  They thought they could retain their customers by threatening to sue them if they left.  They had a grand strategy for victory . . ., but it didn't work out quite that way.  Perhaps there is still one more investor out there willing to buy SCO's story and to pump enough funds into SCO to continue this litigation lunacy.  Let's hope investors have wised up by now.  And, by the way, Red Hat is doing just fine, thank you.

About the author

Mark Webbink - Mark is the former General Counsel and Deputy General Counsel - Intellectual Property for Red Hat, Inc. At present he is a Visiting Professor at New York Law School, where he heads the Center for Patent Innovations, and a Senior Lecturing Fellow at Duke University School of Law.