SCO Group, whose 6-year-old legal case arguing Linux infringes its Unix copyright hasn't been enough to keep it from bankruptcy court, nevertheless won an important victory in its case Monday.
A skeptical federal judge earlier had ruled that Novell had retained Unix copyrights when it sold its Unix business to the Santa Cruz Operation, a company whose Unix assets SCO Group later acquired. But the appeals court overturned that decision, based in part on a close reading of the Unix asset purchase agreement, sending the matter to trial for a decision. The appeals court did uphold a ruling that SCO owed Novell royalty payments, though, according to a 55-page filing.
SCO Group Chief Executive Darl McBride, who's been demonized by the Linux faithful, was happy with the decision. "Today is not the end of the war but it certainly is a key battle that we've won," he said in a statement in the Salt Lake Tribune. "Now it's time to move on to the next series of battles with our victory in hand."
A bankruptcy court judge has denied a request by the SCO Group to sell off part of its business, a move that could have helped it pursue court cases against Novell and IBM.
SCO, which has been in bankruptcy court since 2007, had proposed to sell off most of its Unix business assets to a company called Unxis, the latest in a series of proposals aimed at allowing the company to exit bankruptcy and continue its high-profile Unix litigation.
IBM and Novell, on the other hand, had requested that SCO's assets be liquidated, effectively putting an end to the cases against them.
On Wednesday, U.S. bankruptcy court judge Kevin Gross denied both motions. Instead, he appointed a trustee to take control of SCO and evaluate how the company should proceed in its efforts to exit bankruptcy protection. Part of the trustee's remit will be to evaluate SCO's chances of winning its Unix case, Gross said.
"The 'potential' of the litigation must...be weighed against the reality of the cost," Gross wrote. "A trustee will be in a better position to make that assessment without the personal and emotional investment of SCO's management."
In 2003, SCO launched a lawsuit against IBM, saying the company infringed on SCO's intellectual property by including code from Unix in Linux. However, in 2007 a judge found that Novell, rather than SCO, owns the copyrights covering Unix. As a consequence of that decision, Novell is pursuing SCO in court for a share of the fees SCO received from licensing Unix to Sun and Microsoft.
Gross noted that since 2007, SCO has offered several plans for reorganization and then withdrawn them, and argued that the latest sale proposal "calls into question whether the sale has a sound business purpose and raises doubts of the parties' good faith."
It is now necessary for a third party to take charge, according to Gross. "No one can fairly argue that the court has not been patient with the debtors. The court is now unwilling to continue to wait while debtors' losses mount," he wrote.
SCO had proposed to sell its Unix business for $5.25 million (3 million British pounds), keeping only its mobile applications business, which the judge deemed "virtually worthless." He said SCO's officers had "bet the company" on the litigation, which would be SCO's "sole business" if the Unix assets were allowed to be sold.
In a statement, SCO said it was reviewing the decision and evaluating its options.
Matthew Broersma of ZDNet UK reported from London.
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Update at 9:13 a.m. PDT, with IBM comment and Sun's stock price.
With Sun Microsystems reportedly in merger talks with IBM and its stock soaring as high as 83.7 percent in morning trading, Sun's largest shareholder may find its activist role is paying off.
Southeastern Asset Management, which holds a 22 percent stake, announced in October that it was seeking an active role in the company and would engage in talks with not only Sun's management but also third parties, in an effort to maximize shareholder value.
That was followed in December with an announcement that Southeastern would gain two seats on Sun's board of directors.
In landing two board seats, Southeastern's vice president and principal, Jason Dunn, noted:
Southeastern adding two directors to (Sun's) board further strengthens our conviction that Sun will take maximum advantage of all its opportunities for customers and for shareholders.
Shares of Sun jumped as high as $9.13 per share in morning trading, valuing the company in excess of $6.7 billion. But based on Tuesday's close, before news of reported merger talks surfaced, Sun closed at $4.97 a share with a market cap of $3.7 billion.
IBM is reportedly considering a cash deal of at least $6.5 billion, according to a report Wednesday in the The Wall Street Journal, which first reported the merger talks.
Sun's stock--the blue line here--slumped through 2007 and 2008, and through that time has been underperforming the broader markets.
Since October 2007, Sun's stock has headed southward and underperformed the broader markets. And in the fall, it dipped below $5 a share, further compounding its problems in attracting institutional investors.
For Southeastern, which has a reputation of wearing a velvet glove with the companies in its portfolio, the decision to take an activist role in Sun may ultimately pay off should the deal with IBM go through.
Southeastern and Sun were not immediately available for comment. IBM declined comment.
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