Fact and fiction in the Microsoft-SCO relationship

(continued from previous page)

And what's been the impact on SCO?
Despite the investment, SCO's fuel gauge is sliding toward empty.

The legal action pushed SCO's stock from less than $3 to a peak of $22.29 last November, but it hasn't fared so well since. The shares closed at $3.45 on Friday, giving the company a market capitalization of $57 million.

SCOsource brought in $678,000 in the second quarter but cost the company $7.4 million in legal and other expenses. SCO had expected the program to generate more revenue in the future, but it now acknowledges that SCOsource hasn't met expectations.

BayStar and RBC provided a major boost to SCO's bank account, but Microsoft and Sun Microsystems--which extended its Unix contract in early 2003--arrived during a clutch moment. According to SEC filings, Microsoft and Sun provided nearly a third of SCO's $79.3 million fiscal 2003 revenue--$16.6 million from Microsoft and $9.5 million from Sun.

At the time, SCO's financial reserves were dwindling. Cash and marketable securities dropped from $9.6 million on July 31, 2002, to $8 million on Oct. 31, 2002, then to $4.9 million on Jan. 31, 2003. When SCOsource payments from Microsoft and Sun started rolling in by the end of April, cash perked up to $10 million--just in the nick of time, since operating expenses that quarter were $11.3 million.

Is SCO a technology company or a litigation shop?
The company still sells its Unix products, but they aren't widely used, and several legal experts believe the company can't withstand a legal loss.

"You have a big company beating up on a little company. You put that up in front of 12 people in Salt Lake City a year from now, and we like the outcome of that."

--Darl McBride
CEO, SCO

Technology played second fiddle to intellectual-property enforcement in the quarter ended July 31, when SCO spent $2.5 million on research and development compared with the $7.4 million for SCOsource.

And SCOsource spending isn't tapering down. In March, McBride said SCO has "a budget now where we spend $2 million to $3 million a quarter on SCOsource, with an upside measured in the billions. We're halfway through (the schedule) right now. If it takes another year, you're talking about an $8 million to $12 million investment."

But in June, McBride said SCO is going through its money faster, budgeting $3 million to $5 million per quarter for SCOsource. Even that rate was well under the $7.4 million the company actually spent by the end of July.

SCO's agreement with its lawyers now protects its cash balance--though Decatur Jones analyst Dion Cornett estimates the company has only $8 million that's not earmarked for legal expenses.

In the end, though, SCO thinks it has what it takes to prevail.

"We think, and from talking to Boies, he thinks our case is one aligned nicely for jury trial," McBride said. "You have a big company beating up on a little company. You put that up in front of 12 people in Salt Lake City a year from now, and we like the outcome of that."

[fgoldstein]

Steve S really doesn't get it

Once again, a Steve Shankland article uses the childish bad-journalist definition of "objective" to totally muff a story. An article is not objective if, in reporting a dispute, it give equal credence to both sides, regardless of however imbalanced the evidence is. A good journalist calls a spade a spade. Yet here, Shankland acts as if SCO had a good case, and ends with an old quote from Darl McBride that implies that the case is headed to a jury. That is *extremely* unlikely. None of SCO's cases are that strong -- the countersuits are more likely to get there, with SCO as a defendant.

He also mixes up the AIX/Monterey issue with Linux itself. Most of the SCO suits are around Linux, except when they are losing, and claim that they're about an IBM contract. These are two distinguishable issues. There is a shadow of a case concerning IBM's role in Monterey, if they acted in bad faith in pulling out and recycling the code against what an alleged contract said. That remains to be seen. It's doubtful, but it has nothing to do with Linux.

The Linux issue began with McBride's asssertion that there were "millions of lines" of SCO-owned code in Linux. This falls flat on its kiester for various reasons:

1) There are zero lines of copyrighted Unix System V code in Linux; SCO never produced any, even after repeated discovery requests. (There are some lines in common, of course, but they're not subject to copyright, and mostly originate in standards outside of System V, or older versions.)

2) SCO doesn't own the copyrights in the first place. Novell just last week opened its corporate kit to show that their BOD, in selling its Unixware business to SCO, absolutely meant to retain the copyrights, as the bill of sale says. Novell, not SCO, is the rightful owner, and Novell's now a Linux shop.

3) SCO, formerly called Caldera, distributed Linux under the GPL, and therefore is bound by the terms of the GPL. That prohibits them from enforcing a closed-source copyright claim on that code.

All of those are probably grounds for dismissing all of SCO's claims on Linux. The judges are being methodical, and SCO is a master of dilatory tactics (presumably to give them more time to unload worthless stock on investors, er, speculators fooled by bad coverage). But there is obviously no valid SCO threat to Linux users. Microsoft has profited from the FUD, but it should be called just that, not treated as equally valid as evidentiary reality.

[fgoldstein]

Steve S really doesn't get it

Once again, a Steve Shankland article uses the childish bad-journalist definition of "objective" to totally muff a story. An article is not objective if, in reporting a dispute, it give equal credence to both sides, regardless of however imbalanced the evidence is. A good journalist calls a spade a spade. Yet here, Shankland acts as if SCO had a good case, and ends with an old quote from Darl McBride that implies that the case is headed to a jury. That is *extremely* unlikely. None of SCO's cases are that strong -- the countersuits are more likely to get there, with SCO as a defendant.

He also mixes up the AIX/Monterey issue with Linux itself. Most of the SCO suits are around Linux, except when they are losing, and claim that they're about an IBM contract. These are two distinguishable issues. There is a shadow of a case concerning IBM's role in Monterey, if they acted in bad faith in pulling out and recycling the code against what an alleged contract said. That remains to be seen. It's doubtful, but it has nothing to do with Linux.

The Linux issue began with McBride's asssertion that there were "millions of lines" of SCO-owned code in Linux. This falls flat on its kiester for various reasons:

1) There are zero lines of copyrighted Unix System V code in Linux; SCO never produced any, even after repeated discovery requests. (There are some lines in common, of course, but they're not subject to copyright, and mostly originate in standards outside of System V, or older versions.)

2) SCO doesn't own the copyrights in the first place. Novell just last week opened its corporate kit to show that their BOD, in selling its Unixware business to SCO, absolutely meant to retain the copyrights, as the bill of sale says. Novell, not SCO, is the rightful owner, and Novell's now a Linux shop.

3) SCO, formerly called Caldera, distributed Linux under the GPL, and therefore is bound by the terms of the GPL. That prohibits them from enforcing a closed-source copyright claim on that code.

All of those are probably grounds for dismissing all of SCO's claims on Linux. The judges are being methodical, and SCO is a master of dilatory tactics (presumably to give them more time to unload worthless stock on investors, er, speculators fooled by bad coverage). But there is obviously no valid SCO threat to Linux users. Microsoft has profited from the FUD, but it should be called just that, not treated as equally valid as evidentiary reality.

[Not Bugged]

Hoping for an over-patriotic jury?

So SCO are relying on a jury, and IBM are trying their best to prevent it getting that far.

But what if a Jury did go for SCO? Could a jury be biased towards the locals, or even worse, could the jury become madly patriotic. Linux is a chance for non-Americans to participate equally in the software world. A win for SCO, if non-Americans honour it of course, would be a chance for America to tax one of the largest growing sectors in the industry. Haven't SCO already tried to play this card with their letters to Congress?

I can just imagine SCO hoping for a jury that thinks along the lines of "Gawd Bless America - down with Johnny Foriegner". I just hope that such a thing doesn't happen.

[Not Bugged]

Hoping for an over-patriotic jury?

So SCO are relying on a jury, and IBM are trying their best to prevent it getting that far.

But what if a Jury did go for SCO? Could a jury be biased towards the locals, or even worse, could the jury become madly patriotic. Linux is a chance for non-Americans to participate equally in the software world. A win for SCO, if non-Americans honour it of course, would be a chance for America to tax one of the largest growing sectors in the industry. Haven't SCO already tried to play this card with their letters to Congress?

I can just imagine SCO hoping for a jury that thinks along the lines of "Gawd Bless America - down with Johnny Foriegner". I just hope that such a thing doesn't happen.

Smoking Gun

This report asks some relevant questions, but seems to have missed crucial evidence:

http://www.opensource.org/halloween/halloween10.html

Smoking Gun

This report asks some relevant questions, but seems to have missed crucial evidence:

http://www.opensource.org/halloween/halloween10.html

Good ending

MS is backing away from SCO and embracing some form of open source after trying to destroy it.

SCO will end up bankrupt, and hopefully anybody that worked there that had anything to do with this farce will never be empliyed in the IT industry.

If you have to litigate to stay in business, you shouold be out of business.

Good ending

MS is backing away from SCO and embracing some form of open source after trying to destroy it.

SCO will end up bankrupt, and hopefully anybody that worked there that had anything to do with this farce will never be empliyed in the IT industry.

If you have to litigate to stay in business, you shouold be out of business.

[knobsturner]

Paul Allen is a (the?) major investor in Baystar Capital

From the article on wired:

"BayStar Capital is a private equity fund that makes direct
investments in privately held and publicly traded companies.
One of BayStar's largest investors, according to BayStar (PDF), is
Vulcan Capital, the private investment vehicle of Paul Allen. Allen
co-founded Microsoft with Bill Gates, and is the second-largest
Microsoft shareholder after Gates."

So although the Microsoft and Baystar as _companies_ have
nothing to do with each other, Paul Allen is a major share holder
in both companies.

The Baystar connection is just a back door that MS can shove
money through.

This kind of hiding makes me sick. It may be perfectly legal for
Paul Allen to start up a company with his own (all MS derived)
money, and then say that the company has nothing to do with
MS, but the OWNERS are THE SAME people.

http://www.wired.com/news/business/
0,1367,62544,00%20.html?tw=wn_tophead_2

--Tom

Hmmm.

You raise an interesting point. Whether Allen really is this big-time investor is still speculation, though, correct? Although, I wouldn't doubt it.

MS has its ways of sneaking around things and getting where they want to be. Let's hope they don't get their way.

[knobsturner]

Paul Allen is a (the?) major investor in Baystar Capital

From the article on wired:

"BayStar Capital is a private equity fund that makes direct
investments in privately held and publicly traded companies.
One of BayStar's largest investors, according to BayStar (PDF), is
Vulcan Capital, the private investment vehicle of Paul Allen. Allen
co-founded Microsoft with Bill Gates, and is the second-largest
Microsoft shareholder after Gates."

So although the Microsoft and Baystar as _companies_ have
nothing to do with each other, Paul Allen is a major share holder
in both companies.

The Baystar connection is just a back door that MS can shove
money through.

This kind of hiding makes me sick. It may be perfectly legal for
Paul Allen to start up a company with his own (all MS derived)
money, and then say that the company has nothing to do with
MS, but the OWNERS are THE SAME people.

http://www.wired.com/news/business/
0,1367,62544,00%20.html?tw=wn_tophead_2

--Tom

Hmmm.

You raise an interesting point. Whether Allen really is this big-time investor is still speculation, though, correct? Although, I wouldn't doubt it.

MS has its ways of sneaking around things and getting where they want to be. Let's hope they don't get their way.