Advance Peek at Teleconference and SCO May Sue Novell

Advance Peek at Teleconference and SCO May Sue Novell

By Pamela Jones
Groklaw

November 18 2003

SCO is threatening [ http://www.infoworld.com/article/03/11/18/HNscoceo_1.html ] Novell now, over the planned acquisition of SuSE, which they say violates a non-compete agreement SCO inherited. And here's an advance peek at what they will be saying at the teleconference. Go here [ http://www.thestreet.com/_yahoo/markets/marketfeatures/10127193.html ] and here [ http://biz.yahoo.com/prnews/031118/latu082_1.html ] and here [ http://biz.yahoo.com/rc/031118/tech_sco_1.html ].

What stands out is this chunk from their press release about what Boies' firm is hired to do:

"As part of the expanded scope, the firm has been engaged to support SCO regarding issues relating to copyrighted UNIX code incorporated into Linux without authorization or appropriate copyright notices. Code that has been identified includes Unix System V code as well as copyrighted code included in the 1994 settlement between Unix Systems Laboratories, Inc. and Berkeley Software Design, Inc. SCO acquired this code and associated copyrights in 1995 from Novell. . . .

"'During the past seven months, our company, along with Boies, Schiller & Flexner, has uncovered a number of substantial software code issues as they pertain to our UNIX intellectual property and Linux,' said Darl McBride, President and CEO, The SCO Group, Inc. 'By far the most important asset of this company is our ownership of the UNIX operating system and today we are investing in the protection and future of UNIX. Boies, Schiller & Flexner is now moving beyond the contract issues we have with IBM. The firm will be enforcing and defending SCO's intellectual property rights, including the protection of our UNIX System V source code and our copyrights that were reaffirmed as a result of the BSDI settlement agreement.'"

Catch that? ". . .our UNIX System V source code and our copyrights that were reaffirmed as a result of the BSDI settlement agreement." "without authorization or appropriate copyright notices".

As for money, here is one snip from TheStreet's coverage:

"In connection with SCO's $50,000,000 private placement of Series A Convertible Preferred Stock completed on October 16, 2003, SCO has agreed to pay Boies, Schiller & Flexner LLP and other law firms representing SCO, $1,000,000 in cash and issue 400,000 shares of SCO's common stock. As a result of the issuance of this consideration, SCO anticipates recording a charge to earnings of approximately $8,956,000 in its fourth quarter that ended October 31, 2003. This $8,956,000 charge to earnings is comprised of non-cash expense of $7,956,000 related to the issuance of the 400,000 shares of common stock and $1,000,000 in cash expense.

"Additionally, SCO anticipates recording a non-cash charge for the beneficial conversion feature related to the issuance of the Series A Convertible Preferred Stock of approximately $8,741,000 in the fourth quarter that ended October 31, 2003. The beneficial conversion feature represents the intrinsic value of the difference in the Series A conversion price of $16.93 per share and the closing market price of SCO's common stock on October 16, 2003 of $19.89 per share. In addition to the stated dividend rate, dividends on the Series A Convertible Preferred Stock will accrue on the difference between the stated dividend rate and 12% per annum. These dividends will reduce earnings available to common stockholders if or when incurred.
"Using the money from the note sale, SCO has agreed to pay Boies' firm, Boies, Schiller & Flexner, and other lawyers $1 million cash and 400,000 SCO shares. The company will take a charge of $8.96 million in the fourth quarter, comprising a noncash expense of $7,956,000 related to the cash and stock transfer. The company will expense another $8.7 million to cover the coversion premium on the note sale itself."

Hopefully your heart can take all this excitement. Here's another lawsuit threat from McBride, this time against Novell for the SuSE deal:

"Novell Inc.'s $210 million planned acquisition of SuSE Linux AG will put it in violation of a non-compete agreement the networking vendor has with The SCO Group Inc., and could possibly lead to legal action, SCO CEO Darl McBride said Monday in an interview.

"The non-compete agreement is part of a broader agreement signed between Novell and The Santa Cruz Operation Inc. when Novell sold the rights to its Unix System V software in 1995, McBride said.

"The SCO Group (formerly Caldera Systems Inc.) inherited the non-compete agreement, along with the Unix rights, when it acquired Santa Cruz Operation's Unix business in 2000, McBride said.

"The non-compete agreement prohibits Novell from directly competing with SCO's Unix-on-Intel business, McBride said. 'When (The Santa Cruz Operation) sold us the property, included in the property was a non-compete,' he said. 'Last time I checked, Linux was intended to compete with our core products.' . . .

"The non-compete agreement was only one of several legal avenues that SCO is considering, should the SuSE acquisition be competed. according to McBride. SCO also believes that Novell does not have the right to distribute Linux, which SCO alleges to contain intellectual property that has been derived and copied directly from its Unix System V code, he said."

Evidently, if you pay a lawyer a million and some shares, you get lawsuits out your nose.

08:37 AM EST