Ten Tech Blunders: Whoops, We Stepped in It!: Page 5

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5) SCO Sues instead of Sells

The Blunder:

In 2003, the SCO Group filed a lawsuit against IBM – for the usual $1 billion – alleging IBM had misappropriated trade secrets by incorporating SCO’s intellectual property into the Linux OS.

What Happened:

At first glance, SCO’s strategy seemed to make sense, at least as a business tactic. The small Utah-based company, which claims to own copyright to a version of Unix, would generate revenue by adopting a feisty, contentious stance with regard to its intellectual property.

Step one: sue a deep-pocketed corporation for a headline-inducing amount of money. The possible benefits were numerous. Deep-pocketed corporations sometimes settle because it’s cheaper just to make it go away. Deep-pocketed corporations sometimes buy your company. And who knows? In a court of law, as in football, any team can win on any given day. Talented lawyers can accomplish amazing things.

But for SCO, the strategy has been the opposite of a winner. Its tactics quickly began to work against it. In May 2003 the company sent letters to Fortune 1000 companies warning them of possible legal action if they use Linux. The problem: SCO is an enterprise IT vendor, and Fortune 1000 companies are the biggest consumers of enterprise IT. In effect SCO was harassing its potential customers.

The checkered tale of SCO vs. IBM has twisted and turned every which way since it began, spawning the closely related SCO vs. Novell, among other sagas. Over four years it’s had more plot twists than Gone With the Wind.

But the result for SCO, instead of a windfall from litigation, has been a black hole they’ve poured money into. Or, as the company noted in a press release about 2006 Q4 revenue, “Because of the unique and unpredictable nature of the Company's litigation, the occurrence and timing of litigation-related expenses is difficult to predict, and will be difficult to predict in the future.”

Far worse, in a January 2007 conference call, SCO CEO Darl McBride was forced to address rumors that the company is going bankrupt. He claimed that it isn’t, but as he was quoted in Internetnews, "Let's face it, it's not a real pretty picture."

Moral of the Story:

Always sit down and take several deep breaths before hiring lawyers. Especially when you sue someone with pockets as deep as the Grand Canyon.


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