SCO Bags $100 Million But Who Benefits?

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The Linux Kernel is one of the most fascinating bits of software out there, partially owing to the vast number of contributors who are responsible for creating it. The Kernel has spread into many areas of our lives; it is used extensively in embedded devices (where its presence goes largely unnoticed) and it is ubiquitous in servers. Its growing success in servers comes at the expense of other established software companies.

With the growth of Linux comes great fear among its rivals. Contributors and proponents of Linux are motivated by the fact that Linux is Free software. Ownership is such that the user truly owns the software, rather than essentially ‘renting’ it by paying a license for use. This makes Linux a very disruptive technology.

SCO Makes an Appearance

The development methodology of Linux, its cost, and that question of ownership can also be used as an argument against it, especially by fierce opponents whose territory is being encroached upon by this mighty kernel. This has truly been the case ever since SCO chose to take a litigious route to combating Linux.

SCO asserted that Linux developers had stolen SCO’s code. For several years a legal battle persisted which ended up with SCO filing for bankruptcy. After over four years, SCO is still unable to prove its claims, which it was never willing to back in an upfront fashion.

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In many ways, SCO’s courtroom stalling contributed to greater fear, uncertainty and doubt. It had some companies hesitant about deployment of Linux in their environment. That, however, did not work in SCO’s favor. There is this unfortunate dilemma to face when a company launches a legal assault against its own customers. Many businesses used SCO and Linux at the same time, which led to backlash. SCO learned this the hard way. It blamed not only Linux but also a newly earned public image problem for its demise September 2007. Its presently departing CEO admitted this in an interview.

To many observers, SCO’s battle against Linux seemed like a bad idea right from the very start, much like the recent investment of $100 million in SCO. This later turned out to be a takeover and we will get to that at the end of the article. It is widely agreed that SCO lost its focus on development due to litigation, which led to decrease in staff and talent. Alienation can be costly and quality of products is harmed accordingly.

The only return on a new investment in SCO might therefore be legal compensation, but launching a case based on poor or imaginary evidence is unlikely to bear fruit. Moreover, after so many years of so little progress, the greatest of hopes is that this trial can carry on, yet the outcome seems rather predictable. To SCO, the desired outcome is probably unreachable, but this could be a question of duration, not vocation.

SCO’s Past Funding

Speculations and accusations have been flying about since SCO’s case against Linux began. Passionate advocates of Linux sought to discover an involvement by other parties who would benefit from SCO’s actions and affairs. At one stage, Scott McNealy, then CEO of Sun Microsystems, made a statement that used SCO’s assault as a way to promote Solaris at the expense of Linux. More conspicuous, however, was Microsoft’s role.

Several years back it was found that one of the several strategies for combating Linux was to concentrate on its perceived weaknesses. Examples of this were found in Microsoft’s so-called Halloween Documents, including copyrights and software patents. These documents were intended to discuss ways of defeating the growing threat of Linux — a threat so great that it has been listed among the No. 1 risks in Microsoft’s SEC filings for almost a decade.

SCO was a struggling software company even before resorting to lawsuits. The unfortunate reality can still be seen in the SCO UNIX Follies videos, which are available for viewing on YouTube. As the lawsuits went on for years, the high cost of lawyers took its toll and the company required considerable investments from the outside. Shareholders went elsewhere, indicating they had too little faith in the company’s future.

Among the payments that SCO received were Sun’s and Microsoft’s payments — for what was thought to be a right to use UNIX. Only later it turned out that the owner of UNIX is actually Novell, so SCO now has a debt. Nevertheless, therein you have a situation in which three companies that compete against Linux shared wealth in one way or another and this enabled the lawsuits to linger on and hurt the uptake of Linux.

There were other curious funds that SCO received throughout its lifetime, even when its main role was that of a plaintiff in court. These include court declaration an investment from BayStar, a venture capital firm. In a court declaration it emerged that Richard Emerson, a Microsoft employee, was involved in BayStar’s investment in SCO. A BayStar representative later added: “Yes, Microsoft did introduce BayStar to SCO.”

SCO Once Again to Attack Linux

The legal proceedings never ended and they are bound to resume in April. Nevertheless, until last week SCO was seen as a company that would be decommissioned by the end of the year. But then something happened.

Last week, a press release surfaced which surprised many pundits and analysts who had been covering this saga. It seemed to suggest that SCO would continue its legal battle against Linux, having received a very large cash infusion. The odds of seeing returns on these investments seem mere. That sentiment of misunderstanding is echoed almost everywhere you turn.

SCO maintains its image problem and it also carries that aforementioned heavy debt. It owes money to several parties including Novell and it could face followup lawsuits (comeback claiming damages) from victims of its own lawsuits, assuming money remains in its coffers. Why would anyone invest in SCO? More importantly, why now? That remains the key question in many people’s minds.