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SCO files Chapter 11 bankruptcy

Seeks court protection from its own lawsuits
Sat Sep 15 2007, 18:24

ON FRIDAY AFTERNOON, both SCO Group and its subsidiary SCO Operations, Inc. filed voluntary petitions for Chapter 11 bankruptcy in US Bankruptcy Court in Delaware.

Trading in SCOX was halted on the NASDAQ exchange ahead of the news but resumed before closing. SCO stock lost 43% on the news, ending the day at 37 cents per share.

The bankruptcy filing canceled the SCO v. Novell trial that had been scheduled to begin Monday in the courtroom of US District Court Judge Dale A. Kimball. It automatically stayed that lawsuit and all of SCO's other pending litigation with IBM, Autozone and Red Hat.

SCO filed a lawsuit against IBM in March 2003 seeking $1 billion in damages, later raised to $5 billion, over various allegations related to IBM's support of Linux.

Red Hat then sued SCO defensively, seeking a declaratory judgement in US District Court in Delaware that Linux does not infringe UNIX copyrights. That case was stayed pending resolution of the IBM lawsuit.

Along the way, SCO also sued Daimler-Chrysler and Autozone, former customers of its predecessor in interest Santa Cruz Operation. The Daimler-Chrysler case was quickly dismissed, but the Autozone case is still unresolved.

Some months after it had sued IBM, SCO apparently woke up to the fact that it didn't have written conveyances from Novell for the copyrights to UNIX SVRX. It attempted to obtain those from Novell but was rebuffed. So, in January 2004, SCO also sued Novell for alleged slander of title over the copyrights to the UNIX SVRX operating system.

Both the IBM and Novell lawsuits were assigned to Judge Kimball, who agreed with IBM that judicial economy might best be served by first settling who owns the UNIX SVRX copyrights. Trial in SCO v. IBM was therefore postponed until after the SCO v. Novell trial.

On August 10, Judge Kimball handed down a veritable flurry of partial summary judgement rulings in SCO v. Novell, the most important of which was that Novell, and not SCO, is the rightful owner of the copyrights to UNIX SVRX. He also threw out most of SCO's other claims against Novell. (At the time, we mistakenly wrote that SCO's non-compete claim against Novell had also been dismissed. It was not.)

Judge Kimball's August 10 rulings in effect almost totally demolished SCO's cases against both Novell and IBM.

Novell, because ownership of the UNIX SVRX copyrights was SCO's major issue, and Novell won several rulings that in effect turned the lawsuit around into Novell v. SCO.

IBM, because one of Judge Kimball's rulings was that Novell had and has the right, at its sole discretion, to direct SCO to waive any alleged IBM breaches of contract. Since Novell had already done that, but SCO had ignored it, all IBM that really needed to do before or at trial was to point out these facts in order to get most if not all of SCO's case dismissed.

Therefore, the SCO v. Novell trial that was to have started Monday had mostly devolved to the sole issue of how much money SCO must pay Novell for UNIX SVRX licences it sold to Microsoft, Sun and others for over $25 million. Based upon preliminary court rulings, it was beginning to look a lot like SCO might be forced to pay Novell every penny it had collected from Microsoft and Sun, et al.

And, as mentioned above, it wasn't looking as though SCO could hope to get through a trial in SCO v. IBM, much less prevail on any claim and win damages to offset its looming debt to Novell.

However, SCO has already spent the majority of those UNIX SVRX licencing fees, mostly to pay its lawyers, and it doesn't have enough cash left to pay Novell.

Thus, SCO has litigated itself into bankruptcy court, seeking protection under Chapter 11 from the probable outcomes it foresees from its own lawsuits.

More is on Groklaw, here. µ

See Also
SCO's Darl McBride remains defiant
Countdown starts to SCO v. Novell trial
Rats leave SCO's sinking ship
Novell wins Unix victory over SCO


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