SEC Filing Reveals Corporate Linux Users Are Ignoring SCO License Demands

Thanks to skeptical CIOs, the company threatening Linux users is almost certain to report a loss on December 22nd.

The SCO Group spokesperson Blake Stowell denied in an e-mail interview Wednesday that a $1.6 million US payment to law firms in connection with licensing is a commission on sales of SCO “Intellectual Property Licenses for Linux” to end users.

The unexplained payment reported in a SCO 8-K filing with the SEC would have represented sales of more than 11,000 of the $699 licenses. SCO has claimed that Linux contains code copied from its proprietary Unix System V software in violation of copyright law.

Asked whether the $1.6 million payment meant the sale of more or fewer than 11,000 of the Linux licenses, Stowell replied, “Actually, that's not what that is saying, but I can't go into detail on that.”

An unusual compensation agreement with its law firms obligates SCO to pay 20% of license revenue, other than revenue from its normal business and revenue from Sun and Microsoft, to the lawyers. The unexplained $8 million in license revenue is consistent with Stowell's earlier prediction of $22-25 million in total revenue for the quarter ended October 31. But if the $8 million is not, as Stowell says, from Linux users, SCO has little or no revenue from its Linux license program. The company has been unwilling to name any licensee and has delayed reporting results for the quarter ending October 31 until December 22.

HP, which is both a Linux and UNIX licensee, has released a FAQ stating, “HP has found no intellectual copyright infringements within Linux” (Microsoft Word document). In the absence of evidence to the contrary, there seems to be no reason for Linux customers to pay for a SCO license.

The deseretnews.com/dn/view/0,1249,565036831,00.htmlDeseret News earlier had reported SCO's legal expenses for the quarter at $17.7 million US. Stowell denied it, replying, “I can tell you with absolute certainty that the $17.7 million number is not the total legal fees we incurred during the 4th quarter.”

In addition to legal expenses, SCO has announced that it plans to take a charge of $8,741,000 in connection with a grant of stock to its law firms and a charge of $8,956,000 in connection with a financing deal.

The popular Web site www.groklaw.net/GROKLAW has radio.weblogs.com/0120124/2003/09/11.htmlreported that SCO's board has promised CEO Darl McBride a substantial option payment when the company achieves four consecutive quarters of profitability. The loss for the quarter ended October 31 likely will reset the clock.

Don Marti is Editor in Chief of Linux Journal.

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Re: SEC Filing Reveals Corporate Linux Users Are Ignoring SCO Li

Anonymous's picture

"SCO has little or no revenue from its Linux license program"

got that right. Also the company predicts $0 in revenue from SCOSource for next quarter too. Looks like CIOs are harder to BS than all the people on the linux boardz seem to think....

Re: SEC Filing Reveals Corporate Linux Users Are Ignoring SCO Li

Anonymous's picture

Nice reporting, Don.

The company will post a huge loss under generally accepted accounting principles (GAAP) but it will no doubt also publish "pro forma" numbers which exclude the one-time charges in Q4 and will show a profit "similar to" 19 cents. This is a fairly common practice. It should post a GAAP loss and pro forma profit for the year.

The Deseret reporter was clearly a bit sloppy and said the combined $17.7 million charges were to pay Boies's firm. This is true of only half that amount, and the other half comes from the BayStar BCF accounting. Only $1 million of that total is actually paid out of SCO's cash.

You are absolutely right that in addition to the extraordinary legal fees, SCO has now disclosed it has hourly billings and smaller contingencies to pay Boies. The $1.6 million figure exactly accounts for the $8 million that Microsoft is scheduled to pay SCO in Q4.

McBride may be able to get SCO's board to forgive the GAAP loss and let him count Q4 among the series he needs based on the pro forma profit. If they don't, he might sue. Only a guess.

Re: SEC Filing Reveals Corporate Linux Users Are Ignoring SCO Li

Anonymous's picture

HELP WANTED: $1 million cash, plus hourly wage on as many hours as you choose to work, plus expenses including upgraded air travel, plus 20% commission, plus a guaranteed 400,000 shares of stock (not options). Actually showing up is NOT required. Send resume to attorney-jobs@sco.com

Re: SEC Filing Reveals Corporate Linux Users Are Ignoring SCO Li

Anonymous's picture

Dear Sir or Madam

I am currently leading a dynamic team whose primary focus is to squeeze all of our members into a miniature car. I am experienced in dealing with equal opportunity issues pertainting to bearded ladies and strongmen.

Falling over and being fired from a cannon a specialty

Regards

Bo-bo

Re: SEC Filing Reveals Corporate Linux Users Are Ignoring SCO Li

Anonymous's picture

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