SEC Filing Reveals Corporate Linux Users Are Ignoring SCO License Demands

by Don Marti

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,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 has 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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