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Judge deals blow to SCO's IBM lawsuit

Published December 1, 2006 12:00 am

Future in doubt
This is an archived article that was published on sltrib.com in 2006, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

A federal judge on Thursday gutted SCO Group's $5 billion, Linux-related lawsuit against IBM - renewing debate about the Utah company's future.

Concluding a six-week review, U.S. District Judge Dale Kimball upheld federal Magistrate Brooke Wells' June decision to strike down two-thirds of SCO's allegations. The Lindon-based software company contends IBM violated its contract and copyrights when it allegedly leaked SCO-owned Unix code into the freely-distributed Linux operating system.

SCO spokesman Blake Stowell and the company's attorneys declined to discuss the case or its ramifications. But most analysts saw the ruling as a potentially mortal legal blow.

"We're waiting for the proverbial fat lady to sing," market consultant Rob Enderle of the Enderle Group said Thursday. "This certainly does not look good for SCO."

Kimball echoed Wells' chastisement of SCO for willful failure to obey repeated court orders to support its charges with fact. Kimball also rebuffed SCO's claims that it needed to question IBM engineers to find the evidence it needed to continue its case.

"SCO's conduct has resulted in prejudice to IBM, and . . . the inability of SCO to use the evidence at issues to prove its claims . . . should come as no surprise to SCO," wrote the judge.

The judge also ordered that a separate but related suit involving Novell's challenge to SCO's claims of Unix ownership will be tried next September, before the IBM case.

A noticeably buoyant IBM spokesman John Charlson would only say that "We prefer to let the judge's ruling speak for itself."

IDC analyst Al Gillen said there was no doubt the ruling is "bad news for SCO. The company's core business has declined during the past several years. . . . and it is becoming more and more clear that it's recent investments [in Unix software] and mobile device software are becoming a 'do or die' strategy."

Earnings results reflect the concern. Both revenues and net income have been on a deep slide since the end of 2003, when SCO posted $79.25 million in sales and $5.4 million in the black. In 2004, it lost $23.35 million on $42.8 million in revenue, and last year saw revenues dip to $36 million while still ending up $10.7 million in the red. This year, SCO had lost nearly $13 million on roughly $21.8 million in receipts going into its fourth quarter. The company's fourth quarter and fiscal 2006 results are expected in late December.

The company's suit garnered worldwide headlines in 2003, being seen as a Microsoft-backed attempt to derail Linux, an operating system backed by a global network of programmers committed to free software.

At one point, SCO even sought licensing fees from Linux users to avoid the possibility of copyright litigation. But SCO's latest courtroom setback all but appears to have assured Linux's status as a serious contender to the long-dominant Windows OS.

"It now appears we're reaching the end stage," said George Weiss, a veteran Gartner analyst. "The effort and expense, with a [courtroom] payoff that looks increasingly trivial, if any, will have proven to be a grave strategic mistake."

Not all SCO watchers were so skeptical of the company's fortunes, though In-Stat's Bill Hughes was definitely in the minority is seeing the suit as "a legitimate case."

"Intellectual property cases such as this are inherently complex," he added. "My concern with this case is that there seems to a great deal of passion from the anti-SCO side."

While cautioning that the case currently remains on track for trial sometime in mid- to late-2007, open source advocates were clearly in a celebrating mood.

"As far as I can tell, the SCO case is dead now," said Bruce Perens, a Linux developer and open source spokesman. "The magistrate and judge took away most of their causes for action and most of the evidence they wished to present."

Pamela Jones, whose Groklaw.net Web site has followed the SCO-IBM case from its beginnings, wrote that Kimball's ruling "means SCO is toast."

The Utah company was "too tricky by half" in purportedly skirting the court's demands for evidence, she added. "What they face at trial is awful to contemplate, if you are a friend of SCO's. Which I'm not."

bmims@sltrib.com