Chapter 11 blamed on IBM suit
The SCO Group Inc., which gambled its future on a lawsuit against giant IBM over use of computer codes the small Utah company claimed it owned, filed Friday for bankruptcy.
The SCO Group filed bankruptcy papers in federal court in Delaware a little more than a month after a federal judge dealt it a huge blow when he ruled SCO did not own the rights to the Unix code it has accused IBM of putting into the open-source Linux computer operating system.
The company said in a news release it would continue to operate as it seeks to reorganize under Chapter 11 bankruptcy rules. Voice mail and e-mail messages to the company based in Lindon were not returned.
"Chapter 11 reorganization provides the company with an opportunity to protect its assets during this time while focusing on building our future plans," Darl McBride, chief executive officer of The SCO Group, was quoted as saying in the news release.
The SCO Group's stock finished down 26 cents, closing at 38 cents a share on Friday on the Nasdaq Stock Exchange. It had traded as high as $3.11 in the past year.
The SCO Group listed assets of $14.8 million and debts of $7.5 million in its bankruptcy petition.
SCO Operations Inc., a subsidiary, also filed a petition for Chapter 11 bankruptcy in the Delaware court.
Bob Enderle, principal analyst and founder of the Enderle Group of San Jose, Calif., said The SCO Group's gamble was that it didn't have the financial strength to survive losing.
"To do this, SCO needed to focus 100 percent of their effort . . . and SCO simply refused to do that," he said in a telephone interview.
U.S. District Judge Dale Kimball last month tossed out SCO's claim that it owned the Unix and UnixWare copyrights as part of a 1995 deal with Novell. SCO had sued in March 2003, accusing IBM of damaging it financially by putting some of that code into the open-source Linux system.
Open source is software code that is made available for free and can be used and improved on by software developers.
Kimball's ruling threatens SCO's $5 billion claim against IBM and its suit against Novell over title to Unix.
The company's lawsuit garnered worldwide headlines in 2003 because it was seen as a Microsoft-backed attempt to derail Linux. It angered the open-source community because of its potential to reach into the pockets of users for licensing payments.
"It damaged us and it damaged my [consulting] business at the time. It created the impression there were intellectual property claims against Linux," said Bruce Perens of Berkeley, Calif., one of the founders of the open source movement.
Enderle said that paradoxically SCO's failure so far to win its lawsuits and now its bankruptcy will strengthen the open-source movement by making it harder to sue over the code in Linux that came from many sources.
"This has actually defined an awful lot," he said.
Perens also said the lawsuit has helped to define the relationship between open source codes and intellectual property rights.
"I think what this means is don't tread on me," he said. "Rather than a group of people who don't understand intellectual property, we understand it thoroughly."