Battling IBM and Novell, SCO Group hopes for appeals court ruling before bankruptcy judge orders its liquidation

Published May 29, 2009 4:39 pm
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The SCO Group of Lindon is locked in a death grip with IBM and Novell, left to hope a favorable appeals court ruling comes down before a hearing in which a bankruptcy judge could order the company liquidated.

Novell and IBM have petitioned a federal bankruptcy court in Delaware to order the liquidation of the Utah company with which they have been in lawsuits for years over issues related to the ownership of computer software code.

The issues are important because SCO sued IBM in 2003 claiming the computer giant had placed code in the Linux computer operating software that allowed Linux to successfully compete for business clients against SCO's Unix software. Then SCO sued Novell after the Waltham, Mass.-based company claimed that it, not SCO, owned the Unix copyrights at issue in the IBM case.

But Utah Federal Judge Dale Kimball's 2007 ruling against SCO in the Novell case caused the teetering Lindon company to file for bankruptcy protection and seek to reorganize.

Now IBM, Novell and the bankruptcy trustee argue that SCO has failed in several attempts to present a workable reorganization plan since it sought protection last year.

Since filing, SCO and subsidiary SCO Operations have lost millions of dollars and, Novell argues, prejudiced the payment prospects for their creditors by making one ill-considered and futile step after another in their single-minded pursuit of what they believe to be a big payday in litigation against Novell, IBM Corp. and others. Novell made the arguments in its motion filed a few days after the 10th Circuit Court of Appeals in Denver heard both sides wrangle over SCO's appeal of Kimball's ruling.

"It is time to shut down the debtors' highly unprofitable operations and place a reliable neutral in charge of making thoughtful decisions that are in the best interests of creditors (and even, if there is anything left for them, the debtors' shareholders)," Novell's motion said.

SCO CEO Darl McBride said last week that his company was preparing a response that "will hopefully put the motion in context and tell a more complete and accurate story."

The bankruptcy court has set the hearing on those motions for June 15.

SCO officials hope the 10th Circuit Court of Appeals in Denver rules in favor of the company's appeal of Kimball's ruling and sends the case back to Utah before any decision is reached on the liquidation motions in bankruptcy court. They believe that would bolster their position before the bankruptcy court that SCO can remain a going concern able to pursue the lawsuits, continue to sell Unix and prosper with new software applications for mobile phones, including a partnership with FranklinCovey Products.

Given the timing of the hearing on the IBM and Novell motions in Delaware and the uncertainty over when the Denver court will act, SCO could be out of business before the 10th Circuit ruling.

"It is probably not a big surprise that IBM and Novell would like to see us liquidated before our claims are heard by a jury," McBride said in a statement. "The timeline Novell and IBM have set is troubling given the fact that our appeal in the Novell case was heard by the appeals court a couple of weeks ago and a ruling to clear things up should be forthcoming sometime in the near future."

IBM officials declined to comment beyond the motion in bankruptcy court, where IBM argued that SCO officers "freely admit that they are not likely to have the liquidity to sustain their operation much longer. ... They have failed to provide evidence of any viable business and have succeeded only in depleting the limited assets available to satisfy creditors."

tharvey@sltrib.com" Target="_BLANK">tharvey@sltrib.com

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