SCO CEO: Even if court bids fail, we will survive

Darl McBride says a cap on legal expenses and a profitable Unix business mean SCO is poised for sustainability

The SCO Group Inc. believes it will still have a viable business even if the company loses its courtroom battles, according to the vendor's chief executive officer. In support of that claim, he said that SCO's Unix business is profitable and the company is due to shed its heavy financial burden from legal fees come January 2006.

"When we started this and people asked me that question ['What happens if you don't win in court?'] I said, 'As a company, we're screwed,'" Darl McBride, SCO CEO and president said in an interview Friday. "Today, I don't believe that to be the case. We've got a cap on our legal expenses and our Unix business is profitable. If you put that together, you've got long-term sustainability."

McBride was speaking to IDG News Service in advance of the company's reseller SCO Forum event in Las Vegas taking place through Tuesday this week.

By January 2006, SCO will have spent close to US$40 million in legal fees, according to McBride. However, once the company has made its January payment, it will then have paid in full for legal services "in perpetuity," he said. At that point, SCO's balance sheet will no longer be weighed down by legal expenses, which have typically been on the order of $2 million or more per quarter.

Back in August 2004, SCO announced it had worked out a deal with its lawyers to cap the company's legal costs at $31 million.

SCO has lawsuits in place against Novell Inc., IBM Corp., AutoZone Inc. and DaimlerChrysler Corp.

In its slander of title lawsuit filed against Novell in January 2004, SCO argues that it owns the rights to the Unix and UnixWare copyrights and is seeking damages from what it claims are Novell's false representations about owning the operating systems' source code. SCO's claim on the Unix source code forms the basis of the company's assertion that Linux contains SCO intellectual property, which it has been pursuing in court, filing suit against IBM.

SCO filed suit against Daimler Chrysler for its alleged violations of its Unix software agreement with SCO. The company also filed against AutoZone alleging that AutoZone violated SCO's Unix copyrights by running versions of Linux that contained code from SCO's Unix source code.

Red Hat Inc. is suing SCO for allegations relating to its Linux claims, including trade libel and deceptive practices, but the judge in that suit has stayed the case pending the outcome of the SCO v. IBM lawsuit.

Discovery is continuing in the SCO v. IBM case, with SCO's legal team preparing for the deposition of IBM Chairman and CEO Sam Palmisano, according to McBride. The latest move in SCO's case against AutoZone was SCO's submission in May summarizing its discovery findings.

While McBride wouldn't comment specifically on SCO's ongoing legal cases, he did fire back against Novell's recent filing where the company suggested SCO is fast running out of money. "It's a little bit of a tennis match [back and forth]," he said. "Novell has tried to dismiss the case twice." Using a baseball analogy, he continued, "Novell's two strikes already on the last two attempts, now they seem to be swinging wildly." SCO's attorneys should be responding soon to Novell's filing, according to McBride.

"I don’t spend a lot of time worrying about it [the litigation], McBride said. "If it takes a year or 10 years, we’ll have our day in court when we get there."

McBride insisted that within SCO, the vast majority of its employees are focused on the company's technology, not its litigation. He estimates the company employs under 200 staff and has development centers in Murray Hill, New Jersey, Scotts Valley, California, and Lindon, Utah in the U.S. and in Delhi, India.

One expert who has watched the developments in SCO's litigation is long-time legal advocate for the free software movement Eben Moglen, chair of the Software Freedom Law Center and a professor of law and legal history at Columbia University Law School.

"I feel like a broken record -- from first to last, I've never had to change [my opinion]," Moglen said. "SCO's bluffing, whistling up the wind. They ruined a company that had a business and customers that cared. It was a vulgar and selfish thing that has no basis in law and no basis in fact. It's clear to everyone that the whole thing's a sham and a failure."

How do SCO customers react to the continuing litigation? "They’re with us because of our products, they like to get a basic update [on the legal situation], then move back to talking about new innovation," SCO's McBride said. "Generally speaking, our customers are very loyal, some even wish us good luck [with the cases]. It's interesting how supportive they’ve been to this process."

Another message McBride has for SCO Forum attendees is about the company's recent financial performance. "Over the last five quarters, you see our loss continuing to narrow by a couple of million dollars," he said.

McBride also maintains that SCO has yet to realize revenue gains from the latest release of its OpenServer operating system. The company debuted OpenServer 6 in June. McBride estimates that SCO garners 60 percent plus of its revenue from OpenServer, with the remainder coming from its UnixWare operating system.

While he agrees OpenServer is good solid technology, Dan Kusnetzky, vice president of IDC's system software research believes that SCO faces another issue. "The challenge for the company is getting their message heard," he said. "SCO's being overwhelmed by all the noise coming from Redmond and from the Linux community. They're getting squeezed by Windows on the one side and by Linux on the other."

In his discussions with customers, SCO is almost never mentioned, a different situation from two years back when users were still name-checking the company, according to Kusnetzky. "The overall impression is that in spite of their efforts, SCO is slipping off the radar screen," he said.

Clearly, what the company needs is some beefing up of its marketing efforts and SCO has high hopes for a new member of its executive team, 25-year industry veteran Tim Negris, who's joining the company as vice president of marketing. "We expect him to come in and make some hay with us," McBride said. Negris, a former IBM, Oracle Corp. and Sybase Inc. executive, is coming out of semi-retirement to join SCO. There's also unconfirmed speculation in the industry that Negris may take over as SCO CEO further down the road.

As SCO moves ahead, the company will be concentrating on Project Fusion, which McBride dubs, "the next evolution of Unix on Intel." The project, based on the new 64-bit Unix SVR6 (System V Release 6) kernel, will further bring together SCO's OpenServer and UnixWare products so that they become one code base, he said. However, SCO hasn't yet decided whether ultimately having a single code base will translate into selling a single product.

Project Fusion will integrate server virtualization capabilities into the kernel and will have hooks into technologies, including VOIP (voice over Internet Protocol), RFID (radio frequency identification) and the SyncXML protocol, according to McBride. SCO plans to publicly demonstrate Project Fusion sometime next year and will provide information about the software, including the beta program at The site is yet to go live.

SCO is trying something a little different with the Forum this year, according to McBride. "We're not trying to drive everyone to Vegas," he said. Instead, SCO will take the reseller event on the road as what it calls "geoforums," making stops in Europe, Asia-Pacific and South America after the U.S. event. McBride expects the Las Vegas Forum to likely attract 300-plus attendees, he said.

Ironically, the U.S. SCO Forum overlaps with one of the leading open-source events, the LinuxWorld show in San Francisco.

"The roots of SCO are tied into open source," McBride said. "My position is very clear, we're not anti open source, We’re just against someone taking our products and putting them into open source [software] without our permission."

How do McBride and SCO deal with the odium the litigation has generated within the open-source community? "I’ve become very hardened," he said. "At one level, you have to be tough enough to take a lot of verbal shots." He speculates that the goodwill OpenServer 6 is generating in the market might eventually rub off on SCO itself. "It would be nice," he said.

Copyright © 2005 IDG Communications, Inc.

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