The SCO Ship Is Listing

I'm sure that back in late winter, Darl McBride felt confident that SCO would be quickly bought out or some sort of settlement would be reached with IBM. Back then, their catch phrase was 'Damn the torpedoes, full speed ahead.' Now, after a very large torpedo was fired by a Utah Court, we're seeing rats abandoning a ship that is surely destined to sink. What a difference two winters make. This one is shaping up to be the winter of SCO's discontent.

Monday, The Royal Bank of Canada, to avoid getting royally chiseled, (for lack of a more descriptive word) revised the terms of its capital-injecting contract, as did BayStar Capital, another of SCO's fair-weather friends. They can now veto that lovely 20 percent that David Boies, et al get if SCO were to win or be bought out. A Royal Bank spokesman was coy, only commenting that their investment in SCO was "made to hedge an economic exposure resulting from client transactions." While I'm still waiting for the plain-English translation from a Wall St. friend of mine, I think you'll notice the key word 'hedge' in the statement. That is, hedge as in 'hedge fund'. SCO, as a lot of us have pointed out, is the object of a large bet with gamblers with very deep pockets. Speaking of gambling, TheStreet.com has gone so far to call the SCO's IBM suit "a lottery ticket" and point out how investors were "rethinking the worth of those tickets."

And since I started with a nautical motif, it would seem that the proverbial wind is going out of SCO's sails due in part to the excessive windiness of Darl McBride's treatise on the Founding Fathers. Interpreting the US Constitution is a bit like movie stunts - something you shouldn't try at home. That didn't stop Darl from trying it and the resulting explosions were predictable. Even Linus Torvalds, who is not even a citizen of the US, does a better job at it. He pointed out the obvious fact that US law can't make you do something for profit. To paraphrase Calvin Coolidge: the business of America may be business, but if your business isn't business, then what business is it of Darl's to tell that it has to be.

Wall Street's wait-and-see attitude is now wait-and-see-it-sink thanks to the combination of SCO's legal setback, investor cold feet and total lack of seriousness on the part of SCO management. Motley Fool sums up the new attitude toward SCO by calling them "the mouse that roared". Those of us who have watched enough Bugs Bunny cartoons know that a mouse may be able to scare an elephant, but it's only a matter of time before the elephant picks up Sylvester the cat and uses him to beat the mouse to death.

SCO now has 30 days to lay their cards on the table - 30 days which include the Christmas holidays. They have also delayed their 4th quarter earnings report until December 22. This shows that they need a little more time to put on a brave face to report on a situation which is becoming increasingly unfavorable for them. The truth is that the SCO ship has been taking on water for quite some time, but their ability to bail out via PR has been good in an almost mind boggling way. They've been able to keep their stock high by spinning very effectively. But the latest spin isn't working.

On being given 30 days to produce the alleged code misappropriation, Spokesman Blake Stowell's commented that is was:

To be effective, spin must have at least some touch, however tenuous, with reality. But this statement is, to quote Linus Torvalds, "blathering". There is no trace of the real in it. Now with the latest supposed denial of service attack against their servers, they're not even spinning anymore. They've gone straight to whining.

The reality is that the water the SCO ship is taking on is now beyond their ability to bail it out. Even the normally bullish Laura DiDio can see it. "It is reality time. And right now, the reality is biting SCO." And if Ms. DiDio is finally getting it, then it's women and children first. We'll see on December 22 who starts lining up for the life boats.

That conference call on December 22nd is going to be rough. SCO management tried to bamboozle the reporters on the last conference call, weasel-wording to the point of lying on the subject of whether Boies was working on contingency.

Whether or not Boies is on contingency is a material item when trying to project SCO's earnings, and here is the management, and Boies himself, quite plainly misleading the reporters and the securities analysts. It is blatant.

So those reporters are going to be out for blood, and this time no amount of spinning is going to get by them. They now know that if they don't pin Darl & Co. down exactly, Darl & Co. will lie to them. That's never a good place to be with reporters. That call is going to be positively hostile. SCO was wise to schedule it for December 22nd, because the media coming out of it is likely to be damning.

Anybody owning stock in that thing had better pay attention though, because there could be a run for the exits right during that call if the wrong answer comes out.

Bush2000 wrote:
Until evidence is presented in court, nobody here has any idea of the outcome of this case. Anything else is wishful thinking.

The SCO Group haven't even presented a real case yet. This 30 day's to produce evidence is their last chance.

Also, I think (based on what is in their amended complaint, and other written documents submitted to the court) that The SCO Group were going to try to claime some kind of rights to anything that IBM wrote and included with AIX. Based on those alleged rights, they might have claimed some kind of "infringement." Now, they have to present evidence of the alleged infringements before IBM has to produce AIX source code for JFS and other technologies that The SCO Group alleges some form of contractual control over.

Based on what has been presented so far, and on the bizarre actions of The SCO Group and the management types at The SCO Group, I think they are probably bluffing.

They have had over 8 months to present some specific allegations and specific evidence, and it is The SCO Group that has refused to produce that evidence. Now they have a court order and a 30 day deadline to produce something.

We'll see how it turns out next month, though.

Until evidence is presented in court, nobody here has any idea of the outcome of this case.

Excerpts from SCO's lawyer's argument before the court during the 12/5 hearing (via Groklaw):

The -- what we need to get our arms around collectively, on our side and on IBM's side, is a clear definition of what source code is at issue, what source code is potentially an infringement. Before we discuss whether it's a trade secret or a copyright or anything else, the most important thing is for both of us to come to grips with the universe of source code, the documentation and methods and concepts that we believe are at issue so we can argue about them.
...
Now, that leads us to a very interesting point. Do we have again -- and I'll only do this once more and I won't repeat it after that -- do we then have a contract case? Do we have trade secrets? Do we have confidential information which is neither a trade secret or a copyright? And if so, what proportion do those fall out or shake out in and how is the Court going to deal with that? Your Honor, that is precisely the interrelated issue of law and fact that ought to be addressed appropriately under Rule 33 and should not -- should not be allowed -- this discovery needs to be framed -- in the Court's wisdom and appropriate oversight, this discovery needs to be framed in a way that allows us to identify just first what is all this stuff that IBM put into Linux? And I'll explain this in just a minute. We will need to identify all the - - everything that's at issue before we start giving it a legal label. That's why this Rule 33 ruling that we are requesting is appropriate in this case.
...
Now, where we are so far, in at least my line of reasoning, is I want to walk the Court through enough of our complaint to help the Court understand that IBM clearly did contribute a lot of the Unix-related information into Linux. We just don't know what it is. And I would refer the Court, to start with, to paragraph 51 -- no. I'm sorry. We are going to back track to that -- paragraph, please, 95. Actually it's 96. Now, the reason I'm using this complaint is we've included in the complaint news articles published about IBM's contributions into Linux and quotes attributed to IBM about its involvement into Linux. So we're not guessing here. We're not making this story up that IBM has put a lot of Unix information into Linux. IBM had told everybody they've done that.
...
We need, Your Honor, to have Mr. Marriott produce all versions of AIX. We need them to produce all the development notes of their developers from AIX. Then we will have the capability of being able to compare what IBM's contributions are lined up against our codes, and then we'll make a very clear specification of where the violations are, and then we'll end up at that point arguing about what kind of violations they are.
...
MR. MCBRIDE: The reasons why, Your Honor, remember the explanation I gave about IBM's preparation of its derivative works. IBM owns those derivative works. We don't dispute that. Not for a second. What we argue is they can't give them away, the contract -- the terms of the contract, and that's a decision that at some point summary judgment will be brought on to interpret. No question about it. And we are simply saying, Your Honor, because IBM only was involved in preparing that derivative work and we weren't, we don't know what they've prepared. And part of what they've prepared is going to be confidential information, mandated to be kept secret under the license agreement and a breach of the scope clause, according to us, but we don't know what they've done with the derivative work so we can't point out what we don't know.

There is no evidence, Bushie. There never has been. SCO is on a fishing expedition here. They want to go through every version of AIX under the sun so they can sift through it and find stuff. They have nothing. And McBride has just admitted it in open court.

Thanks for all of the excerpt.

I especially like the preamble from GROKLAW:

__________________________________

The Transcript of Oral Arguments Friday, Dec. 5, 2003 SCO v. IBM

Thursday, December 11 2003 @ 11:53 PM EST

Here is the completed transcript as text of Friday's oral arguments in the SCO v. IBM lawsuit. You can get the PDF at http://sco.tuxrocks.com/Docs/IBM/Doc-88-transcript.pdf. The most surprising statement is one by Kevin McBride, which I would never believe he had said if I were not reading it with my own eyes:

"The -- what we need to get our arms around collectively, on our side and on IBM's side, is a clear definition of what source code is at issue, what source code is potentially an infringement."

The only appropriate response to that is, "Amen, brother."

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