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SCO's Lawyers Analyzed
byteCoder writes "Today's Wall Street Journal has an article (subscription required) which highlights the arrangement disclosed by this freely available SEC filing made between SCO and its law firm (run by lawyer David Boies) giving the law firm of Boies, Schiller & Flexner LLP 20% of the proceeds from the settlement or of "a sale of SCO during the pendancy of litigation." (Search down for "Arrangement with Counsel".) Apparently, if SCO is taken over while litigation is pending, Mr. Boies' law firm could stand to earn 20% of yesterday's market cap of $247M = $49.4M plus the premium associated with the increase in stock price due to the takeover. Of course, if SCO is successful in getting any part of their requested $3Bn in damages from IBM, the payday to the lawyers would be much greater."
The only motivation I can see for SCO doing this at all is to get some sort of temporary blip in share price so the execs can sell there shares.
OR creating sufficent legal costs for IBM that it's cheaper to buy them than fight it out in the courts.
They might also be trying to cripple linux with uncertainty in much the same way as AT&Ts courtcase did with *BSD years ago, but linux' critical mass is far larger.
Unless of course some guy at SCO what's to buy a heap of IBM stock at a slightly discounted price?
Seriously, there HAS to be a conspiracy theory in here somewhere.
Look, the lawyers are taking 20% plus cash. That's okay for a company whose sole asset depends upon this case. You want your lawyers incentivized on a life-or-death (for the company) case.
Also, one of the "likely" ways to settle the lawsuit would be to buy SCO and get control of the Unix assets. If IBM concludes that they are likely to lose, then they NEED to buy SCO, rather than letting SCO run around destorying Linux. Remember, Linux is worth more to IBM that SCO's current marketcap.
So, if the lawyers are entitled to part of the settlement, should they get part of the sale? Absolutely. The most likely scenario for IBM to "settle" would be to purchase SCO and/or SCO's assets for some sum of money, and then terminate the lawsuit. How could the lawyers NOT be compensated for that when they are entitled to a percentage of a cash settlement?
Alex
But it is extremely interesting that the lawyers get 20% of an acquisition cost. That speaks a lot towards motives in bringing the lawsuit.
Who do you get to be an expert to tell you something's not obvious? The least insightful person you can find? -J Roberts
Qui bono.
Just typical really. At the end of the day when we're analysing this - when SCO is loooooong gone and Linux is still alive and kicking - although probably hurt by this - we're not going to have to wonder who benefited from all this. The SCO execs are going to be chuckling into their martinis, the people who bought SCO stock and were smart enough to sell it high are going to feel smug and the lawyers are going to walk away rich.
The Linux community is hurt by this, the shareholders who hold on too long are hurt by this, the employees at SCO are hurt by this, Linux customers (and possibly IBM customers are hurt by this) and the people who are slinging the FUD get to walk away with guaranteed millions.
Is it legal to sue lawyers I wonder? Show that they had a vested material interest in damaging businesses by dragging this out as long as possible? Show that they used deliberately deceitful tactics and were complicit in outright lies, obfuscations and unfair practices and maybe tack on a suit for encouraging their customers to pursue illegal activities (violating the GPL and anything else SCO has done that turns out to be against the law).
Basically, is there a way to mire these guys in court for the rest of their lives to that their guaranteed millions dry up? IBM's got billions to throw at this... is there a business case to be made for making an example of the lawyers themselves? Maybe discourage other unethical lawyers from taking up similar cases and causes? Anyway, just my morning rant. Going to go get more coffee and I'm sure the day will be all smiles and sunshine afterwards.
Sorry, but this is not a standard contingency arrangement. If it was only a percentage of any settlement with IBM, that would be a standard contingency fee arrangement.
The inclusion of a payment based on the value of any sale of the company is definitely interesting and goes directly to the heart of at least one of SCO's strategies.
As I understand it, what is interesting is that the lawyers renegociated their payment arrangements to improve their position in the event the litigation fails -- which implies they think this is a more likely outcome.
Also, there has been a lot of speculation that the real aim of the lawsuit was to get IBM to buy SCO just to shut them up. This arrangement adds weight to this suggestion because the lawyers have been given a big incentive to try to make it come to pass.
That's the crux of it right there. The lawyer's job is usually to win the court case, and payment is contingent upon that happening. However, in this case SCO doesn't really have a legal prayer. Apparently that fact was discussed right up front--If we're only getting paid if we win, then we're not taking the case, says Boies, because we won't win.
On the other hand, there seemed a strong enough possibility that if they make enough noise and get big blue mad enough, maybe they'll get bought out just to settle things down.
So instead of fighting the court hopeless battle, Boies's primary objective is to inflate the company's stock price. That means getting a lot of attention (hence the invoices to the fortune 1000 companies--that gets them noticed (more so than just the law suit) in places like Fortune and the WSJ. Then, they use their extensive media attention to spread a hell of a lot of FUD. Waves of it, loads of it. They don't hve to prove anything--that a losing battle anyway. They just have to look all important.
And suddenly their stock goes from just pennies to $18/share. As stated by another poster here, Boies has already reaped part of his reward by getting $10M from SCOs recent stock offering.
This is the biggest Wall Street con job since Enron, if not bigger.
"With sufficient thrust, pigs fly just fine. However, this is not necessarily a good idea...."
RFC 1925
The really interesting aspect of this story is the fact that SCO has effectively diluted shareholder equity by 20%. If you're ever looking at financial statements from now on, you have to reduce the numbers by 20% because that's already given away to Boies.
The counter-suits, on the other hand, ARE based upon the fact that SCO does NOT control UNIX, does NOT have the right to issue licenses for linux (which is what they had threatened to do), and that, if there was in fact any SCO code in linux (an assertion that they have failed miserably at every time they tried to "prove" it), it's already covered under their gpl-ed release of Linux.
As for the so-called code, code is not patentable, just copyrightable. Since SCO waited too long between the initial writing of the code and filing for a copyright, their maximum damages are set by statute at $150,000.00. But the suit isn't about that. It's a contract dispute with IBM over terminating Project Monterey.
The GPL specifically forbids SCO or anyone else from encumbering gpl-ed software with additional licenses, so SCO does not have the right to issue licenses for the kernel. As for the GPL's validity in court, the courts have decided in its' favor. see bottom of text: MySQL vs NuSphere