Slashdot Mirror
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."
It's always interesting to me that arrangements like this, that are essentially equity, are not considered conflicts of interest--how would a court respond to an attorney owning 20% of one of its clients?
Milo
But what if there's no take over, and SCO doesn't win the trial ?
Note also that they get 20% of any equity financing. They've already gotten 10 million from the $50 million Baystar deal. Hardly working on contingency. I mean, yeah, it's a contingency basis, but with a $10 mill downpayment.
> In addition, this modification may result in the payment to such law firm of up to $1,000,000 and
> the issuance of up to 400,000 shares of SCO's common stock.
Okay.. So, they are paying thier lawyers either 1) 20% of the settlement for what they beleive is their most valuble asset (The Unix IP), 2) 20% of the company value, *and* up to $1M + up to 400K stock shares.
Wouldn't it have been cheaper to buy a few law firms? That is a friggin ton of compensation. And for that (plus the small price of their reputations and soul) they get some really bad legal service.
With management making decisions like that it's no wonder the only asset the company really has anymore is stupid. But at least they have plenty.
As I read the SEC filing, Boies's law firm gets 20% of any new stock offering. This would seem to include the $50 Million recently received from the private investment from BayStar and Royal Bank of Canada.
Thus, the lawyers are no longer working strictly on contingency, they have received a lot of money up front (or, in the middle, anyway.)
thad
I love Mondays. On a Monday, anything is possible.
It's a shame that such a talented legal mind, one who did such a nice job in the U.S. government's prosecution of Microsoft on anti-trust charges, has sold out to the dark side.
"Provided by the management for your protection."
It is just one more disturbing piece. I'm almost starting to lose sleep over this whole SCO debalacle. From the begining, I actually thought that SCO was put up to this whole thing by an outside source. (MS perhapse) as a way of severly harming the linux/FSF/GPL movement.
:)
Now we see:
1. Novell bought out SuSE. (one down)
2. Redhat won't be messing with the desktop anymore. (twp down.)
3. Sun Microsystems has all but said "Linux is for the birds". The'll ship boxes with it if you want, but don't reccomend it. (Three down.)
And now this thing about the laywers getting a cut if SCO sells out.
Now we must ask, who is right now looking around and buying stuff up: Novell's out, since they just got SuSE. MS's looking for searchengines and feeling the market... So if the "deal" was, if SCO could take out three Linux companies, or at least shift their focus, they'd get bought out.
I just hope it isn't six. If MS buys them out this month, I'll sleep a lot better.
The only Gem in this whole mess is that IBM is staying true and HP is continuing with its Pro linux initiative. I haven't had a driver issue in either windows or linux/Mac OSX since.
Best,
-=fshalor
Add to this the fact that most /. readers think the're full of crap, IBM thinks the're full of crap and everyone who's looked at the IP thinks there full of crap.
There're banking on a buyout allright. But will IBM come to the rescue? I'm putting my centavos on MS. They would get to come in, be a hero to the Linux community and then have a player on the inside. (Possibly two, now with redhat's repsotioning.)
-=fshalor
Let's try again. Despite what SCO says, SCO does not own the rights to UNIX. The term UNIX is trademark The Open Group. UNIX OS certification is available to any vendor who can make a UNIX variant and pays the bucks to get it certified UNIX-compliant.
Hell, even SCO's variant is not certifiable as a modern UNIX.
So, let's confuse the issue even more by saying we're running Linux - the first and only post-UNIX operating system (it's all about positioning and branding. We make it quite clear that Linux is not a modified version of UNIX, but was written from the ground up, AND we make it equally clear that a POS like SCO is ancient history).
Normally, MS cannot get into the unix business due to an agreement they signed when they spun off Xenix to a different company (They agreed that they would not compete against the product line they were selling off to someone else, and thus they would not get involved in the unix market again.) But - here's the interesting thing - what's the company they signed this agreement with? SCO. (Not the current people at SCO, mind you, but I would imagine the company still owns that contract even though none of its members are the same people as back then.) So, the ONLY way Microsoft could get into the Unix business legally would be if SCO ceased to exist (or became a part of Microsoft so that MS would be in charge of both sides of the agreement and thus could nullify it.)
I've sometimes suspected that this is the reason some aspects of Windows that are copies of some unix idea get greatly mutated. They can't just use all of the same technology directly the same way without being in danger of producing a unixy enough system that it might violate that previous agreement. So they make stupid changes perhaps just to cover their ass legally.
Don't label something "offtopic" unless you know the topic well enough to tell what's on topic.
Redhat is focusing on selling products that will make it money. So Redhat won't make boxed sets of their cheapest product anymore, but who were buying them anyway? You've always been able to get it in tons of books, magazines, on the net etc., and Fedora is taking over the mantle. So what you have is a situation where companies still get support if they pay for it, just as before, and consumers get a ditro, just as before, but the name will be different, and they'll have to go to some cheap CD packager to get CD's of it much like most people have been doing anyway.
Sun? Who cares about Sun except Sun itself?
All in all I see the Novell and Redhat events as good - it will likely help both companies, which will only mean better business penetration for Linux, and that will filter down to consumers eventually.
...Could possibly pull that off. I'd sure love to see it though it would be a first. A lot of these exec scumbags and lawyers got off during the dom-com era too.
I'm always reminded of the incompetance/greed of Commodore and their ruling class. Those guys made off big. In their last years, the CEO was making more than IBM's CEO even then the company was losing millions upon millions (he did give some of it back in the last year though - how kind).
Here was a company with great products (well, the Amiga-based stuff anyway) run by people whose only possible thoughts ran to corporate meetings in Bermuda and grabbing all the cash they could before it all went down.
After the liquidation (which was a sad affair I happened to attend in West Chester, PA), a bunch of shareholders got together and decided to sue the former execs for malfeasance. It never went anywhere. Basically, they were outspent before they began. But in the case of SCO, it would indeed be interesting to see if a corporate entity like IBM would get involved in pursuing these guys after it all goes down.
"...Well, there's egg and bacon; egg sausage and bacon; egg and spam; egg bacon and spam; egg bacon sausage and spam..."
"SCO has also sent letters to many large companies suggesting that their use of Linux might leave them infringing on SCO's copyrights. It has offered to free them of legal risk in return for hefty license fees. If any company decides to pay such licenses, Boies Schiller would be entitled to 20%, according to the filing."
20% from each license....
Everyone is missing hte REAL point here. As the cartoon "user friendly" ( http://www.userfriendly.org/ ) has implied, SCO is just a sock-puppet for Microsoft. After all, didn't MS take a $39M equity position in SCO *just before* the suit got filed. BUT here's the gag. What if this isn't just an end-around-run by MS trying to gore Linux without looking like a predatory monopoly? What if the rumors are true, and MS has been lowering software development costs by incorporating open-source drivers into Windoze? Aha, suddenly the mists clear and we see what could REALLY be at stake. If SCO is NOT successful at destroying the GPL, Ms might have to OPEN-SOURCE Windows because of the code that they have appropriated. And following that thread, developers which have incorporated MS-supplied class libraries and APIs might also have to open source THEIR code. So the REAL story that newspapers should be covering is not *How will Linux users be indemnified against IP claims* but instead *How will MS indemnify users of Windoze against having to open source their code* when the GPL is UPHELD by the courts.
"Sic Semper Path of Least Resistance"
Is it impossible to think MS would buy SCO just to dismantle it? They wouldn't be competeing against UNIX, just eliminating it. Offering current customers a migration strategy to Windows 2000/3 in the process? For a company the size and wealth of MS, a quarter billion can prolly be found in Bill's couch and car ashtray.
I'm putting my centavos on MS. They would get to come in, be a hero to the Linux community and then have a player on the inside.
Umm... Hero?
If MS bought SCO, they wouldn't be trying to be a hero to the Linux community. Continue the attack, now that I'd believe.
And that might be a lot more dangerous -- instead of a opponent with 50 million to burn on a lawsuit, we'd have a opponent with resources on the same order of magnitude as IBM. No, not as big, but in practical terms for the sake of something like this we're talking unlimited resources. And it would be a *motivated* opponent, with a lot more at stake than pumping up the stock price.
I don't think this is likely -- if MS were to pursue this strategy they'd have done it when they could have picked up SCO (and its IP) for a song.
But if MS were to buy SCO I'd start to worry.
Ignorance killed the cat. Curiosity was framed.
If IBM buys SCO to shut them up, then all of the FUD about linux in general and the GPL specifically, stays out there without being ruled on. This way, those who want to believe (or exploit) the FUD can put whatever spin they want on it.
If IBM buys them out (or someone else), and the court cases just go away, then the people who want Linux and the GPL to be discredited have won anyway.
I'm not sure how this can be resolved in a good way. We wait for the legal system to rule, it takes years. If IBM buys them out, it's basically paying extortion, sets a _very_ bad precedent, and allows the FUD to remain.
Am I seeing this wrong? Does someone have a realistic positive outcome, and a path to get there?
This is a serious post, so please take it seriously. What, in truth, does anyone do at your company ? I mean , besides Darl & Co. making pronouncement after pronouncement, what do the rank and file employees really do ? Do you write code ? Do you debug existing code ? Are you selling stuff ? What stuff are you selling ? Do you write documentation ? About what ? Are you working support lines ? Seriously, I'm wondering about this because it seems like a crappy job to work for people like Darl. I mean, it's pretty obvious that he doesn't care about SCO's product line (which to us out here seems to consist only of lawsuits). Do you stand to personally make out well financially from an outcome favorable to SCO ? Do you like working at SCO ? Do you feel that you're doing creative and/or useful work there ? Really, does anyone actually work at SCO ?
So, if the market cap of SCO is about us$250 million, it would require about us$150 million or so to obtain a majority stake in the company. Could the global opensource community put that together? With a solid majority stake in the company, a consortium could replace the CEO/board, terminate the litigation, sell off the assets and, finally, release UNIX under an open license! (The best part of all of this would, of course, be the fact that we would all stop having to call things '*nix' or 'UNIX-like'!)
One of my old consulting customers in the 80s was a company that provided services for lawyers.
..., and bill the legal firm.
They would do depositions, private detective work, pick up and deliver evidence,
Many of the lawyers and legal firms were of the opinion that they didn't have to pay any of the bills for this until the cases were settled.
So that company got into a serious cash flow problem at one point. They had hundreds of thousands of receivables, but not enough cash coming in on them.
At some point, they couldn't make their quarterly tax payments because of the problem. They were audited and the IRS found several thousand more in taxes they owed.
But the company just didn't have the money.
The president/owner of the company told the IRS that he wished he could turn over that much of his receivables to the IRS. The IRS agent replied that they could.
So he spent the weekend pouring over the receivables and identified enough to cover the tax debt of the oldest, most difficult to collect receivables that they never thought they had much of a chance to collect.
The following Monday, he gave the list to the IRS.
The IRS agent started calling the lawyers and law firms.
"Hello. I'd like to confirm that you own XYZ company (some dollar amount). Can you confirm this?"
Lawyers know that if you admit the debt and say you are going to pay it later, you can often put off paying it for years, but if you deny the debt, it becomes a legal matter and they can drag you into court real fast and get a judgement against you. I saw one lawyer who was very wealthy but got ticked off at someone over very late delivery of a $50,000 computer take years to pay the debt just to teach them a lesson.
So they all admitted that they owed the debt.
The IRS agent then said, "I'm Agent (insert name) of the IRS and we've been assigned this debt. I expect you to have the check in the mail by tomorrow morning."
He collected every single penny of every one of those ancient receivables.
SCO's lawyers get up to $1,000,000 plus 20% of essentially everything else SCO owns: stock, sale, settlement, winnings in court, license fees. The clients get a bankrupt company and jail terms. SCOX is currently worth $17 per share, so the lawyer would get $49 million, if they could sell it quickly enough. No one would buy the company, except as a gift to SCO (Microsoft?), and then they would get a can of worms with a 20% surcharge. IBM won't settle, and won't buy. Winnings in court? Don't make me laugh. License fees: SCO has already collected almost all the license fees it is going to get. How quickly would the lawyers have to collect in order for the 20% to exceed the up front payment? Well, let's consider some recent history and scheduled events. SCO's press releases have become few and far between; each is quickly answered by someone from SlashDot or Groklaw, sometimes in a Talkback forum on the same medium. IBM's motion to compel discovery will be heard in court on December 5, and I expect the judge to rule in favor of IBM. SCO's motion to dismiss the Redhat suit will come up soon, and I expect the judge to rule in favor of Redhat. Novell bought SuSe, greatly enhancing its multi-platform services strategy, and making it a major Linux player, both for services and for desktop. The Linux community now has two very strong competitors, Redhat and Novell, with giant IBM backing both. Novell and its customers are effectively immune from suit by SCO, because of the rights Novell retained when it sold assets to SCO. NOTE: No indemnification or license from SCO is needed by any Novell customer. IBM invested exactly $50 million in Novell, matching Microsoft's gift to SCO. This has to be a hint to Novell to file a suit or criminal complaint against SCO. I filed a criminal complaint with the SEC, against SCO's officers and directors, in September, accusing them of stock market manipulation. HAVE YOU? How quickly would the lawyers have to collect in order for the 20% to exceed the up front payment? My guess is six weeks maximum. I don't know when the criminal complaints will become public knowledge, but I expect that to be the last straw for SCO.
Close, but that's not the way it works.
First, the most important thing to remember is that the person who decides not to pay employment taxes is a thief. Period. In order to kep their company going, they stole money from their own employees. Say that you owe me USD$100 and I ask you "Hey, look, I owe my neighbor $10. Can you just give me $90 right now and then let him have the $10 when he drops by this afternoon?" You agree to do so, but when the neighbor shows up you refuse to give him the $10. What have you just done? You've stolen $10 from me, that's what. Employment taxes are the same thing. When your employees earn $1000 and you withhold $100 of that to pay employment taxes, that's no longer your money. (It's called the "trust fund" portion of the taxes.) You are obligated to pay that money over to the government on behalf of your employees. If you don't you're stealing from them. Period. Even if you can't make up your matching portion, failure to pay over the trust fund portion is theft, pure and simple.
If you ever hear that your employer is in trouble for nonpayment of employment taxes, find another employer and do it quickly. You work for an untrustworthy thief and cheat.
Second, it's not an agent but an Officer who collects money for the IRS. Agents, the people who conduct audits, will ask for and accept payment at the end of an examination but they don't go to such lengths as you describe to collect that money. In fact, they don't have the legal authority to do as you describe. So insert a few months into your story and turn the case over to a Revenue Officer before you start talking about the collection of taxes.
Third, Officers don't get receivables assigned to the government except in the (incredibly rare) case of a collateralized installment payment agreement and no delinquent A/Rs would be considered as acceptable collateral by any Officer I've ever known. What probably happened was that the Officer offered to collect the delinquent A/Rs. That happens all the time via the service of a Notice of Levy. That part of the job is actually pretty fun; it helps resolve the delinquency and teaches a lesson to another deadbeat at the same time. It's a win-win all around.
Good story, btw, but you should be a tad more careful with your facts.
The actual situation is even worse for SCO, as there is a 3-year limitation beyond which civil damages cannot be awarded Title 17, Chapter 5, Section 507:
Remember, SCO has yet to file a lawsuit against ANYONE for copyright infringement. They're SOL against the linux 2.0, 2.2 kernels, because they are more than 3 years old. 2.4.1 was January 29th, 2001, which puts it within the 3-year reach of the law, as long as SCO files a lawsuit before January 29th, 2004, which doesn't seem likely.
then there's the whole issue of Title 17, Chapter 4, Section 412:
They only registered their copyright to certain code this summer, so prior claims are barred. Fucked againSo, willful == $150,000.00 max, accidental == >= $200.00
Their case w. IBM has nothing to do with any of this, of course, but SCO doesn't want people realising that ... it would make their stock drop to pennies.