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."

Comments

Ew, gross

[Anonymous Coward]

For a minute there I thought it said "SCO's lawyers anal-ized"

Re:Ew, gross

[nearlygod]

As in they are going to a federal pound me in the... nevermind.

Contingency

[incompetent_bitch]

This is simply known as working on a contingency basis, and there is nothing unusual about it. It essentially means that the lawyer fronts the money during the trial and collects a percentage at the end. This can be very expensive for a law firm, since there is a lot of discovery (depositions are insanely expensive due to transcription costs), they pay for expert testimony which is also very expensive, and have to deplete their own working capital during the trial, in the *hopes* that they win. If they don't, the firm is out a fair chunk of change.
A lot of civil trials do work like this, and I'm not quite sure why this is frontpage worthy.

Re:Contingency

[stevesliva]

But it is extremely interesting that the lawyers get 20% of an acquisition cost. That speaks a lot towards motives in bringing the lawsuit.

Re:Contingency

[killmenow]

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.

Re:Contingency

[warmcat]

The reason its newsworthy is that contingency is usually had from any winnings in the court, the lawyers recokon up their chances, knowing their skillz, and decide its worth a try seeing as how good they think they are.

The SCOmbags have had to effectively pawn part of their company to the lawyers for several months to get them to do the work.

And if the company is bought out, the lawyers see their money regardless of the half-assed job they have done (see Groklaw).

Re:Contingency

[Ath]

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.

Re:Contingency

[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.)

Re:Contingency

[Anonymous Coward]

What law firm would spend $$ on a case if they knew that the potential outcome could be the buyout of their client by the opposition and not have a condition for remuneration set for this in the representation agreement?

Ok , my client agreed to be bought by IBM so they make out well. The case gets dropped. I'm left with nothing when it was my effort in bringing forth the case that caused the buyout.

Its a logical consideration to have this clause in the contract.

Its not a logical representation contract otherwise.

Re:Contingency

[pavon]

And if the company is bought out, the lawyers see their money regardless of the half-assed job they have done.

Except why on earth would IBM buy SCO unless they thought they were going to loose the case? IBM has deeper pockets than SCO, and a vested interest in proving that their new business ventures are sound. Buying SCO because it is cheaper than defeating them would make it look like IBM has something to hide.

So this clause is only a reasurance that if the lawyers are doing a good job, with much invested into the discovery, they will not be shafted because SCO decides to sell.

Re:Contingency

[tomhudson]

Poster wrote:

Letting them buy the rights to Unix would only further their monoploy.

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).

Re:Contingency

[-brazil-]

Except why on earth would IBM buy SCO unless they thought they were going to loose the case?

Because the loss of faith in their product during a long trial would cost them more? Not an uncommon case at all.

Re:Contingency

[DunbarTheInept]

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.

Re:Contingency

[tyler_larson]

But it is extremely interesting that the lawyers get 20% of an acquisition cost. That speaks a lot towards motives in bringing the lawsuit.

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.

Re:Contingency

[diersing]

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.

Re:Contingency

[steveg]

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.

Re:Contingency

[shis-ka-bob]

some aspects of Windows that are copies of some unix idea get greatly mutated

And sometimes they are not even mutated that much. Open C:\Windows\System32\ftp.exe in Notepad and search for 'copyright'. You will find Universty of California, not Microsoft. It looks like somebody has been using BSD code & I don't recall that fact being mentioned in my EULA for Windows (C:\Windows\System32\eula.txt). After looking at the BSD license, I'm wondering if the second condition was violated.

Re:Contingency

[BrokenHalo]

Can any of these guys be disbarred for this?

No. It's perfectly common for legal firms to engage in fishing trips like this.

Without wishing to appear xenophobic, this litigous behaviour is an aspect of American culture that I find unattractive, but unfortunately most of the "western" world seems to be following in the US's footsteps with an unhealthy alacrity.

Re:Contingency

[tomhudson]

No, their case is NOT based on having the right to license the code. Their case is a simple contract dispute between themselves and IBM.

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

Re:Contingency

[eric76]

One of my old consulting customers in the 80s was a company that provided services for lawyers.

They would do depositions, private detective work, pick up and deliver evidence, ..., and bill the legal firm.

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.

Re:Contingency

[BenEnglishAtHome]

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.

Re:Contingency

[tomhudson]

The limitation is a US statute, and any suit filed in the US has to respect it.

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:

(b) Civil Actions. -
No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.

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:

Sec. 412. - Registration as prerequisite to certain remedies for infringement
In any action under this title, other than an action brought for a violation of the rights of the author under section 106A(a) or an action instituted under section 411(b), no award of statutory damages or of attorney's fees, as provided by sections 504 and 505, shall be made for -

1. any infringement of copyright in an unpublished work commenced before the effective date of its registration; or
2. any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work

They only registered their copyright to certain code this summer, so prior claims are barred. Fucked again :-) They can only claim, at most, actual damages, with a statutory limitation of $150,000.00 Here's the actual law: Title 17, Chapter 5, Section 504

In a case where the copyright owner sustains the burden of proving, and the court finds, that infringement was committed willfully, the court in its discretion may increase the award of statutory damages to a sum of not more than $150,000.
In a case where the infringer sustains the burden of proving, and the court finds, that such infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court in its discretion may reduce the award of statutory damages to a sum of not less than $200.

So, 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.

My thoughts

[ajakk]

"You want fries with that?" Darl: "Bwahahahaha. Mom, mom, it isn't fair! That big bully, GPL is cheating." SCO reminds me of my brother and I fighting over something. Hey SCO, how do you feel about paying IBM's (and anyone else you were thinking of suing) legal costs?

Equity

[milo_Gwalthny]

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?

Re:Equity

[Spazmania]

How is this a conflict of interest? It would only be a conflict of interest if the lawyers were working for the other side of the argument.

Re:Equity

[ajakk]

It doesn't matter. You only have a conflict if you have an interest in a party you are against. Why would a court matter if a law firm has an interest in their own client? The only thing that means is that the law firm might work harder to win the case. Do you think it would be OK for a company to have its in-house attorneys represent it in court? What makes that attorney's conflicts any less than an attorney who works for a firm?

Re:Equity

[milo_Gwalthny]

Let me expand by quoting the NY Bar Associations ethics code (Code of Professional Responsibility)--note to Bar: I claim fair use!

"EC 5-7: The possibility of an adverse effect upon the exercise of free judgement by the lawyer on behalf of the client during litigation generally makes it undesirable for the lawyer to acquire a proprietary interest in the cause of the client of otherwise to become financially interested in the outcome of the litigation... a reasonable contingent fee is permissible in civil cases because it may be the only means by which a non-lawyer can obtain the services of a lawyer of his or her choice..."

So, in your opinion, is this the case? Can SCO not afford an attorney? I suppose, if you were a lawyer, you would argue that they can't afford the attorney of their choice because that particular attorney is demanding a contingency, but this defense is so broad it would make this clause worthless, so it is probably not what the Bar Association meant.

The conflict of interest arises because the attorneys are supposed to represent SCO's best interests. Now, what if SCO's best interests were to drop the litigation and continue as an independent entity? Wouldn't that present an ethical conundrum for Boies et al? To wit: best interests or get paid? I am not saying that the lawyers wouldn't do what is right, only that the conflict exists.

Re:Equity

[fishbonez]

I think a corollary would be: Does the agreement giving ownership in the event of sale open the law firm and lawyers to direct liability if it is proven that this lawsuit is tied to a pump and dump stock scheme as some have alleged? Does the fact that the law firm only gets ownership in the event of a sale protect it from this? Or is it such an unusual arrangement that it eliminates the usual protections afforded attorneys from clients' wrongdoing? Basically, is there any chance David Boies could go to jail for his role in this fiasco if it does turn out to be a fraud of some sort?

Re:Equity

[milo_Gwalthny]

Damn man. If you are NAL, then you should be one.

I don't think the timing of the payment makes any difference as to whether this should be considered equity... even Common shareholders do not get paid for a sale until the sale is made. The question is, then: if Boies et al were a de facto 20% owner of the company and is involved in day-to-day management decisions, is he accountable for them and to whom?

(1) I would think that their criminal accountability as a member of management for a fraud is no less than their accountability as a outside counsel.

(2) Their accountability to the shareholders of SCO is probably less in their capacity as manager than in their capacity as outside counsel (because it is harder to sue management for fraud than to sue outside counsel for malpractice) but the lawsuit for malpractice would probably have to be brought by the company while the lawsuit for management fraud could be brought by the shareholders.

(3) Their accountability to those being sued, however, is probably greater if they are management than if they were a outside counsel. This would be an interesting tactic for IBM to take if they lose. Actually, IBM should be asking to disqualify Boies right now because of the conflict of interest. If the US Government could disqualify Gotti's attorney (Cutler), then it would seem that this would be a slam dunk, and extremely damaging to SCO's ability to litigate.

Re:Equity

[alexq]

There's nothing wrong with an attorney owning part of its client, is there? A client can even defend _itself_, so why can't an attorney have more than a professional interest in the client?

If it were the judge that owned 20%, then well...

"LLP"?

[Zocalo]

Let me guess... "Libelous Legal Practice"??? ;)

Thank god for IBM

[theparanoidcynic]

With such um, motivated oposition I'm glad that we have IBM's ninja attack lawers on our side.

Re:Thank god for IBM

[MooCows]

Pictures of the IBM Dojo

.....SCO SCHMO

[tolan's my name]

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.

That is actually a fair thing

[alexhmit01]

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

Re:That is actually a fair thing

[Smiling_Jack]

Yeah, but this runs contrary to current /. thinking: that SCO is full of hot air, and once the source code is made available to knowledgable scrutiny, it'll be shown that they have nothing. Assuming this is true, SCO has to know this, and I can't imagine a lawfirm agreeing to this unless they had a VERY strong belief that either a) SCO will win, or b) SCO will get bought. Unless they plan on dragging this out ad infinatum, and hope that IBM will buy them to stop the annoyance, which IBM does not seem inclined to do. So.... what do they know that we don't?

Re:That is actually a fair thing

[Simon Brooke]

So, if the lawyers are entitled to part of the settlement, should they get part of the sale?

This case is just one of those things which are so unbelievably sleazy that they're not illegal because no-one ever imagined anyone would stoop that low. Create a nuisance lawsuit on extremely tenuous grounds in the hope someone would buy you out in order to shut you up. I've been thinking up to now that it would be nice if IBM crushed this quickly and put us all out of our misery, but now it's apparent that it would be better for IBM to draw this out as long as possible to make sure they bankrupt the scumbag lawyers.

If they're allowed to win this one we're going to see a spate of similar cases - not necessarily anything to do with software or open source, but small companies with just the minutest possibility of an extremely complicated case against larger companies going to law to, essentially, blackmail money out of them. They need to lose, and lose very badly, pour encourage les autres.

Re:20% of Zero

[Koos Baster]

They'll probably get sued by SCO for loosing their case ;-)

--
If you can, help others. If you can't, at least don't hurt others -- the Dalai Lama

All that and a cool mill

[Resaurtus]

From the SEC filing

> 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 it, Boies & Co. already got $10M

[Thagg]

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

Big Surprise

[Inexile2002]

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.

Re:Big Surprise

[yog]

You can sue anybody for any reason. Of course someone can sue Boies and his law firm. It's a tactic that is sometimes used to *discourage* lawsuits; if someone sues you, countersue them and also sue their attorney, who then will need to hire his/her own representation. The good ol' American legal system, gotta love it!

Capatalist...

[BubbaTheBarbarian]

Everyone is going to hate me for this. Just note that I have been scathing at SCo and what they are trying to do with OSS.

In this case, I cannot say I blame the lawyers. If they did not take that kind of an offer, another firm would, and if you get 3B out of IBM (snowballs chance in hell I know) and you get the typical 40% out of it...damn...

then again, the paranoid in me sees this as being a nice payback to Dave from MS. Make a little dosh, take a crack at being set for life, and oh, if you start to lose we will buy the company at an inflated price, meld all of the IP claims into our own, let the memory of this fade away and try again in a another couple of years. Thanks for the surrender Dave! We love you!

(this post not spell checked)

MCR UAF MOD user /PASS=IMALOSERFORFORGETTINGMYPASSWORD /NOPWEXP /PWDMIN=40 /PWDLIFETIME=1 /FLAG=GENPWD

Re:Capatalist...

[dipipanone]

If I offered you millions of dollars to supply torture equipment to (e.g.) North Korea, or explosives to Al Quaeda, would you do it?

Is this a serious offer, or just another of those goddamned rhetorical questions?

Close

[TheConfusedOne]

Lack of Lawyerly Principles

What a great way of life....

[overbyj]

To think Boise and his fellows have been involved in some of the biggest bungles in legal history and they are none the poorer for it. Think about this guys "big" cases and his results.

MS anti-trust......he "won" (and I use won very loosely)

2000 pres election.....enuff said

SCO....talk about hitching your wagon to a broken down pony

But even though his legal genius is not serving him, he will still be stinky rich. Much richer than the vast majority of people who pour their heart and soul into Linux and the Linux community while he and his incompetent lackeys try to rape the Linux community on behalf of the SCO assholes.

There is truly little justice in the world. It is unfortunate that he will not be able to join McBride and his crew in Federal-pound-them-in-the-ass prison. That would be justice.

Re:Lawyers greedy shock

[pdc]

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.

The Perfect Slashdot Article

[Schlemphfer]

Today's Wall Street Journal has an article (subscription required)

This article's a dream come true all of us who post on Slashdot without first reading the article. Finally, we've got a good comeback for all those pests who tell us to go RTFA (read the fucking article.)

I hope this begins a trend, and I look forward to many more Slashdot stories centered around articles I don't have subscription privileges to read. You can count on me and hundreds of others to post responses to these stories, confident in the knowledge that we have no clue as to what the article says, and knowing nobody else does either.

Again, fantastic work!

David Boies

[4of12]

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.

Nothing has changed hands (yet)

[sczimme]

so it is not an issue.

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.

The law firm won't receive anything until/unless a) the suit is settled, or b) SCO is sold in the meantime. In the first case the law firm will be collecting its fee from the settlement; they are working on contingency* (as described elsewhere in this thread). In the second, SCO will have a new owner, and the law firm's fee will come out of the money used to buy SCO.

Nutshell version: the law firm will receive $$$, not ownership or equity.

* Insert Lionel Hutz quote here.

PS Of course, IANAL. I didn't RTFA either. D'oh.

Re:Nothing has changed hands (yet)

[milo_Gwalthny]

Being entitled to a piece of the value of a business is equity. Ask Enron, they 'learned' this the hard way.

I call this 'essentially' equity because there are circumstances where the attorneys are not entitled to a piece of the value of the business, although it is hard to envision these: (1) the lawyers lose the case, (2) the company is not sold and (3) the company continues to be worth something. I think it is number three that will be difficult to achieve without either one or two.

Read the article without subscribing

[Randar the Lava Liza]

For any WSJ article, just add _print after the /article to read it without subscribing. In this case try http://online.wsj.com/article_print/0,,SB106807618 578400800,00.html?mod=technology_main_whats_news

Re:Lawyers greedy shock

[fshalor]

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,

If they lose

[techstar25]

Of course if they lose, 20% of zero is still zero.

Mainstream press picked up on this...

[pegr]

Not to say WSJ isn't mainstream...

CNN's article...

IBM's lawyers, I hear, are very expensive ones

[decaf_dude]

What'll be the arrangement between SCO and Boies with regards to paying IBM's legal fees (which is inevitable when they lose this case, which is inevitable (no, this is not a redundancy))? No doubt the tab will run into millions... Will Boies pick up 20% of that?

Has anyone noticed...

[jd]

The further SCO progresses with litigation, the stronger the solar flares are getting?

Can we countersue SCO for environmental damage?

Re:Lawyers greedy shock

[dostalgic]

You are beeing a bit too gloomy. Here's my take:

• The Novell transaction is a good thing. This will provide another strong pro-Linux entity
• RedHat has not completely abandoned the community. The Fedora Project is analogous to the Mozilla.org spin-off. That's a good thing.
• Sun is a perpetual fence-sitter. That's why they are perpetually mediocre.

Open Source will survive. I believe we have a 90% chance of getting SCO slapped down. If so, the community and GNU/Linux will thrive.

Long live Tux!

MS ?

[Dragoon]

Microsoft License Agreement

During the quarter ended April 30, 2003, SCO entered into a licensing agreement with Microsoft Corporation ("Microsoft"). The initial licensing agreement allowed Microsoft, at its election, to exercise two options to allow Microsoft to acquire expanded licensing rights with respect to SCO's UNIX source code. During the quarter ended July 31, 2003, Microsoft exercised and paid for the first of these options. During SCO's current quarter, ending October 31, 2003, Microsoft exercised and paid $8,000,000 for the second option.


Wow, nice to see that on paper.

Inadequately cynical

[MarkusQ]

Yeah, but this runs contrary to current /. thinking: that SCO is full of hot air, and once the source code is made available to knowledgable scrutiny, it'll be shown that they have nothing. Assuming this is true, SCO has to know this, and I can't imagine a lawfirm agreeing to this unless they had a VERY strong belief that either a) SCO will win, or b) SCO will get bought. Unless they plan on dragging this out ad infinatum, and hope that IBM will buy them to stop the annoyance, which IBM does not seem inclined to do. So.... what do they know that we don't?

You obviously aren't a scumbag. Why should they care about the merits of the case, it the only goal is to make noise and rattle bucks loose from whomever they can. As others have noted here, they already got US$10,000,000 (their share of the US$50M "from" BayStar). And they may well get more before it's over.

Look at it this way (and try to think like a scumbag): if you are attempting extortion, do you really care if the threat you use is factual? Of course not. You only care that it be sufficiently annoying to your target that they will pay rather than endure it. Moreover, if you are being paid to harrass someone (as they clearly are, from the public record), do you care that your claims are true, or meerly that they are sufficently harrassing to satisfy your patron(s) that you are doing your job?

-- MarkusQ

Re:Lawyers greedy shock

[vidarh]

Talk about Paranoia. Novell bought SuSE to strengthen their Linux offering. SuSE went from being an independent software company with a market cap in the $210 million range, to being part of a company with a market cap well above $2 billion.

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.

C= scumbags...Only IBM...

[Chordonblue]

...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.

wow!!!

[bpland]

Did anyone notice this?

"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....

SCO's motives?

[couch_warrior]

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.

Dilution of shareholder equity

[Anonymous Coward]

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.

Disney should sue SCO.

[pclminion]

The Caldera logo clearly infringes upon Disney's trademarks. Hasn't anyone else noticed that it's just a big red globe with a blue Mickey Mouse logo on it that just happens to be rotated 45 degrees counterclockwise?

I'm sort of joking, but in all honesty that's actually how I've always interpretted that logo. It wasn't until this morning that I realized the red part of the logo is actually a big letter C. If I can make the mistake, so can others.

So:

[BrokenHalo]

Analyse with anal eyes, and all you'll get is hindsight...

The problem with a buyout is:

[djh101010]

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?

Re:The problem with a buyout is:

[TheCarp]

Exactly. I think IBMs people understand this, and thats probably why they havn't done it. Frankly, I think the issue here is that SCO shot its load way too early. Had they been more discrete, they may have gotten Big Blue to buy them out as a pre-emptive strike against all this.

Since they didn't, now Big Blue isn't going to do it. It woul dlook very bad, it would set bad precident, and it would leave the field open for the next money grubbers who can make some vacuous claims. No, now they are committed.

The best part here is that, if they lose, they have a good chance of validating the GPL, and closing off one more avenue of FUD, like a junky collapsing an overshot vein. Thats a nice win.

Now it may take a while, but victory will be worth the wait. Besides, Big Blue has pockets deeper than some governments - my prediction is that by the time this is finished SCO will be little more than 3 letters on court filings.

-Steve

Re:The problem with a buyout is:

[fwarren]

This is only a problem if IBM drops their countersuit. Heck if SCO drops their suit, their stock drops, they file bankruptcy, IBM may still pursue them, both to make a point (don't try to blackmail IBM) and to shutdown the FUD with a soild ruling on the GPL.

To anyone actually working at SCO

[Onan The Librarian]

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 ?

Re:To anyone actually working at SCO

[Anonymous Coward]

We eat babies and torture puppies.

Conspiracy! Conspiracy!

[ca1v1n]

Quiet down people! This is not a particularly astonishing thing to have in such a contract. Boies's firm would frankly be nuts to take a case of this magnitude without some guarantee that if they are successful, but there is no judgement, that they will still get a payoff. This doesn't mean that the firm is motivated to encourage SCO getting bought out, since in fact that could quite possibly hurt them. What this really means is that the firm knows, like the rest of us, that SCO would jump at any buyout offer, and they're making sure they don't get completely screwed out of their contingency fee if it happens.

Don't take this as a sign that SCO has lots of friends in low places. Really all this means is that people who ought to know aren't confident that they'll be around much longer.

open source buy-out

[tomdarch]

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'!)

Re:open source buy-out

[iggymanz]

that would be a very foolish thing to do, as things are already starting to go very badly for SCO in the courts...the price could plummet to a much more realistic under-$5 a share very soon. Let the legal system tenderize them a little first....

Looks like SCO has cash flow problems...

[linuxjack55]

Everyone assumes the original deal between SCO and Boies was a straight contingency agreement. Given the size and resources of the defendant, the amount of time and money required to prosecute the claim, and the likelihood of an unfavorable outcome, I can't believe it was. Even if there was a contingency agreement, though, it may well have been conditioned upon IBM settling the case within a certain period of time. Now that settlement is a remote possibility, Boies may have demanded money to continue with the case, and SCO couldn't come up with the cash. The company's 8-K talks about "credits for amounts received as discounted hourly fees". If they had actually retained Boies on a contingency, there wouldn't be any hourly fees.

The language of the SEC filing ("...in the process of finalizing...", "...subject to a definitive agreement...") clearly indicates that this is a deal SCO has pitched to Boies (or vice versa). It's also clear that part of the money ("...certain licensing fees...") is coming directly from Microsoft. Since no lawyer in his right mind would negotiate a fee agreement downward, Boies' firm undoubtedly stands to make more money under the deal, but on the back end.

In a nutshell, this is the scenario: SCO brought Boies in to force a quick settlement. When that didn't happen, Boies' fee agreement reverted from contingency to hourly. In fact, it appears that Boies may have been paid something for not settling the case, since the 8-K also talks about a credit for "prior contingency payments." In any event, Boies and his firm are now working on an hourly basis, which SCO can't afford. To keep him on board, they've offered him (or he's offered them) the deal stated in the 8-K.

Given SCO's well-documented compliance problems with IBM's discovery requests, one can only wonder whether Boies' firm has cut back its work on the case until the compenstion issues are resolved.

Re:Equity & Tainted Goods

[whittrash]

SCO is tainted by its violation of the GPL and the IBM countersuit. Anyone can sue them who has copyrighted material in Linux, and they are potentially infringing on thousands of different peoples and companies IP by violating the GPL. In addition, they are potentially involved in criminal activity if this turns out to be a pump and dump scheme, and no Wall Street company is going to want to be a part of that. This outstanding liability could make SCO worthless for any potential buyer. Who is going to buy a company with open ended legal issues with possible judgements against them greater than the value of the company? Unless SCO settles the legal issues with Linux and IBM, and is free and clear so to speak, no one, not even IBM, will buy them out. The only thing they can do is sell their IP, and close the doors.

SCO's crack legal team

[adric]

My wife put together a picture of SCO's crack legal team (by which, I of course mean "legal team on crack"), which pretty much explains their entire strategy. Feel free to share! ;-)

Lawyers: up to $1 million + 20%. Clients: jail

[Thomas Frayne]

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.