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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."
For a minute there I thought it said "SCO's lawyers anal-ized"
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.
"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?
Come play Heroes of Might and Magic Mini online.
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
Let me guess... "Libelous Legal Practice"??? ;)
UNIX? They're not even circumcised! Savages!
With such um, motivated oposition I'm glad that we have IBM's ninja attack lawers on our side.
Only in a Slashdot fantasy can a Slackware install turn into several hours of sex . . . . .
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
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
> 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.
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.
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.
No trees were harmed in the composition of this; however, numerous electrons were inconvenienced.
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.
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!
I'm generally "Interesting," "Insightful," and even "Funny" here. What the hell happens to me at parties?
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
Life shrinks or expands in proportion to one's courage. - Anais Nin
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
Of course if they lose, 20% of zero is still zero.
Can we countersue SCO for environmental damage?
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
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.
Welcome to the End
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?
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..."
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"
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.
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.
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 ?
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.
The trouble with practical jokes is that very often they get elected. -- Will Rogers