Only one director was clever enough (in my opinion) to sell everything he has immediately.
Opinder Bawa, VP of Engineering, sold everything he had a couple of months ago.
You have to go back to March for all the sales and probably 12 months for the purchases. It's a lot of slogging.
For example, the dilution of shares used in buying up the other company?
Off the top of my head (might be wrong), those are Form 3's, Form S-1's, and Form 8-K (other events). Also look in the 10-Q's for "total number of shares outstanding" and "fully diluted share counts". The shares have to appear there eventually.
Buying Vultus for shares was a slick move, all right.
And can YOU find anywhere offering prices on Put Options available for SCOX?
I've looked, but not found them.
There would be a couple of problems with options. First, there are people who have material non-public information. Think of everybody who works in the SCO's law offices, and all their friends who trade favors with each other. An options market maker would be trading against people who are doing exactly this, and there will be a lot more of them for SCOX then there are for a normal stock.
Second, this is such a humongous story stock that there is not enough liquidity in the stock. Even if there is no manipulation, it's still possible for news to whipsaw the stock violently. I have already suffered that once.
It's like a dot-com. It is trading on some kind of emotional resonance, not on business prospects. And there is not enough stock to go around -- just like the dot-com.
Think of the most rabid anti-open-source people you've ever met. Software is useless unless it comes from a company, linux developers are dirty hippies and amateurs, all that stuff. These people now have a way to express their emotional revulsion for open source by buying SCOX. And there's not much SCOX to go around so the price can bubble.
I believe the time to short SCOX is when it's going DOWN. I'm not even going to try to call the top. The idea is that the rabid stock owners will be in denial and will not sell immediately, so that the price will take some time to drop -- that it won't go from $12 to $5 overnight, but there will be plenty of time to short in at, say $7.
The denial period for dot-coms lasted three years!
And if I'm wrong and it does go from $12 to $3 overnight? Then I missed out. But everybody who shorts now might get taken to $20 before the bubble bursts.
IBM declines to indemnify. That reveals uncertainty.
There are two factors to uncertainty: the risk that the event will happen times the cost of the event. The risk is low, especially as SCO is acting like a PR firm (and gets paid like one -- check out where their revenues come from). But the cost is huge. So (low risk) * (high cost) == wildly uncertain outcome. Nobody wants to step into that.
Underneath that, though, there is a real issue. Take the FSF's products for instance. With a few months of time, and cooperation from the FSF and its contributors, a small group of engineers could identify the origin of 99.9% of the source code in gcc and correlate it back to copyright assignments with physical signatures and indemnity clauses. RMS and Moglen knew what the fuck they were doing when they set up that system. I am not an expert on copyright protection, but I think it would be feasible for a company to do this and sell indemnified copies of gcc, if there were customer demand to pay for such a thing.
I've heard that IBM provides indemnification for Websphere, which includes Apache.
It helps that the kernel is under source control now. I hope that Torvalds is thinking about how to defend against this sort of attack in the future.
Last quarter, The SCO Group reported sales of $21 million.
They sold $13 million in products and services, with a net loss of $2 million.
They sold $8.3 million of SCO Source Licenses to two licensees, Microsoft and Sun, with a net profit of $6 million.
Total revenue, $21 million. Net profit, $4 million.
That's how much Microsoft and Sun are paying The SCO Group. This is SCO's most profitable line of business. Indeed, it is their only profitable line of business.
SCO doesn't need to actually sell any of these ludicrous IP licenses. As long as they piss on Linux hard enough to drive people to Windows and Solaris, Microsoft and Sun will keep paying them.
Microsoft and Sun are committed to paying SCO $5 million over the next three quarters.
Hit sec.gov, crack open a 10-Q. It's tough going at first but the facts are in there.
You better believe Sun is involved in this. They are the second SCO Source licensee, in addition to Microsoft.
More than that: in connection with their license, Sun received a warrant (that is, stock options) to buy 210,000 shares of SCOX at a price of $1.83 per share.
SCO's actions start making more sense when you abandon the "last gasp of dying company" paradigm and use the "paid FUD attackers" model. 40% of SCO's revenue, and all of their profit, come from Microsoft and Sun via the SCO Source licensing program.
The insider purchases and sales are "Form 4". Insiders have to file these within 48-72 hours or something like that.
If you wanna learn a little bit about being a stock geek... read on.
First, how to find the stuff. Start at www.sec.gov. Look in the second section, "Filings and Forms". You can read the "Quick Edgar Tutorial" if you want, or go straight into "Search for Company Filings".
Click on "Companies & Other Filers" and type in "SCO".
Choose "Sco Group Inc".
Click on all the filings and start reading financialese. Hell, if you know any programming languages or scripting languages, financialese is not that hard to figure out.
Form 4 is "insider sales and purchases". Form 10-Q is "quarterly report". Form 10-K is "annual report". Form PRE 14A and Form DEF 14A are the "proxy statement".
The proxy statement is where you find out how many shares and options the executives and directors get.
The form 4 is where you see many SCO execs selling mucho stock.
An executive can be fined or serve jail time if they lie in these reports, or if they fail to provide required information, so the quality of the information is better than other stuff they say which is NOT under penalty of perjury.
Watch out for the "risk factors". The way that companies get around the "must tell truth" and "must tell whole truth" requirements is to swamp their risk factors with extraneous crap. Like, for instance, the risk factors might say: "1. Martians might invade and disrupt our market. 2. Microsoft sells a product just like ours. 3. Airplanes might fly into our headquarters in Duluth. 4. Our top executives might catch Ebola." Only #2 is a real risk factor but they swamp it.
About 80% of the financial information available on the web is derivative of these reports, so if you read them on sec.gov, you get better info and cut out a lot of crap. Anything news-related takes a good long time to get into an SEC-report so you still have to read the news, but you can dig a lot of information out of the forms.
Some people are talking about SCO's actions as if The SCO Group is a dying company that will try anything to stay alive. If that were the case, a good strategy would be to stay out of their way while they die.
However, the real organization making the decisions is the Canopy Group. The Canopy Group has done this before. They set up a company, Caldera International (sound familiar?). They purchased some copyrighted source code, DR-DOS. Then they filed suit against a huge corporation (Microsoft) for $1.5 billion. They settled the suite for an estimated $150 million to $200 million.
All this shit happened before!
The Canopy Group isn't dying. They are alive and healthy. They don't use their own name -- they set up front corporations to pursue these activities.
Treating the Canopy Group as a dying entity would be a mistake. Their current avatar, The SCO Group, might die. So what? They'll just respawn and do this again.
(How do I know that Canopy is calling the shots at SCO? Because Darl McBride admitted, in an interview with CNET around 2003-06-04 or so, that the Canopy Group was choosing SCO's lawyers and laying out their legal strategy. And that's the most important activity there is at SCO, which means that Canopy doesn't just own shares -- they are driving).
You are right, I ranted so much that I ran my verbs together... "making using"... sheesh.
Up until now, companies such as Sun have been fudding linux as "garage software". That hasn't worked too well. It's part of our industry that interesting things start in a garage. And it becomes harder and harder to say "garage" when the customer sees "IBM", "H-P", "Oracle" and "Dell".
Now, SCO characterizes Linux as "stolen software". They flat out assert that no free operating system can perform as well as their proprietary kernel unless it contains stolen property.
This might split the Linux defender camp. I shudder at the thought of fellow slashdotters saying "so what, there's nothing wrong with copying other people's (code|music|whatever) without a license". Well, the courts think there is. And the people with the decision-making power to choose between Linux, Solaris, and Windows also think there is. Even Linus Torvalds thinks there is -- his view on licenses is that the copyright owner has the right to choose the license for the work.
I agree with you about the effects of pulling SCO support. They could support their own forks, but it would cost them engineering resources and result in a worse product for their customers. If the programming tools lag badly enough, this will also impact their ISV's.
Plus, damn, SCO's business plan is to piss all over Linux and get paid for it by Microsoft and Sun. We need to react to this, or they will continue pissing for ever.
Check out #2 in particular. I believe that SCO would suffer a bit if the FSF dropped support for gcc and gdb. At the very least, it would send a message to SCO users that their platform is going to have a lot less software in the near future.
What is at issue is more than SCO and Red Hat. What is at issue is intellectual property rights in the age of the Internet.... important debate... [about] proprietary or communal property according to Richard Stallman's vision.
He is calling out RMS by name. This is a lot worse than "hey your product infringes on our product". This is a declaration that proprietary source and open source cannot co-exist in the same world.
In his closing remarks, McBride likens SCO's actions against Linux end users to the RIAA's actions against P2P copyright infringers.
This is some lethal FUD here. There is a huge difference between music thieves and open source developers. Music thieves are in fact making using other people's work without their consent, whereas open source developers create their own independent content and distibute it on their own chosen terms. We are indies. We are not warez d00dz.
Back to SCO... the key part here is that SCO has developed a new business model.
Classical company: make products and services, sell them to customers for money, profit.
F/OSS community: make products and services, give them away, self-generating funding, community rewards (but not much profit).
SCO: generate FUD, sell "ScoSource licenses" to Microsoft and Sun, profit.
Classical companies took some time to adjust to the radically different approach of the F/OSS Community. We don't breath the same oxygen that they do, so strategies that worked against, say, Netscape, do not work against, say, Apache.
Similarly, SCO has a radically different model. SCO throws shit like a mad monkey at the Bronx zoo. For a classical corporation, there is huge backlash to this, because customers tend to avoid the products and services of the shit-thrower. But SCO doesn't care, because they don't make their profit from selling products and services... they make it by filing lawsuits (Caldera International versus Microsoft) and by selling their services as fudmongers!
How to fight something like this?
Well, Linuxtag did something effective. Red Hat's lawsuit may or may not be effective, but it sure is good for morale. I asked RMS to boycott SCO -- remove support for SCO operating systems from GNU products -- but he replied that he didn't think it would be effective (because SCO can just maintain their own branch). I disagree with that and I urge more developers to follow Fyodor's lead and remove OpenServer and UnixWare as configuration options in their software.
SCO makes money by throwing shit at Linux -- not indirectly by increasing sales of their products (which does not work very well), but directly, in the form of checks from Microsoft and Sun.
SCO has essentially two assets and is fighting on two levels. They have legal claims and are pursuing those in court. But they also have PR assets. It is deadly for us to reply to their PR attacks with legal defenses. We have to attack SCO's PR assets.
Some ideas for an attack:
. SCO claims they spent hundreds of millions of dollars developing and purchasing the rights to Unix. Well, actually, they probably spent a lot less than that. Check how much they raised in their IPO and how much revenue they've made since then and how much they've actually spent on engineering.
. SCO even bought their name! The SCO Group didn't build a reputation on that name. They used to be Caldera International, but when that didn't work, they bought the name from the Santa Cruz Operation.
. SCO isn't a product and service company. Their revenues are tiny and declining. Their VP of Engineering sold all his stock (and I've heard a rumor that he left the company, haven't tracked it down yet). It's not enough to point out that they are litigious. Point out that they have nil legitimate technology to bring to the table.
Sorry this rambles a bit, I should write an essay instead of just rambling in a comment box.
In the week before 2001-09-11, the volume of options traded on UAL (United Airlines) and AMR (American Airlines) was 500% of normal. 500% is not a blip. It's a huge freaking spike.
I didn't get these numbers from some.conspiracy.theory.org, I got them from cboe.com: the Chicago Board of Options Exchange, the official clearinghouse for options in the USA.
As for who did it... the trail went to a German bank, and I couldn't find any more info than that.
I agree with the parent. This was the smoking hot $40 million money trail and it dropped off the news radar within days.
Boies spoke a little, but mostly basic stuff. Such as: a copyright owner doesn't have to register the copyright until it's time to file a lawsuit.
McBride's main points are:
SCO registered the copyrights from Novell. This gives them a lot more legal ammunition. Before, this was just a contract dispute from IBM. Now, they are opening up another "front" (he used that word) -- everyone who runs Linux is infringing. They can go after people who run Linux, not just people that SCO has pre-existing contracts with.
It's all about enterprise, SMP, RCU, and so on. It's about Linux kernel 2.4, not linux kernel 2.2.
SCO is not interested in pursuing individual home Linux users at this time. They are very interested in pursuing enterprise SMP users. They are not pursuing source code distributors such as Red Hat at this time.
SCO's proposition is: buy a license for UnixWare 7.1.3, and it comes with a covenant from SCO that they won't sue you if you run Linux. They are currently in negotiations with many many companies to sell these licenses. These licenses are run-time binary licenses.
There was complicated discussion in Question #13, Jonathan Collins, VNU, about the GNU Project and the GPL. I would appreciate if anyone could post a word-for-word transcript for that. The part I got was Boies saying that the UnixWare license "... does not provide protection for people who touch the source code." and McBride said "right".
McBride said that the literal copying, which they've been exhibiting, came mostly from Unix vendors other than IBM.
McBride sees SCO as the rightful owner of the "Unix on Intel" market. His position is that Linux usurped that position by offering "Unix on Intel for free", and that Linux did so illegally by copying code from Unix.
My take on all this...
Remember that SCO makes a lot of money from their SCO Source program (funded by Microsoft and Sun). It accounts for 40% of their revenus and ALL of their profit. In fact, the only profit that SCO has made in their entire corporate history comes from this program. They don't have to win the lawsuit, they just have to throw enough mud at Linux so that Microsoft and Sun will keep cutting them checks.
Also, SCO is not really an independent company. Canopy Group controls SCO. Canopy chose the legal strategy and the lawyers for this initiative. So it's not like SCO is betting the company... Canopy is betting SCO Group, and if they lose, they have other companies. They'll just buy some more IP and continue their long-time campaign of IP litigation. It worked for Caldera International + DR-DOS (which they bought) and they are trying again with SCO Group + Unix (which they bought).
(Hey, remember Jeff Merkey and the Timpanogas Research Group, which was developing NTFS and Netware-related software for Linux? Guess who bought them out? Canopy Group.)
This time around, Canopy isn't going for a pure legal strategy. Legally, their case has big holes in it, such as their distribution of the Linux kernel source after they had actual knowledge of its alleged infringing contents; plus their lack of specific notice to Linux users. Canopy is also going for a strategy of intimidation: buy a $1500 license or we will drag you into the mud.
But most centrally, Canopy is going for a PR campaign. They already took $8 million to the bank from Microsoft and Sun to wage this anti-Linux campaign, and they expect to collect another $5 million this quarter (McBride estimated $8 million on the last quarterly earnings call, but he has revised the number downwards since then). That's why the legalisms don't matter. Whatever convinces your department manager to put Linux on hold and run Windows or Solaris instead... that's what matters. That's what SCO Group gets paid for.
IBM pointed out, in a very sarcastic lawyerly manner, that SCO is a Delaware corporation but IBM is a *New York* corporation, not a Delaware corporation as SCO mistakenly claimed in their filing. Therefore diversity of jurisdiction applies and the case may not be heard in a state court.
So now the case is before the US District Court for the District of Utah.
I'm not a great shorthand guy, so everybody below will be speaking with weird clipped diction. I'll post my summary and opinions in a followup note. Also, the lameness filter doesn't like my writing style ("too few characters per line") so there is some crap at the end to compensate.
12:07 Blake Stowell
Speakers today will be David Boies, Darl McBride, Chris Sontag.
12:08 Darl McBride
In May 2003, we warned Fortune 1500 companies. Enterprise use of Linux 2.4 violates SCO's copyrights and contract rights. Hundreds of files were taken from System 5, or from derived works, or have the same structure, sequence, and organization. Linux would have little multiprocessor capability without our IP. SCO has registered its copyrights. Linux vendors are selling a product with no IP warranty. By not providing a warranty, IBM has profited from Linux, but shifted risk to customers. We intend to use our IP rights carefully and judiciously. SCO is prepared to offer a license for Unixware 7.1.3 to Linux customers.
12:13 Question and Answer
Question #1 Dan Gordon, Bloomberg News
Question: You say Linux violates SCO copyrights. What has changed from contract rights to copyrights?
McBride: This started off as a contract case. With respect to copyright, this is new as of today. What is new today is the copyright registration.
Question #2 Peter Galway, e-week magazine
Question: If enterprise customers don't buy in... you can't do anything until IBM case is resolved, right?
McBride: The IBM case is a contract issue... today's announcement... is a new front. Boies: There would possibility of case-by-case litigation. It is not necessary to resolve the IBM case [first].
Question #3 Dean Takahashi, San Jose Mercury NEws
Question: Can you more completely describe the offending code and its origins?
Question: [how much will this cost end users?]
McBride: Three types: #1, line by line copying, including developer comments and errors... very stark... that type of code comes from various vendors, primarily other than IBM. #2: SMP, high-end technology, NUMA, RCU. In the early days of Linux, Linux supported 2-4 processors. Now with Linux 2.4, 16-32 processors. Hundreds of *files* were contributed by our vendors. #3: methods and concepts.... With respect to pricing... benchmarked on UnixWare 7.1.3.
Question #4 Don Marti, Linux Journal
Question: Ian Lance Taylor says that the code he saw in Unixware and Linux, he saw in other places too, on the Internet.
McBride: A lot of this code is not questionable. IBM RCU code, from Dynix. We're not talking about BSD code. We're talking about high end SMP code.
Question #5 Todd Weiss, ComputerWorld
Question: What was the name of the license?
McBride: SCO UnixWare 7.1.3.
Question #6 Richard Waters, Financial Times
Question: What penalties can you impose... how are you going to make them stick?
Boies: The copyright laws provide a wide range of penalties. Statutory damages, actual damages, extra damages for willful violations.
Question #7 Robert Mina, Copper Beach Capital
Question: What are the implications for Linux distributors such as Red Hat?
McBride: "Complicated... software flows from Torvalds to distributors to hardware vendors to end user." "It starts with the end user."
Question: What about contributory infringement?
No reply at all.
Question #8 David Bark, Wall Street Journal
Question: More about copyright registration date...
McBride: We typically register on enforcement.
Boies: Registration is a precedent in bringing a lawsuit. Copyrightable material was not filed until need for enforcement.
Those are the classical two reasons to sue. SCO has developed an innovative third reason.
Look at SCO's revenue and income for the past quarter. They recorded $13 million from sales of products and services and $8 million from SCO Source. SCO Source has two customers: one is Microsoft, and the other is an unnamed large Unix company (I think it's likely to be Sun).
On the income side, SCO lost money on products and services, but made up for it by making money from SCO Source.
SCO has found a way to monetize anti-Linux FUD. This is not just a sideline. It's the only profitable activity The SCO Group has ever had in its corporate existence.
SCO doesn't need to win the lawsuit. They just need throw enough FUD so that Microsoft keeps cutting them checks. I think it's important that open source people understand this business model.
I draw an analogy to food. Human beings evolved in a calorie-poor environment. The optimal survival strategy was to scarf all the available calories and store as much fat as possible.
Now the human beings around me, at least, live in a calorie-rich environment. I've had to develop an entirely different way of looking at calories.
Similarly, within my lifetime, my environment has changed from data-poor to data-rich. I used to be able to read every bit of information about certain topics of interest to me. But now, I have to choose how to allocate my information-intake time, just as I have to choose how to allocate my calorie budget.
Exhibit C rocks! But where's Monterey contract?
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My Visit to SCO
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· Score: 1
That's where all the contention is going to be. Check it out for yourself:
The Exhibit that I want to see is the contract between IBM and SCO for Project Monterey. There are three possibilities:
(1) IBM and SCO did not sign a contract for Monterey. (2) There is a contract, and it's favorable to SCO. (3) There is a contract, and it's favorable to IBM.
Possibility (1) is unlikely, considering that Monterey was a huge project for SCO, and that IBM doesn't start projects of any size at all without a contract for the IP rights.
Possibility (2) is unlikely, because SCO makes no reference to such a contract in their complaint or their amended complaint.
Which means that it's very likely that IBM will pull out a Project Monterey contract and it's going to be support IBM's position even more than Exhibit C already does.
My favorite line in the whole second movie is in the scene with Neo and Trinity right after Trinity takes a bullet, and Neo says something about how he wanted Trinity to stay out of the Matrix, and Trinity says:
"I had to"
That one single line is natural and powerful and full of hidden meaning. Throw that in the free-will-versus-determinism blender!
More random Trinity thoughts:
The Oracle told her that she would fall in love with the One. The Oracle messed with Trinity as well as with Morpheus and Neo.
In the first movie, when Neo goes back to rescue Morpheus, Trinity announces that she's coming with him. Neo asks "Why?" And Trinity gives him several answers. Similarly Trinity tells Link why she's going into the Matrix to attack the power plant.
Neo doesn't know why he does what he does, and Morpheus doesn't quite know either, but Trinity knows the reasons why she does what she does.
Trinity does have one machine-like knee-jerk, when she responds comically to Persephone when Persephone wants to kiss Neo.
I think that the W brothers want to provoke a lot of thought by presenting many different machine/human combinations, and that none of them are inherently the One True Way with the others being wrong. The first movie was mostly "humans versus machines". In the second movie:
The Oracle, a warm intuitive woman, openly declares that she's actually a program.
Neo displays less and less humanity and acts more and more like a bot. Compare how he acted in the first movie before he woke up (when he was crawling around on a ledge) to how he acts when he talks to the Architect.
Trinity talks about her lack of free will. "I had to."
The audience, and Morpheus himself, realize how deeply Morpheus has been programmed with a convincing lie.
Agent Smith develops a sense of humor and self-awareness.
We wonder about the Merovingian: human or program?
And the "Persephone kisses Neo" scene has a Turing Test overtone. It reminds me of the bit in Vernor Vinge, "True Names", where the hero remarks that it's difficult to perform a convincing kiss in cyberspace.
IBM filed a snarky "Notice of Removal" which basically says "yo, morons, unlike you we are NOT a Delaware corporation, so try suing us in the right court, mmmkay? Diversity of jurisdiction and all that."
It takes about five minutes to figure out what state IBM is incorporated in. It's at the front of Exhibit A, it's on their 10-K's, and so on. So either SCO did very poor legal preparation, or they intentionally filed in the wrong court for some mysterious reason.
Rooting for IBM is not the strange part. Even the FSF was rooting for Microsoft back in the day, because of the Apple versus Microsoft "look and feel" suit.
The weird part is watching slashdotters cheer the prospect of IBM crushing SCO by using its massive patent portfolio!
(I'll cheer, too. I'm not particularly opposed to patents, and I'm short SCOX.)
Read Exhibit A, Exhibit B, and Exhibit C, in particular.
SCO can revoke the license for breach of contract. The procedure for doing this is not at all clear.
My question is: what is SCO going to ask a court to do? Is SCO going to ask for a preliminary injunction, or what?
The test for a preliminary injunction is: (1) the moving party's chances of success on the merits of their case and (2) the "balance of harm": how much harm that SCO suffers if they do not get a preliminary injunction, and how much harm IBM suffers if SCO does get a preliminary injunction.
On part (1), it's anyone's guess.
On part (2), the "balance of harm" strongly favors IBM.
SCO does not claim that IBM's distribution of AIX has harmed SCO in any way whatsoever. Thus, stopping the distribution of AIX will have zero effect on SCO's alleged suffering. In contrast, stopping the distribution of AIX will have an immediate, large, irreparable effect on IBM in the marketplace. It is grossly unfair to subject IBM to such a penalty without a trial on the merits first.
If not a preliminary injunction, what else could SCO do after Friday the 13th?
Disclaimer: IANAL Disclosure: I am short SCOX
('disclaimer' and 'disclosure' mean subtly different things... I always wanted to use them both in the same post!)
Specifically, Davoid Boies of Boies Schiller & Flexner is one of the attorneys for Caldera Systems, Inc. d/b/a The SCO Group.
... I have severely not impressed.
If you want a laugh, check out "IBM Files a Notice of Removal" from the SCO lawsuit documents. IBM points out that Boies filed the complaint in the wrong court.
Slashdot Mirror
Only one director was clever enough (in my opinion) to sell everything he has immediately.
Opinder Bawa, VP of Engineering, sold everything he had a couple of months ago.
You have to go back to March for all the sales and probably 12 months for the purchases. It's a lot of slogging.
For example, the dilution of shares used in buying up the other company?
Off the top of my head (might be wrong), those are Form 3's, Form S-1's, and Form 8-K (other events). Also look in the 10-Q's for "total number of shares outstanding" and "fully diluted share counts". The shares have to appear there eventually.
Buying Vultus for shares was a slick move, all right.
And can YOU find anywhere offering prices on Put Options available for SCOX?
I've looked, but not found them.
There would be a couple of problems with options. First, there are people who have material non-public information. Think of everybody who works in the SCO's law offices, and all their friends who trade favors with each other. An options market maker would be trading against people who are doing exactly this, and there will be a lot more of them for SCOX then there are for a normal stock.
Second, this is such a humongous story stock that there is not enough liquidity in the stock. Even if there is no manipulation, it's still possible for news to whipsaw the stock violently. I have already suffered that once.
It's like a dot-com. It is trading on some kind of emotional resonance, not on business prospects. And there is not enough stock to go around -- just like the dot-com.
Think of the most rabid anti-open-source people you've ever met. Software is useless unless it comes from a company, linux developers are dirty hippies and amateurs, all that stuff. These people now have a way to express their emotional revulsion for open source by buying SCOX. And there's not much SCOX to go around so the price can bubble.
I believe the time to short SCOX is when it's going DOWN. I'm not even going to try to call the top. The idea is that the rabid stock owners will be in denial and will not sell immediately, so that the price will take some time to drop -- that it won't go from $12 to $5 overnight, but there will be plenty of time to short in at, say $7.
The denial period for dot-coms lasted three years!
And if I'm wrong and it does go from $12 to $3 overnight? Then I missed out. But everybody who shorts now might get taken to $20 before the bubble bursts.
Sort of, but not really.
IBM declines to indemnify. That reveals uncertainty.
There are two factors to uncertainty: the risk that the event will happen times the cost of the event. The risk is low, especially as SCO is acting like a PR firm (and gets paid like one -- check out where their revenues come from). But the cost is huge. So (low risk) * (high cost) == wildly uncertain outcome. Nobody wants to step into that.
Underneath that, though, there is a real issue. Take the FSF's products for instance. With a few months of time, and cooperation from the FSF and its contributors, a small group of engineers could identify the origin of 99.9% of the source code in gcc and correlate it back to copyright assignments with physical signatures and indemnity clauses. RMS and Moglen knew what the fuck they were doing when they set up that system. I am not an expert on copyright protection, but I think it would be feasible for a company to do this and sell indemnified copies of gcc, if there were customer demand to pay for such a thing.
I've heard that IBM provides indemnification for Websphere, which includes Apache.
It helps that the kernel is under source control now. I hope that Torvalds is thinking about how to defend against this sort of attack in the future.
Last quarter, The SCO Group reported sales of $21 million.
They sold $13 million in products and services, with a net loss of $2 million.
They sold $8.3 million of SCO Source Licenses to two licensees, Microsoft and Sun, with a net profit of $6 million.
Total revenue, $21 million. Net profit, $4 million.
That's how much Microsoft and Sun are paying The SCO Group. This is SCO's most profitable line of business. Indeed, it is their only profitable line of business.
SCO doesn't need to actually sell any of these ludicrous IP licenses. As long as they piss on Linux hard enough to drive people to Windows and Solaris, Microsoft and Sun will keep paying them.
Microsoft and Sun are committed to paying SCO $5 million over the next three quarters.
Hit sec.gov, crack open a 10-Q. It's tough going at first but the facts are in there.
You better believe Sun is involved in this. They are the second SCO Source licensee, in addition to Microsoft.
More than that: in connection with their license, Sun received a warrant (that is, stock options) to buy 210,000 shares of SCOX at a price of $1.83 per share.
SCO's actions start making more sense when you abandon the "last gasp of dying company" paradigm and use the "paid FUD attackers" model. 40% of SCO's revenue, and all of their profit, come from Microsoft and Sun via the SCO Source licensing program.
SEC reports from SCO
... read on.
The insider purchases and sales are "Form 4". Insiders have to file these within 48-72 hours or something like that.
If you wanna learn a little bit about being a stock geek
First, how to find the stuff. Start at www.sec.gov. Look in the second section, "Filings and Forms". You can read the "Quick Edgar Tutorial" if you want, or go straight into "Search for Company Filings".
Click on "Companies & Other Filers" and type in "SCO".
Choose "Sco Group Inc".
Click on all the filings and start reading financialese. Hell, if you know any programming languages or scripting languages, financialese is not that hard to figure out.
Form 4 is "insider sales and purchases".
Form 10-Q is "quarterly report".
Form 10-K is "annual report".
Form PRE 14A and Form DEF 14A are the "proxy statement".
The proxy statement is where you find out how many shares and options the executives and directors get.
The form 4 is where you see many SCO execs selling mucho stock.
An executive can be fined or serve jail time if they lie in these reports, or if they fail to provide required information, so the quality of the information is better than other stuff they say which is NOT under penalty of perjury.
Watch out for the "risk factors". The way that companies get around the "must tell truth" and "must tell whole truth" requirements is to swamp their risk factors with extraneous crap. Like, for instance, the risk factors might say: "1. Martians might invade and disrupt our market. 2. Microsoft sells a product just like ours. 3. Airplanes might fly into our headquarters in Duluth. 4. Our top executives might catch Ebola." Only #2 is a real risk factor but they swamp it.
About 80% of the financial information available on the web is derivative of these reports, so if you read them on sec.gov, you get better info and cut out a lot of crap. Anything news-related takes a good long time to get into an SEC-report so you still have to read the news, but you can dig a lot of information out of the forms.
Have fun!
Some people are talking about SCO's actions as if The SCO Group is a dying company that will try anything to stay alive. If that were the case, a good strategy would be to stay out of their way while they die.
However, the real organization making the decisions is the Canopy Group. The Canopy Group has done this before. They set up a company, Caldera International (sound familiar?). They purchased some copyrighted source code, DR-DOS. Then they filed suit against a huge corporation (Microsoft) for $1.5 billion. They settled the suite for an estimated $150 million to $200 million.
All this shit happened before!
The Canopy Group isn't dying. They are alive and healthy. They don't use their own name -- they set up front corporations to pursue these activities.
Treating the Canopy Group as a dying entity would be a mistake. Their current avatar, The SCO Group, might die. So what? They'll just respawn and do this again.
(How do I know that Canopy is calling the shots at SCO? Because Darl McBride admitted, in an interview with CNET around 2003-06-04 or so, that the Canopy Group was choosing SCO's lawyers and laying out their legal strategy. And that's the most important activity there is at SCO, which means that Canopy doesn't just own shares -- they are driving).
You are right, I ranted so much that I ran my verbs together ... "making using" ... sheesh.
Up until now, companies such as Sun have been fudding linux as "garage software". That hasn't worked too well. It's part of our industry that interesting things start in a garage. And it becomes harder and harder to say "garage" when the customer sees "IBM", "H-P", "Oracle" and "Dell".
Now, SCO characterizes Linux as "stolen software". They flat out assert that no free operating system can perform as well as their proprietary kernel unless it contains stolen property.
This might split the Linux defender camp. I shudder at the thought of fellow slashdotters saying "so what, there's nothing wrong with copying other people's (code|music|whatever) without a license". Well, the courts think there is. And the people with the decision-making power to choose between Linux, Solaris, and Windows also think there is. Even Linus Torvalds thinks there is -- his view on licenses is that the copyright owner has the right to choose the license for the work.
I agree with you about the effects of pulling SCO support. They could support their own forks, but it would cost them engineering resources and result in a worse product for their customers. If the programming tools lag badly enough, this will also impact their ISV's.
Plus, damn, SCO's business plan is to piss all over Linux and get paid for it by Microsoft and Sun. We need to react to this, or they will continue pissing for ever.
More posts from Kean Johnston of SCO:
#1
#2
#3
Check out #2 in particular. I believe that SCO would suffer a bit if the FSF dropped support for gcc and gdb. At the very least, it would send a message to SCO users that their platform is going to have a lot less software in the near future.
He is calling out RMS by name. This is a lot worse than "hey your product infringes on our product". This is a declaration that proprietary source and open source cannot co-exist in the same world.
In his closing remarks, McBride likens SCO's actions against Linux end users to the RIAA's actions against P2P copyright infringers.
This is some lethal FUD here. There is a huge difference between music thieves and open source developers. Music thieves are in fact making using other people's work without their consent, whereas open source developers create their own independent content and distibute it on their own chosen terms. We are indies. We are not warez d00dz.
Back to SCO
Classical company: make products and services, sell them to customers for money, profit.
F/OSS community: make products and services, give them away, self-generating funding, community rewards (but not much profit).
SCO: generate FUD, sell "ScoSource licenses" to Microsoft and Sun, profit.
Classical companies took some time to adjust to the radically different approach of the F/OSS Community. We don't breath the same oxygen that they do, so strategies that worked against, say, Netscape, do not work against, say, Apache.
Similarly, SCO has a radically different model. SCO throws shit like a mad monkey at the Bronx zoo. For a classical corporation, there is huge backlash to this, because customers tend to avoid the products and services of the shit-thrower. But SCO doesn't care, because they don't make their profit from selling products and services
How to fight something like this?
Well, Linuxtag did something effective. Red Hat's lawsuit may or may not be effective, but it sure is good for morale. I asked RMS to boycott SCO -- remove support for SCO operating systems from GNU products -- but he replied that he didn't think it would be effective (because SCO can just maintain their own branch). I disagree with that and I urge more developers to follow Fyodor's lead and remove OpenServer and UnixWare as configuration options in their software.
SCO makes money by throwing shit at Linux -- not indirectly by increasing sales of their products (which does not work very well), but directly, in the form of checks from Microsoft and Sun.
SCO has essentially two assets and is fighting on two levels. They have legal claims and are pursuing those in court. But they also have PR assets. It is deadly for us to reply to their PR attacks with legal defenses. We have to attack SCO's PR assets.
Some ideas for an attack:
. SCO claims they spent hundreds of millions of dollars developing and purchasing the rights to Unix. Well, actually, they probably spent a lot less than that. Check how much they raised in their IPO and how much revenue they've made since then and how much they've actually spent on engineering.
. SCO even bought their name! The SCO Group didn't build a reputation on that name. They used to be Caldera International, but when that didn't work, they bought the name from the Santa Cruz Operation.
. SCO isn't a product and service company. Their revenues are tiny and declining. Their VP of Engineering sold all his stock (and I've heard a rumor that he left the company, haven't tracked it down yet). It's not enough to point out that they are litigious. Point out that they have nil legitimate technology to bring to the table.
Sorry this rambles a bit, I should write an essay instead of just rambling in a comment box.
Let's try this again ... man, the one time I forget to preview, I botch the link.
call-2003-08-05.txt
I'd appreciate it if someone would copy the whole text into a slashdot comment so that people can read it without slashdotting my poor suffering ISP.
Hey, could someone cut-and-paste this into a comment so that I don't get slashdotted too badly?
http://www.shout.net/~mec/sco/call-2003-08-05.txt
These are raw notes. I'll put my analysis in a comment.
As we New Yorkers like to say: fuckin' A.
... the trail went to a German bank, and I couldn't find any more info than that.
In the week before 2001-09-11, the volume of options traded on UAL (United Airlines) and AMR (American Airlines) was 500% of normal. 500% is not a blip. It's a huge freaking spike.
I didn't get these numbers from some.conspiracy.theory.org, I got them from cboe.com: the Chicago Board of Options Exchange, the official clearinghouse for options in the USA.
As for who did it
I agree with the parent. This was the smoking hot $40 million money trail and it dropped off the news radar within days.
"Follow the money" -- Deep Throat
... before Bill Gates dropped out of Harvard.
That is, Sally Secretary at AT&T Bell Laboratories was using Unix to type up patent applications.
In retrospect, Bell Labs must have bad some bad-ass secretaries!
Sontag didn't speak at all.
...
... Canopy is betting SCO Group, and if they lose, they have other companies. They'll just buy some more IP and continue their long-time campaign of IP litigation. It worked for Caldera International + DR-DOS (which they bought) and they are trying again with SCO Group + Unix (which they bought).
... that's what matters. That's what SCO Group gets paid for.
Boies spoke a little, but mostly basic stuff. Such as: a copyright owner doesn't have to register the copyright until it's time to file a lawsuit.
McBride's main points are:
SCO registered the copyrights from Novell. This gives them a lot more legal ammunition. Before, this was just a contract dispute from IBM. Now, they are opening up another "front" (he used that word) -- everyone who runs Linux is infringing. They can go after people who run Linux, not just people that SCO has pre-existing contracts with.
It's all about enterprise, SMP, RCU, and so on. It's about Linux kernel 2.4, not linux kernel 2.2.
SCO is not interested in pursuing individual home Linux users at this time. They are very interested in pursuing enterprise SMP users. They are not pursuing source code distributors such as Red Hat at this time.
SCO's proposition is: buy a license for UnixWare 7.1.3, and it comes with a covenant from SCO that they won't sue you if you run Linux. They are currently in negotiations with many many companies to sell these licenses. These licenses are run-time binary licenses.
There was complicated discussion in Question #13, Jonathan Collins, VNU, about the GNU Project and the GPL. I would appreciate if anyone could post a word-for-word transcript for that. The part I got was Boies saying that the UnixWare license "... does not provide protection for people who touch the source code." and McBride said "right".
McBride said that the literal copying, which they've been exhibiting, came mostly from Unix vendors other than IBM.
McBride sees SCO as the rightful owner of the "Unix on Intel" market. His position is that Linux usurped that position by offering "Unix on Intel for free", and that Linux did so illegally by copying code from Unix.
My take on all this
Remember that SCO makes a lot of money from their SCO Source program (funded by Microsoft and Sun). It accounts for 40% of their revenus and ALL of their profit. In fact, the only profit that SCO has made in their entire corporate history comes from this program. They don't have to win the lawsuit, they just have to throw enough mud at Linux so that Microsoft and Sun will keep cutting them checks.
Also, SCO is not really an independent company. Canopy Group controls SCO. Canopy chose the legal strategy and the lawyers for this initiative. So it's not like SCO is betting the company
(Hey, remember Jeff Merkey and the Timpanogas Research Group, which was developing NTFS and Netware-related software for Linux? Guess who bought them out? Canopy Group.)
This time around, Canopy isn't going for a pure legal strategy. Legally, their case has big holes in it, such as their distribution of the Linux kernel source after they had actual knowledge of its alleged infringing contents; plus their lack of specific notice to Linux users. Canopy is also going for a strategy of intimidation: buy a $1500 license or we will drag you into the mud.
But most centrally, Canopy is going for a PR campaign. They already took $8 million to the bank from Microsoft and Sun to wage this anti-Linux campaign, and they expect to collect another $5 million this quarter (McBride estimated $8 million on the last quarterly earnings call, but he has revised the number downwards since then). That's why the legalisms don't matter. Whatever convinces your department manager to put Linux on hold and run Windows or Solaris instead
SCO filed in state court.
IBM pointed out, in a very sarcastic lawyerly manner, that SCO is a Delaware corporation but IBM is a *New York* corporation, not a Delaware corporation as SCO mistakenly claimed in their filing. Therefore diversity of jurisdiction applies and the case may not be heard in a state court.
So now the case is before the US District Court for the District of Utah.
If you want to know more:
SCO Page on the IBM Lawsuit
Read the PDF's there.
I'm not a great shorthand guy, so everybody below will be speaking with weird clipped diction. I'll post my summary and opinions in a followup note. Also, the lameness filter doesn't like my writing style ("too few characters per line") so there is some crap at the end to compensate.
... you can't do anything until IBM case is resolved, right?
... today's announcement ... is a new front. Boies: There would possibility of case-by-case litigation. It is not necessary to resolve the IBM case [first].
... very stark ... that type of code comes from various vendors, primarily other than IBM. #2: SMP, high-end technology, NUMA, RCU. In the early days of Linux, Linux supported 2-4 processors. Now with Linux 2.4, 16-32 processors. Hundreds of *files* were contributed by our vendors. #3: methods and concepts. ... With respect to pricing ... benchmarked on UnixWare 7.1.3.
... how are you going to make them stick?
... software flows from Torvalds to distributors to hardware vendors to end user." "It starts with the end user."
...
12:07 Blake Stowell
Speakers today will be David Boies, Darl McBride, Chris Sontag.
12:08 Darl McBride
In May 2003, we warned Fortune 1500 companies. Enterprise use of Linux 2.4 violates SCO's copyrights and contract rights. Hundreds of files were taken from System 5, or from derived works, or have the same structure, sequence, and organization. Linux would have little multiprocessor capability without our IP. SCO has registered its copyrights. Linux vendors are selling a product with no IP warranty. By not providing a warranty, IBM has profited from Linux, but shifted risk to customers. We intend to use our IP rights carefully and judiciously. SCO is prepared to offer a license for Unixware 7.1.3 to Linux customers.
12:13 Question and Answer
Question #1 Dan Gordon, Bloomberg News
Question: You say Linux violates SCO copyrights. What has changed from contract rights to copyrights?
McBride: This started off as a contract case. With respect to copyright, this is new as of today. What is new today is the copyright registration.
Question #2 Peter Galway, e-week magazine
Question: If enterprise customers don't buy in
McBride: The IBM case is a contract issue
Question #3 Dean Takahashi, San Jose Mercury NEws
Question: Can you more completely describe the offending code and its origins?
Question: [how much will this cost end users?]
McBride: Three types: #1, line by line copying, including developer comments and errors
Question #4 Don Marti, Linux Journal
Question: Ian Lance Taylor says that the code he saw in Unixware and Linux, he saw in other places too, on the Internet.
McBride: A lot of this code is not questionable. IBM RCU code, from Dynix. We're not talking about BSD code. We're talking about high end SMP code.
Question #5 Todd Weiss, ComputerWorld
Question: What was the name of the license?
McBride: SCO UnixWare 7.1.3.
Question #6 Richard Waters, Financial Times
Question: What penalties can you impose
Boies: The copyright laws provide a wide range of penalties. Statutory damages, actual damages, extra damages for willful violations.
Question #7 Robert Mina, Copper Beach Capital
Question: What are the implications for Linux distributors such as Red Hat?
McBride: "Complicated
Question: What about contributory infringement?
No reply at all.
Question #8 David Bark, Wall Street Journal
Question: More about copyright registration date
McBride: We typically register on enforcement.
Boies: Registration is a precedent in bringing a lawsuit.
Copyrightable material was not filed until need for enforcement.
Question #9 Wilstang Gruner
Those are the classical two reasons to sue. SCO has developed an innovative third reason.
Look at SCO's revenue and income for the past quarter. They recorded $13 million from sales of products and services and $8 million from SCO Source. SCO Source has two customers: one is Microsoft, and the other is an unnamed large Unix company (I think it's likely to be Sun).
On the income side, SCO lost money on products and services, but made up for it by making money from SCO Source.
SCO has found a way to monetize anti-Linux FUD. This is not just a sideline. It's the only profitable activity The SCO Group has ever had in its corporate existence.
SCO doesn't need to win the lawsuit. They just need throw enough FUD so that Microsoft keeps cutting them checks. I think it's important that open source people understand this business model.
http://www-cs-faculty.stanford.edu/~knuth/email.h
I draw an analogy to food. Human beings evolved in a calorie-poor environment. The optimal survival strategy was to scarf all the available calories and store as much fat as possible.
Now the human beings around me, at least, live in a calorie-rich environment. I've had to develop an entirely different way of looking at calories.
Similarly, within my lifetime, my environment has changed from data-poor to data-rich. I used to be able to read every bit of information about certain topics of interest to me. But now, I have to choose how to allocate my information-intake time, just as I have to choose how to allocate my calorie budget.
That's where all the contention is going to be. Check it out for yourself:
SCO Lawsuit Page
The Exhibit that I want to see is the contract between IBM and SCO for Project Monterey. There are three possibilities:
(1) IBM and SCO did not sign a contract for Monterey.
(2) There is a contract, and it's favorable to SCO.
(3) There is a contract, and it's favorable to IBM.
Possibility (1) is unlikely, considering that Monterey was a huge project for SCO, and that IBM doesn't start projects of any size at all without a contract for the IP rights.
Possibility (2) is unlikely, because SCO makes no reference to such a contract in their complaint or their amended complaint.
Which means that it's very likely that IBM will pull out a Project Monterey contract and it's going to be support IBM's position even more than Exhibit C already does.
But Trinity ufcks the whole situation up ...
My favorite line in the whole second movie is in the scene with Neo and Trinity right after Trinity takes a bullet, and Neo says something about how he wanted Trinity to stay out of the Matrix, and Trinity says:
"I had to"
That one single line is natural and powerful and full of hidden meaning. Throw that in the free-will-versus-determinism blender!
More random Trinity thoughts:
The Oracle told her that she would fall in love with the One. The Oracle messed with Trinity as well as with Morpheus and Neo.
In the first movie, when Neo goes back to rescue Morpheus, Trinity announces that she's coming with him. Neo asks "Why?" And Trinity gives him several answers. Similarly Trinity tells Link why she's going into the Matrix to attack the power plant.
Neo doesn't know why he does what he does, and Morpheus doesn't quite know either, but Trinity knows the reasons why she does what she does.
Trinity does have one machine-like knee-jerk, when she responds comically to Persephone when Persephone wants to kiss Neo.
I think that the W brothers want to provoke a lot of thought by presenting many different machine/human combinations, and that none of them are inherently the One True Way with the others being wrong. The first movie was mostly "humans versus machines". In the second movie:
The Oracle, a warm intuitive woman, openly declares that she's actually a program.
Neo displays less and less humanity and acts more and more like a bot. Compare how he acted in the first movie before he woke up (when he was crawling around on a ledge) to how he acts when he talks to the Architect.
Trinity talks about her lack of free will. "I had to."
The audience, and Morpheus himself, realize how deeply Morpheus has been programmed with a convincing lie.
Agent Smith develops a sense of humor and self-awareness.
We wonder about the Merovingian: human or program?
And the "Persephone kisses Neo" scene has a Turing Test overtone. It reminds me of the bit in Vernor Vinge, "True Names", where the hero remarks that it's difficult to perform a convincing kiss in cyberspace.
An SCO complaint in a "fact" pleading jurisdiction would likely have been much more involved and likely IBM would have had a different response.
Please take a few minutes and read SCO's original complaint.
SCO Files Civil Lawsuit Against IBM in Utah State Court
That's right. SCO filed in state court.
IBM filed a snarky "Notice of Removal" which basically says "yo, morons, unlike you we are NOT a Delaware corporation, so try suing us in the right court, mmmkay? Diversity of jurisdiction and all that."
It takes about five minutes to figure out what state IBM is incorporated in. It's at the front of Exhibit A, it's on their 10-K's, and so on. So either SCO did very poor legal preparation, or they intentionally filed in the wrong court for some mysterious reason.
All these and more available at:
SCO Lawsuit Documents
Rooting for IBM is not the strange part. Even the FSF was rooting for Microsoft back in the day, because of the Apple versus Microsoft "look and feel" suit.
The weird part is watching slashdotters cheer the prospect of IBM crushing SCO by using its massive patent portfolio!
(I'll cheer, too. I'm not particularly opposed to patents, and I'm short SCOX.)
Why don't y'all read the contract for yourself?
... I always wanted to use them both in the same post!)
SCO lawsuit against IBM
Read Exhibit A, Exhibit B, and Exhibit C, in particular.
SCO can revoke the license for breach of contract. The procedure for doing this is not at all clear.
My question is: what is SCO going to ask a court to do? Is SCO going to ask for a preliminary injunction, or what?
The test for a preliminary injunction is: (1) the moving party's chances of success on the merits of their case and (2) the "balance of harm": how much harm that SCO suffers if they do not get a preliminary injunction, and how much harm IBM suffers if SCO does get a preliminary injunction.
On part (1), it's anyone's guess.
On part (2), the "balance of harm" strongly favors IBM.
SCO does not claim that IBM's distribution of AIX has harmed SCO in any way whatsoever. Thus, stopping the distribution of AIX will have zero effect on SCO's alleged suffering. In contrast, stopping the distribution of AIX will have an immediate, large, irreparable effect on IBM in the marketplace. It is grossly unfair to subject IBM to such a penalty without a trial on the merits first.
If not a preliminary injunction, what else could SCO do after Friday the 13th?
Disclaimer: IANAL
Disclosure: I am short SCOX
('disclaimer' and 'disclosure' mean subtly different things
You are right, the company does not lose money.
But the executives who own company stock lose money, and the biggest shareholder, Canopy Group (which owns 43% of SCO), lose lots of money.
Disclosure: I am short SCOX. If SCOX goes down, I make money.
I don't know if Boies' firm prepared the complaint, but their name is on it.
SCO lawsuit documents
See the complaint filed on 2003-03-06.
Specifically, Davoid Boies of Boies Schiller & Flexner is one of the attorneys for Caldera Systems, Inc. d/b/a The SCO Group.
If you want a laugh, check out "IBM Files a Notice of Removal" from the SCO lawsuit documents. IBM points out that Boies filed the complaint in the wrong court.
Disclosure: I am short SCOX.