SCO Files for Bankruptcy
By Brice Wallace Deseret Morning News
The SCO Group Inc., on the eve of a court trial on remaining intellectual property issues it has with Novell Inc., filed for Chapter 11 bankruptcy protection on Friday.
Officials at Lindon-based SCO declined to comment about the filing, but the company issued a news release saying the filing will protect the company’s assets “as it addresses potential financial and legal challenges.”
The technology licensing and mobile services company filed for Chapter 11 in U.S. Bankruptcy Court in Delaware. SCO subsidiary SCO Operations Inc., also filed a reorganization petition.
The SCO Group said in its release that it plans to maintain normal
business operations throughout the bankruptcy proceedings.
“We want to assure our customers and partners that they can continue to rely on SCO products, support and services for their business critical operations,” Darl McBride, president and chief executive officer, said in the announcement. “Chapter 11 reorganization provides the company with an opportunity to protect its assets during this time while focusing on building our future plans.”
The announcement said SCO’s board of directors had unanimously determined that Chapter 11 reorganization “is in the best long-term interest of SCO and its subsidiaries, as well as its customers, shareholders and employees.”
SCO said it had filed motions in bankruptcy court to “ensure that it will not have any interruption in maintaining and honoring all of its commitments to its customers. The motions also address SCO’s continued ability to pay its vendors, the retention of various professional advisers and other matters.”
But the company’s litigation against International Business Machines Corp., Novell and others was not addressed in the news release.
The trial in its lawsuit against Novell, scheduled for Monday in U.S. District Court in Salt Lake, was stayed.
SCO was dealt a major blow Aug. 10 in its lawsuit over royalties from users of the Linux computer operating system. U.S. District Judge Dale Kimball ruled that Novell — and not SCO — owns the copyrights covering the Unix computer operating system. SCO had sued for slander of title after Novell publicly disputed ownership of the Unix copyrights and said that SCO didn’t have the right to demand royalties from IBM.
SCO sued IBM in 2003 for more than $5 billion for copyright infringement and breach of contract, claiming IBM violated an agreement by putting Unix source code into the code for Linux, a free operating system that competes with Microsoft Corp.’s Windows.
SCO recently attempted to have Kimball determine that the Aug. 10 ruling was final and thereby allow SCO to quickly appeal those matters, but Kimball rejected that motion. Kimball also recently ruled that remaining issues in the Novell trial would be determined by himself rather than a jury.
Kimball noted that Novell was seeking only an interpretation of the parties’ rights rather than legal damages or a determination of lost sales or lost profits arising from SCO’s actions.
“They were going to owe Novell a ton of money that they probably didn’t have,” said Rob Enderle, an industry analyst in San Jose, Calif. “They have been taking a major hit from legal fees and were burning through cash at a high rate. I don’t think this is a big surprise.”
In bankruptcy court documents filed Friday, SCO Operations Inc. submitted a list of more than 700 creditors. The largest, AMICI LLC of Albany, N.Y., was owed $500,650.73.
Checkboxes in the court documents indicated SCO Operations had estimated assets between $1 million and $100 million and estimated liabilities in that same range. Bloomberg News reported that SCO listed $14.8 million in assets and $7.5 million in debt in its bankruptcy petition.
SCO turned to the copyright lawsuits as it faced a shrinking market and competition from free software, said Eben Moglen, a law professor at Columbia Law School who is the founding director of the Software Freedom Law Center.
Trading in the company’s stock was halted Friday afternoon, two hours before SCO issued the statement saying it had filed for bankruptcy. When it resumed, SCO’s shares plummeted, falling 43 percent to 37 cents a share. During the past year, the price has ranged from 35 cents to $3.11.
SCO timeline
The shares hit an all-time high of $117.75 on March 21, 2000, the day after SCO’s initial public offering
The SCO Group’s most recent quarterly financial report showed the company lost $1.1 million, or 5 cents per share, during the quarter ended April 30. That compared with a loss of $4.7 million, or 22 cents per share, for the same quarter a year earlier. Revenues were $6 million, down from $7.1 million in the prior-year quarter.
Company officials had repeated cited “competitive pressures” as the reason for losses and slipping revenue.
Contributing: Bloomberg News, Associated Press, Angie Welling, Geoffrey Fattah
(c) 2007 Deseret News (Salt Lake City). Provided by ProQuest Information and Learning. All rights Reserved.