A focus on intellectual property As soon as McBride became the head of Caldera International, he became interested in what intellectual property the company possessed. Novell had subsequently sold its Unix business to the Santa Cruz Operation, which had then sold it to Caldera. So in 2002, McBride said he had thought: "In theory, there should be some value to that property – somewhere between a million and a billion [dollars], right? I just wanted to know what real, tangible intellectual property value the company held." Shortly before the name change to SCO, Caldera went through its existing license agreements, found some that were not being collected upon, and came to arrangements with those licensees representing some $600,000 in annual revenue. Senior vice president Chris Sontag was put in charge of it. The O'Gara report, unconfirmed as it was, caused some amount of consternation in the Linux community. On January 22, 2003, creation of the
SCOsource division of the company, to manage the licensing of the company's Unix-related intellectual property, was officially announced, as was the hiring of Boies to investigate and oversee legal protection of that property. As the
Wall Street Journal reported, Linux users had generally assumed that Linux was created independently of Unix proprietary code, and Linux advocates were immediately concerned that SCO was going to ask large companies using Linux to pay SCO licensing fees to avoid a lawsuit. The first announced license program within SCOsource was called SCO System V for Linux, which was a set of
shared libraries intended to allow SCO Unix programs to be run legally on Linux without a user needing to license all of SCO OpenServer or UnixWare as had theretofore been necessary. The company continued to lose money, on revenues of $13.5 million in the first fiscal quarter of 2003, but McBride was enthusiastic about the prospects for the new SCOsource division, telling investors on a February 26 earnings call that he expected it to bring in $10 million alone in the second fiscal quarter.
Lawsuits begin On March 6, 2003, SCO filed suit against IBM, claiming that the computer giant had misappropriated trade secrets by transferring portions of its Unix-based
AIX operating system into Linux, and asked for at least $1 billion in damages. The complaint also alleged
breach of contract and
tortious interference by IBM against the Santa Cruz Operation for its part in the failed
Project Monterey of the late 1990s. Overall, SCO maintained that Linux could not have caught up to "Unix performance standards for complete enterprise functionality" so quickly without coordination by a large company, and that this coordination could have happened through the taking of "methods or concepts" even if not a single line of Unix code appeared within Linux. Many industry analysts were not impressed by the lawsuit, with one saying: "It's a fairly end-of-life move for the stockholders and managers of that company [...] This is a way of salvaging value out of the SCO franchise they can't get by winning in the marketplace." At the same time, SCO announced it would stop selling its own SCO Linux product. A few days later, Microsoft which had long expressed disdain for Linux said that it was acquiring a Unix license from SCO, in order to ensure interoperability with its own products and to ward off any questions about rights. Another major computer company,
Sun Microsystems, bought an additional level of Unix licensing from SCO to add to what it had originally obtained a decade earlier. The server-based licenses were priced at $699 per machine, and if they were to become mandatory for Linux users, would represent a tremendous source of revenue for SCO. In December 2003, SCO sent letters to 1,000 Linux customers that in essence accused them of making illegal use of SCO's intellectual property. On January 20, 2004, the SCO Group filed a
slander of title suit against Novell, alleging that Novell had exhibited bad faith in denying SCO's intellectual property rights to Unix and UnixWare and that Novell had made false statements in an effort to persuade companies and organizations not to do business with SCO. The
SCO v. Novell court case was underway. Lawsuits against two Linux end users, The first alleged that Daimler Chrysler had violated the terms of the Unix software agreement it had with SCO, while the second claimed that AutoZone was running versions of Linux that contained unlicensed source code from SCO. In July 2003, the SCO Group announced it had acquired Vultus Inc. for an unspecified price. Vultus made the WebFace Solution Suite, a web-based application development environment with a set of browser-based user interface elements that provided a richer UI functionality without the need for Java applets or other plug-ins. Indeed, in putting together WebFace, Vultus was a pioneer in
AJAX techniques before that term was even coined. The acquisition of Vultus resulted in a shift of emphasis in the company's web services initiative, with an announcement being made in August 2003 at SCO Forum that SCOx would now be a web services-based Application Substrate, featuring a combination of tools and APIs from Vultus's WebFace suite and from
Ericom Software's Host Publisher development framework. A year later, in September 2004, this idea materialized when the SCOx Web Services Substrate (WSS) was released for UnixWare 7.1.4. However, as McBride later conceded, the SCOx WSS failed to gain an audience,
Views on infringement claims In the keynote address at its SCO Forum conference in August 2003, held at the
MGM Grand Las Vegas, the SCO Group made an expansive defense of its legal actions. Framed by licensed-from-MGM
James Bond music and film clips, McBride portrayed SCO as a valiant warrior for the continuance of
proprietary software, saying they were in "a huge raging battle around the globe", that the
GNU General Public License that Linux was based on was "about destroying value", and saying that like Bond, they would be thrown into many battles but come out the victor in the end. However, during the company's Forum conference, SCO did publicly show several alleged examples of illegal copying of copyright code in Linux. Until that time, these examples had only been available to people who signed a
non-disclosure agreement, which had prohibited them from revealing the information shown to them. SCO claimed the infringements were divided into four separate categories: literal copying,
obfuscation, derivative works, and non-literal transfers. The example used by SCO to demonstrate literal copying became known as the
atemalloc example. While the name of the original contributor was not revealed by SCO, quick analysis of the code in question pointed to
SGI. At this time it was also revealed that the code had already been removed from the Linux kernel, because it duplicated already existing functions. By early 2004, the small amount of evidence that had been presented publicly was viewed as inconclusive by lawyers and software professionals who were not partisan to either side. In any case, while Linux customers may not have been happy about the concerns and threats that the SCO Group was raising, it was unclear whether that was slowing their adoption of Linux; some business media reports indicated that it was, If SCO were to win its legal battles, the results could be extremely disruptive to the IT industry, especially if SCO's notion of derivative works was to be construed broadly by the courts. Furthermore, a SCO victory would be devastating to the open source movement, especially if the legal validity of the GPL license were to be called into question. --> SCO's legal campaign coincided with the best financial results it would have, when in fiscal 2003 they had revenues of $79 million and a profit of $3.4 million. The campaign was also initially very beneficial to its stock price. The stock had been under $1.50 in December 2002 and reached a high of $22.29 during mid-October 2003. In some cases jumps in the price occurred when
stock analysts initiated coverage of the stock and gave optimistic price targets for it. message boards But the stock began a downward slide soon after that, and by the end of 2003 about a quarter of all outstanding shares were controlled by
short sellers. The SCO group had 340 employees worldwide when the lawsuits were first underway in 2003. By a year later, this count had fallen somewhat to 305 employees. and in part due to the ongoing expenses of running a struggling software products business. Both BayStar and
Royal Bank of Canada, which had been part of the initial placement, bought out of the investment by mid-year. Legal actions were a large expense, costing the SCO Group several million dollars each quarter and hurting financial results. To that point, the company had spent a total of some $15 million on such costs. Accordingly, in August 2004, SCO renegotiated its deal with its lawyers to put into place a cap on legal expenses at $31 million, in return for which Boise, Schiller & Flexner would receive a larger share of any eventual settlement. McBride ultimately envisioned it becoming "an online distribution engine for business applications from a wide variety [of] companies and solution providers." The stock slide continued, and by September 2004 had fallen below the $4 level. as its longtime 400 Encinal Street office building was mostly empty. By early 2005, the SCO Group was in definite financial trouble. Its court case against IBM did not seem to be going well. falling to around $43 million, and there was a loss on that of over $28 million. As part of the settlement, Canopy transferred all of its shares in the SCO Group to Yarro. == Products continue ==