Microsoft millions back SCO case

The murky world of business litigation was revealed in this week's US Securities and Exchange Commission (SEC) filings for the SCO Group, currently suing IBM for $3bn.

SCO, which holds licences for Unix, is claiming ownership of Unix code allegedly included in the open source Linux operating system, blaming IBM among others for putting it there.

The SEC filing confirms that Microsoft, which has much to gain from dissuading businesses from adopting Linux, has paid at least two sums to SCO to licence Unix, the second for $8m.

Meanwhile, SCO is finalising payment details to its law firm Boies, Schiller and Flexner, which has been running the case loosely on a no win, no fee basis.

If confirmed, the law firm will be entitled to 20 per cent of the proceeds from such items as licence fees - which SCO has been attempting to extract from Linux users - settlements, equity financing and successful judgements.

This includes 20 per cent if the company is sold while litigation is still pending. So if SCO were sold at its current market capitalisation of around $250m, the law firm would receive a cool $50m.

Separately it states: "This modification may result in the payment to such law firm up to $1m and the issuance of up to 400,000 shares of SCO's common stock."

These two together would net Boies, Schiller and Flexner a further $8m at current share price levels.

James Governor, principal analyst at Red Monk, told vnunet.com: "Microsoft bankrolling a test case in the area of who owns the code for open source is not really so surprising. Microsoft understands that money talks."

But Governor added that the lawyer deal was very tawdry and showed that SCO was now a shell, not a software company any more.

"The great shame is that SCO did have a fond place in many hearts in open source history. But this isn't even the same SCO," he said.

IBM does not seem unduly concerned at the possibility of SCO winning the case. It put $50m into Novell when it purchased distributor SuSE Linux this week.

Big Blue has also countersued SCO over patent infringement, and recently subpoenaed the companies that took up SCO's offer to view code samples under its non-disclosure terms. These include Yankee Group and Deutsche Bank.

The SEC filing further states that SCO entered into a licensing agreement with Microsoft in the spring, which allowed Redmond "to exercise two options to allow Microsoft to acquire expanded licensing rights with respect to SCO's Unix source code".

During the quarter ended 31 July, the filing says, Microsoft exercised and paid for the first option. And during SCO's current quarter "Microsoft exercised and paid $8m for the second option".

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