Novell: SCO on its last legs, bankruptcy imminent

The SCO Group, the Unix vendor that gained notoriety for claiming IBM illegally incorporated its proprietary Unix code into Linux, is hanging by a thread and financial bankruptcy is "inevitable," according to court documents filed by Novell in U.S. District court in Utah last week.

In the filing, which was posted on the Groklaw Web site Tuesday, Novell argues that SCO owes it the majority of revenues gained from Unix licensing deals it made with Microsoft and Sun in 2003. The revenues amount to nearly US$26 million (AUD$33 million).

Novell's claim stems from a 1995 deal it crafted when it transferred Unix and UnixWare to The Santa Cruz Operation, which sold its software and services business to Caldera, which later became SCO. Under the deal, known as the asset purchase agreement [APA], SCO is responsible for forwarding the revenue it receives from SVRX [Unix System V] license agreements to Novell, with Novell sending back 5% to SCO as an administrative fee.

Novell filed its initial demand for the revenues last September as part of a response to a lawsuit SCO initiated in 2004, claiming that Novell had misrepresented its ownership of Unix. Unix ownership is at the heart of the original lawsuit SCO filed against IBM in 2003.

SCO has refused to turn over any money to Novell, claiming that the revenues from Microsoft and Sun don't fall under the APA. In addition, SCO claims that turning over the money would amount to an unjust financial burden at a time when it is spending dollars fighting its legal case against IBM.

Such financial issues make the claim even more urgent, Novell says in its filing.

"Contrary to SCO's assertion that a preliminary injunction should be denied because it may accelerate SCO's bankruptcy, SCO's imminent bankruptcy is a compelling reason to grant Novell's motion," Novell's attorneys write in the filing. "When SCO goes into bankruptcy, it will not be because of Novell's motion, but because of its own financial missteps. For SCO, bankruptcy is inevitable; it characterizes its assets as merely those 'remaining' and does not rebut Novell's arguments that its bankruptcy is imminent."

SCO spokesman Blake Stowell denies that SCO is in dire straits.

"We will report our fourth quarter financials on Jan. 17 and give an update at that time," he says. "We consider it irresponsible of Novell's lawyers to mischaracterize our financial well-being with these false statements."

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