SCO's Chapter 11 filing postpones Novell trial

SCO Group, a company known more for the lawsuits it files than the products it makes, Friday filed for federal court protection under U.S. bankruptcy laws, automatically postponing a pending trial to determine the money it must pay in a long-running copyright dispute with Novell.

SCO made the filing under Chapter 11 of the U.S. Bankruptcy Code, which protects a company from its creditors while it undergoes a financial reorganization.

SCO, which is headquartered in Linden, Utah, was scheduled to appear in federal District Court in Salt Lake City Monday as a defendant in a trial to determine how much it has to pay Novell in licensing fees for violating Novell’s copyrights for Unix and UnixWare software. U.S. District Court Judge Dale Kimball, who was to preside over the trial, was the same judge who ruled Aug. 10 that Novell, not SCO, owned the copyrights.

But the Chapter 11 filing automatically puts a hold on that trial, said Kevan Barney, senior manager of public relations for Novell.

"We are exploring our options and pursuing our interests," said Barney.

In a news release, SCO said that the filing was approved by the company’s board.

"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," stated Darl McBride, president and CEO of the company. "Chapter 11 reorganization provides the company with an opportunity to protect its assets during this time while focusing on building our future plans."

SCO sells Unix-based software technology and mobile services, including UnixWare for enterprise applications and SCO OpenServer for small and midsize businesses. But it has made a name for itself suing the software industry’s biggest players, beginning with a 2003 suit against IBM claiming that it had violated SCO's rights by contributing Unix code to Linux. SCO sued Novell in 2004 alleging that Novell falsely claimed it owned rights to Unix.

The litigation proved to be costly for SCO, which has been losing money for years as it has racked up millions of dollars in legal fees and seen its core Unix software business decline.

SCO's stock has been hammered since March of 2003, when it first filed suit. On Friday it closed at 37 cents, down 43% on the bankruptcy news.

“It’s really unfortunate for the employees and customers of SCO Group. My heart goes out to them,” said Jim Zemlin, executive director of the Linux Foundation in San Francisco, commenting on the Chapter 11 filing. The foundation is a nonprofit organization supporting the growth of Linux.

“SCO could have chosen a chose a path similar to Red Hat to offer open source solutions and value-added services around that,” said Zemlin. “Instead, SCO chose a path of litigation and the result has been the filing of Chapter 11 bankruptcy.”

Red Hat is a competitor to Novell, but honors the open source licensing agreement to Linux and built its business on subscription fee revenue for support of its software programs, Zemlin noted.

Robert McMillan of the IDG News Service contributed to this report.