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SCO suitor vows to keep up Unix copyright war

Firm has no plans to give up legal fights that have battered SCO’s business, reputation; McBride out if deal goes through

By , NetworkWorld.com
February 15, 2008 05:37 PM ET

NetworkWorld.com - The private equity firm that has offered to pump up to $100 million into SCO thinks court rulings against the vendor in its highly publicized Unix copyright lawsuits "don’t make any sense" and it believes those rulings can be reversed on appeal to a higher court.

Meanwhile, some intellectual property lawyers say the private equity firm, Stephen Norris Capital Partners (SNCP), is placing a very risky bet.

“You can get a legal opinion on all sides of this thing. Everyone in the tech world has an opinion. But some of the court rulings on this just don't make any sense at all. We think the case has merits,” Stephen Norris, managing partner of SNCP, told the Associated Press.

The AP report also said executives with SCO, which is in Chapter 11 bankruptcy, and its new SNCP partners believe the federal court summary judgment against SCO in its Unix copyright lawsuit with Novell will be reversed if they appeal it to a higher court.

Novell officials said they had no comment on the SCO developments.

In SNCP’s filing with the U.S Bankruptcy Court in Delaware, which must approve SNCP’s offer to SCO, the private equity firm said it will require SCO to “aggressively continue” its ongoing litigation against Novell, IBM and AutoZone Inc.

SNCP said it hopes to share in any future settlements and get a cut of any settlements made in cases brought prior to its offer. The other major clause in the filing called for SCO CEO Darl McBride to “resign immediately” upon completion of the deal.

The filing shows SNCP is investing just $5 million cash upfront and making another $95 million available to SCO via a high-interest line-of-credit. The credit line comes with an interest rate higher than most consumer credit cards – 17% plus the rate that banks charge each other for loans.

“The $5 million buys them the trial and an appeal,” said Mark Radcliffe, a partner at law firm DLA Piper US, who advises companies on intellectual property issues.

The trial begins April 29, runs for four-days in federal court, and is the follow-up to a summary judgment issued in Novell’s favor in August over who owns the copyright to Unix.

“It’s a small bet for [SNCP], but I think it is a foolish bet for them. I don't know where [SNCP] is getting the advice that you can get a variety of opinions on this case. You can get a variety of opinions but I think the ones that say SCO has a case are wrong,” said Radcliffe.

The filing with the bankruptcy court clearly shows, however, that SNCP is positioning the litigation as the fuel for its investment strategy.

Radcliffe says there are two ways SCO could eventually exploit Unix intellectual property. He says the first would be for SCO to sue companies for breach of contract, which is the route it took against IBM based on a Unix licensing deal SCO signed with Novell in 1996.

That option is impossible, Radcliffe says, because Novell has what he calls a “silver bullet” that allows it to exempt Unix licensees from any suit brought by SCO based on the contract SCO has with Novell.

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