SCO's legal fees could threaten its existence – Gartner
SCO's legal fees could threaten its existence – Gartner
SCO Group's customers should have a migration plan in case SCO's legal strategy falters, according to analyst group Gartner.
In an advisory posted on Gartner's website, research analyst George J. Weiss warned that the financial outlay that SCO has made in legal costs to pursue lawsuits against Linux users could jeopardise the future of its software business.
Weiss reached this conclusion upon analysing the commitments SCO has had to make, not only to its legal representatives, but also to its VC backers.
Last week, SCO announced that it would pay US$1 million and issue a further US$7.95 million in shares to law firm Boies, Schiller & Flexner, which is representing SCO in its lawsuits against companies using Linux in alleged violation of SCO's intellectual property rights. The law firm has also secured rights to a 20 percent share in SCO should the company be sold.
Additionally, venture capital firm BayStar Capital invested US$50 million in SCO in return for 17.5 percent of outstanding shares, a move which Weiss believes further compromise SCO's mission as a software company.
"Mounting financial pressures have forced SCO to find alternatives to pay Boies, Schiller & Flexner. SCO not only faces the litigation against IBM (scheduled for April 2005) but must also defend counterclaims by Red Hat and IBM. Moreover, after threatening 1,500 Linux users for infringing its intellectual property rights, SCO has declared that within 90 days (or by about February 2004) it will start litigation against one or more Fortune 500 companies with large Linux installations.
"We believe that these moves compromise SCO's mission as a software company. Increasingly, the legal and financial aspects of the intellectual property infringement cases will absorb the company's attention, and a law firm will be in an increasingly powerful position to set the overall agenda for its compensation. Therefore, SCO will likely pursue claims against Linux users quickly. Its degree of success will determine the vendor's financial health."
Weiss also offered words of advice to Linux users to help protect themselves whatever the outcome of the ongoing legal battles. He suggests Linux users should keep a low profile and not divulge details of Linux deployments; do not pay SCO any license fees until a judgement in a case unequivocally warrants it; do not permit SCO to audit your premises without legal authorisation; ensure legal counsel are monitoring developments and understand the infringement claims; pressure high-profile Linux vendors to contractually guarantee against any infringement claims by covering court costs and have a plan in place that would enable the quick changeover of a Linux system should SCO wins a judgement that requires the Linux kernel code to be substantially changed.
Finally, Weiss also advised customers of SCO Open Server and UnixWare to have a plan in place that would allow for a migration to another platform within two years should SCO get an unfavourable judgement, as such a judgement could result in SCO ceasing operations or being sold, either of which could prove detrimental to future support and maintenance.
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