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Gartner: SCO's Legal Fees Could Jeopardize Its Software Business

Nov 21, 2003, 14:00 (12 Talkback[s])
(Other stories by George J. Weiss)


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"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.

"SCO has declared in filings with the U.S. Securities and Exchange Commission that its competitive position could decline if the company can't obtain additional financing. The latest share issue will dilute shareholders' investments about 3.5 percent. It comes on top of a previously announced arrangement giving Boies, Schiller & Flexner a 20-percent share in SCO if the company were sold. SCO also received an investment of $50 million from BayStar Capital in return for 17.5 percent of outstanding shares. 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..."

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