SCO Poops Out!

After failing to convince a U.S. District Court judge last month that they owned the copyrights on Unix and were due royalties from Linux distro's, SCO Group has filed Chapter 11 bankruptcy.

SCO had a simple reason for pursuing the lawsuit: They wanted to use an expected financial windfall to finance the growth of their business. In May 2003 (six months after I founded Black Duck) SCO sued IBM for violating their alleged Unix copyrights (first for $3 billion, then $5 billion), but all but lost the case in 2005. In making his ruling in the SCO-IBM case, that judge gave SCO the legal equivalent of a smack upside the head:

Viewed against the backdrop of SCO's plethora of public statements concerning IBM's and others' infringement of SCO's purported copyrights to the Unix software, it is astonishing that SCO has not offered any competent evidence to create a disputed fact regarding whether IBM has infringed SCO's alleged copyrights through IBM's Linux activities.

But SCO was undaunted. Their next legal target? Novell.

Last month, when a different judge turned down their claim against Novell, SCO's stock price plummeted, and SCO's board chose the Chapter 11 route to keep the lights on. As SCO president and CEO Darl McBride told ZDnet,"Chapter 11 reorganization provides the company with an opportunity to protect its assets during this time while focusing on building our future plans."

Translation: SCO wants to reduce the chance of having to pay much, if anything, to Novell. Last month the U.S. District Court judge ruled that Novell, the defendant in the latest SCO lawsuit, was the rightful owner of the UNIX copyrights. And since SCO has been using UNIX in their product line for free, the two companies were scheduled to go back to court on Monday to learn how much royalty money SCO owes.

A large monetary judgment for Novell might well spell doom for SCO – and SCO knows it. With Chapter 11 protection, SCO hopes the judge will let them live to sue another day.

So what can we learn from all of this? It's proof that suing large companies is an reckless business model. No matter how you slice it, innovation almost always works out better than litigation.