BayStar Might Sue . . .

Details: BayStar was the lead investor in a $US50 million transaction announced in October that included financing from the Royal Bank of Canada. In April, BayStar informed SCO that it wanted out of the investment, claiming that the software company had breached its purchase agreement. But just one month later, BayStar doubled its stake in SCO by purchasing 20,000 shares of the company's preferred stock from the Royal Bank of Canada, which was in the process of walking away from its SCO investment.

In early June, SCO and BayStar appeared to have settled their differences. The two companies settled on a repurchase agreement that gave BayStar $US13 million in cash and approximately 2.1 million shares of SCO common stock - valued at $US10.1 million at the time - in exchange for the investment company's 40,000 shares of SCO preferred stock.

On July 23, SCO announced that the repurchase transaction had closed. BayStar responded just hours later with a statement of its own maintaining that the repurchase had not closed.

Status: According to statements issued by the two companies on July 23, BayStar intends to file a lawsuit against the Unix vendor. "BayStar intends to file an action requesting a declaratory judgement with respect to its rights under the Stock Repurchase Agreement," the statement said.

SCO declined to provide the information requested by BayStar, "in order to protect the confidential and proprietary nature of the information and the names of the companies engaged in SCOsource licensing discussions," SCO said in a statement.

In the Know About SCO

Some useful points to help you navigate the legal morass Q. Why would SCO sue its own customers?

A. This is similar to the record industry suing people for downloading music for free. SCO claims that people are using SCO code without paying for it.

Q. That sounds clear. It's their intellectual property, so they ought to be paid for it, right?

A. It's not that simple. First, while it's clear when someone steals a song, because you can hear it played, it's not as clear when code has been stolen, because it's hidden within millions more lines of code. Also, with open source projects, where code could come from any developer, it's sometimes hard to tell its origin.

Q. Isn't it the responsibility of the people who make the product to have some sort of accountability system so that if someone does cheat by plagiarizing code, that person or group can be identified?

A. Probably. That's why Linus Torvalds recently sponsored a measure that would require anyone who works on Linux to sign a Developers Certificate of Origin in order to document who contributed what to Linux. This is not an admission of guilt on the part of Torvalds or Linux developers, but a recognition of the need for accountability.

Q. Wouldn't it behove a small company like SCO to settle and not sink millions into a years-long battle?

A. Legal experts say the goal should always be to settle. That seems highly unlikely under the present circumstances. Both sides are using the language and tactics of a moral or holy war. SCO is claiming the General Public License is unconstitutional. Red Hat is claiming SCO is holding Linux hostage. Lawyers are supposed to try to settle; no one here seems to want settlement.

Q. Should I hold off investing in open source and Linux?

A. On the one hand, if SCO wins its cases, it would likely be entitled to licensing fees and other reparations. SCO winning would also affect Linux development and open source licensing in unknown ways. On the other hand, Linux vendors have offered indemnity to users, the case will likely last years (it doesn't start until late 2005), and an SCO victory is not at all certain. Only you can measure the risk you're willing to take (see "What About Australia?", right).At press time, we learned...

In April 2004, SCO laid off nearly 10 percent of its 275-person workforce.

SCO revenue in the second quarter of '04 took a 53 percent nosedive; licensing revenue dropped 99 percent from $US8.25 million the same quarter a year ago to $US11,000 this year (SCO says this is a reflection of the fact that licensing revenue is not predictable and will go up and down); SCO's quarterly net loss was $US9.4 million.

SCO in June announced five new UnixWare, OpenServer and other Unix-based products. They don't run on Linux.