Update: SCO to pay lawyers millions for more legal firepower

Unix developer The SCO Group Inc. said Tuesday that it is extending an agreement with its lawyers to defend itself against new copyright issues in a move that will take a multimillion dollar bite out of its fourth-quarter 2003 financial results to go toward paying legal fees.

With the boost in legal resources, SCO plans to, among other things, sue within the next 90 days an end-user company over its use of the Linux operating system, which SCO alleges infringes on its Unix intellectual property.

“Clearly, large customers that are using a lot of Linux machines inside their environment would be the starting point” of SCO’s beefed-up legal initiative, said SCO’s President and Chief Executive Officer Darl McBride during a conference call Tuesday.

The company, which is currently embroiled in a lawsuit with IBM Corp. over a Unix license, said it plans to take a charge of US$8,956,000 in its fourth quarter ended Oct. 31, 2003, to pay Boies, Schiller & Flexner LLP and other law firms representing SCO. One million dollars will be paid in cash while the remaining amount will go toward the issuance of 400,000 shares of common stock, the company said.

Additionally, SCO said that it plans to take another $8,741,000 non-cash charge for the fourth quarter 2003 related to the issue of Series A Convertible Preferred Stock.

Despite the nearly $17.7 million in charges, SCO said it is holding to its previous fourth-quarter guidance of revenue between $22 million and $25 million. The company is due to release its fourth-quarter and fiscal year 2003 results on Dec. 8.

With the additional legal representation, SCO is looking to up the ante in the defense of its intellectual property. The company said Boies, Schiller & Flexner will now be dealing with issues related to copyright Unix code incorporated into Linux without authorization or appropriate copyright notices. SCO said that code identified includes Unix System V and copyrighted code covered in the 1994 settlement between Unix Systems Laboratories Inc. and Berkeley Software Design Inc. SCO said it bought this code and its associated copyrights from Novell Inc. in 1995.

“One of the things we’ll be looking to do is identify a defendant that will illustrate the nature of the problem,” said David Boies, managing partner of Boies, Schiller & Flexner, during the conference call. “We’re going to continue to vigorously prosecute the existing litigation against IBM but you will be seeing in the near term … the identification of a significant user that has not paid license fees and is in fact using proprietary and copyrighted material.”

The Lindon, Utah, company sued Big Blue for $1 billion in March, claiming that IBM had tried to destroy the economic value of Unix to benefit its Linux services business.

In related news, McBride told IDG News Service in an interview Monday that the company could possibly take legal action against Novell because its $210 million bid for SuSE Linux AG violates a non-compete agreement.