Although SCO's courtroom campaign against Linux ended in an epic failure, the company intends to continue its futile effort with a little bit of help from some new friends. Stephen Norris Capital Partners (SNCP) and some of its undisclosed associates have supplied $100 million to finance a reorganization plan for SCO.
A memorandum of understanding that outlines the terms of the tentative agreement notes that "the reorganized SCO will pursue the Novell/IBM Litigation and other pending litigation claims aggressively," and that "an early and favorable resolution" of the litigation is one of the primary goals of the business plan. SCO also continues to assert that it owns the core of the UNIX operating system despite a ruling issued last year by federal district judge Dale A. Kimball which concluded that Novell is actually the rightful owner.
SCO's chances of success with further litigation are practically nonexistent at this point, which raises serious questions about why any sane private equity firm would want throw resources into the SCO money pit. SCO consistently lost money and credibility at every step during its litigious crusade and failed to provide even a shred of evidence to substantiate any of its claims. In fact, internal company memos revealed during the litigation showed that SCO's own internal audits turned up no UNIX code in Linux despite SCO's frequent claims that there are millions of infringing lines.
Under the terms outlined in the memorandum of understanding, SCO will get $5 million to use now for reorganization, and the rest of the money will be used for debt financing. The arrangement also provides for "payment in full of all creditors," which means that Novell might actually get the money owed to it by SCO. According to Judge Kimball, this includes 95 percent of all royalties collected from SCO's licensing of the original UNIX copyrights.
SNCP managing partner Stephen Norris isn't saying much about what inspired him to think that SCO still has a chance in court. Although the memorandum of understanding cites positive outcome of the litigation as the primary purpose behind SNCP's investment, Norris himself only talks about the potential of SCO's upcoming products and services.
Say what?
"We saw a tremendous investment opportunity in SCO and its vast range of products and services, including many new innovations ready or soon to be ready to be released into the marketplace," Norris said in a statement. "We expect to quickly develop these opportunities, and to stand behind SCO's existing base of customers and partners."
It isn't clear at all what Norris is talking about. UnixWare, SCO's flagship product, hasn't seen a new release in four years, and SCO readily acknowledges that its UnixWare revenue has sharply declined as a result of competition from Linux. SCO's only other commercial offerings are mobile communication services acquired from Me Inc, and those haven't attracted much attention.
In light of SCO's dim future prospects, it's hard to imagine why anybody would think this is a good investment. It is entirely possible that this deal was orchestrated behind the scenes by a player that stands to benefit from the perpetuation of SCO's litigation, much like Microsoft's involvement in securing funding for SCO from BayStar.
Despite this fresh infusion of cash, the ultimate outcome will probably not change much. SCO's case never had any basis in reality and no infusion of venture capital cash will ever change that.
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