SCO Blames Linux For Bankruptcy Filing

SCO Group CEO Darl McBride says competition from the open source Linux operating system was a major reason why the company was forced to file for Chapter 11 bankruptcy protection on Friday.

In a court filing in support of SCO's bankruptcy petition, McBride noted that SCO's sales of Unix-based products "have been declining over the past several years."

The slump, McBride said, "has been primarily attributable to significant competition from alternative operating systems, including Linux." McBride listedIBM ( IBM), Red Hat, Microsoft (MSFT), and Sun Microsystems (SUNW) as distributors of Linux or other software that is "aggressively taking market share away from Unix."

SCO claims it owns all copyrights over Unix and that Linux infringes on those copyrights. In what were widely seen as bet-the-company moves, SCO, beginning in 2003, launched a series of lawsuits against rivals and customers claiming their use of Linux was violating the copyrights. The campaign was dealt a crushing blow on Aug. 10 when federal court Judge Dale Kimball ruled that Novell (NOVL), and not SCO, owns the copyrights to Unix.

As a result, Kimball said that SCO must remit to Novell a portion of the fees it has collected from selling Unix licenses -- mostly to Sun and Microsoft. That could amount to as much as $25 million. The total is to be decided at a trial that's set to start today. The case is scheduled to proceed as a bench trial, meaning that Kimball -- not a jury -- will decide the outcome.

As of April 2007, the latest date for which financial numbers were available, SCO had just $7.8 million in cash or equivalents and total assets of only $20 million, SEC records show. That's not enough to cover the penalties SCO may be forced to pay Novell.

In a statement issued Friday, SCO said its board of directors "unanimously determined that Chapter 11 reorganization is in the best long-term interest of SCO and its subsidiaries, as well as its customers, shareholders and employees."

SCO has also filed a petition for reorganization in addition to the Chapter 11 filing. SCO said the filings will help ensure that it "will not have any interruption in maintaining and honoring all of its commitments to its customers" and will allow it to pay its vendors.
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