SCO management had a problem. Their quarterly financial report was going to show only twenty thousand dollars in income for their SCOSource licensing program. And so, in an announcement timed to distract people from the bad financial report, SCO announced two new lawsuits and license purchases from Computer Associates, Leggett and Platt, and EV1 Servers.

Computer Associates' CEO was quick to blast SCO, pointing out that CA had settled a breach-of-contract suit unrelated to Linux with Canopy Group - SCO's main investor - and one of its other companies, Center7. The settlement terms compelled CA to purchase some licenses from SCO, and required that CA not disclose those terms. Leggett and Platt managers who were asked about that company's license purchase scratched their heads, maybe someone in the company had purchased a license, but they'd asked around and they didn't know about it. And EV1 Servers CEO says he didn't pay nearly what SCO claims he paid.

When a company arranges for the appearance of sales, the way SCO seems to have done with CA and most likely has done with other companies, that's called window dressing. It's something that companies do to make their stock look better than it actually is.

On the same day that CA blasted SCO, Open Source evangelist Eric Raymond revealed a leaked email from SCO's strategic consultant Mike Anderer to their management. The email details how, surprise surprise, Microsoft has arranged virtually all of SCO's financing, hiding behind intermediaries like Baystar Capital. SCO spokesperson Blake Stowell has admitted that the email is real, but called its implications a "misunderstanding", while Microsoft softly called them "not accurate". We'd hear stronger denials if there wasn't some truth there. This was followed by a comment from the the Securities and Exchange Commission that, yeah, they're interested. Mr. Anderer, expect to see lots of subpoenas with your name on them.

SCO has suffered other setbacks recently, in their lawsuit against IBM. First, the company dropped all breach of trade-secret allegations against Big Blue. The time had come and gone for SCO to provide evidence regarding those allegations, and it hadn't been able to support them. And then came a ruling on the discovery process in the case.

The ruling requires SCO to finally reveal, with specificity, what code IBM has copied from Unix to Linux, on the same day that IBM must deliver the source code of IBM's AIX Unix system to SCO for examination. The ruling is calculated to show what infringement SCO could allege just by looking at the published source code for Linux. SCO will then have two weeks to look at AIX, and make additional allegations regarding the transfer of IBM's AIX source code to Linux.

We have yet to see SCO's specific infringement claims, but we can expect them to follow the two general theories of copyright infringement that they've stated in the case or in other public venues.

SCO alleges that code that IBM wrote on its own for AIX became SCO's property or is otherwise encumbered by SCO due to terms of the Unix license that IBM acquired from ATT, the creator of Unix. According to SCO, IBM does not have the right to put in Linux any code that has ever touched Unix. That's why the judge is giving SCO a peek at AIX. But SCO's interpretation of the Unix license was refuted in by ATT itself when they announced a change in the license terms in their August 1985 Echo newsletter sent to all Unix licensees. ATT wrote:

Section 2.01 - The last sentence was added to assure licensees that AT&T will claim no ownership in the software that they developed -- only the portion of the software developed by AT&T

SCO is the "successor in interest" to the ATT license. They'll have to honor ATT's terms and ATT's own interpretation, and thus their claim on IBM's code will fail.

SCO's remaining copyright infringement theory is regarding the Unix API or ABI. SCO says that Linux contains copies of a number of the header files that define the Unix API or ABI. But SCO doesn't own that information. When Novell sold off the Unix business they'd purchased from ATT, they transferred the Unix definition and trademark to The Open Group, while SCO was sold some rights related to the Unix implementation. The Open Group maintains the Unix definition today as their Single Unix Specification, and they assert that anyone can implement it without a copyright encumbrance.

Indeed, the header files in question were released for the public to implement without a copyright encumbrance on five separate occasions in all. These included:

• ATT's release for the ANSI C Language Standard.
• ATT's release for the U.S. Government POSIX standard.
• The USL v. BSDI court case of the early 1990's, in which ATT's Unix System Labs was found not to have a defensible copyright interest in Unix. Thus, Unix was in the public domain.
• The transfer of the Unix definition to the Open Group.
• The release of all ATT Unix implementations under the BSD license by Caldera (which now calls itself SCO) in 2002.

The chairpersons of the standards organizations are still living and able to testify regarding ATT's copyright releases, and the rest of the releases are documented in public records. And thus SCO's remaining allegation of copyright infringement will fall.

SCO's suit against Daimler Chrysler alleges that Daimler failed to give SCO an accounting of their use of Linux, which SCO feels is a violation of their Unix license. Daimler is a very large company used to nuisance suits. Their legal department alone is several times the size of SCO's entire staff. This suit places SCO in an expensive two-fronts war against the giant companies IBM and Daimler, or should we count the medium-sized companies Novell, Red Hat, and AutoZone and say a five-fronts war? In selecting AutoZone and Daimler, SCO was clearly targeting troubled companies that might be more likely to settle than sustain a long lawsuit, whatever its merit. But probably not likely enough. Companies that settle lawsuits with no merit just buy themselves more, similar lawsuits.

SCO's mounting legal costs have prompted a financial analyst at Decatur Jones to forecast that SCO's stock will post a significant loss. The same company downgraded its forecast of full-year earnings from the SCOSource licensing program from $7 Million to essentially zero in January ahead of news of the twenty-thousand-dollar quarter.

SCO's suit against AutoZone is related to AutoZone's alleged use of Unixware compatibility software for Linux previously released for free on the net by Caldera, before they stopped being a Linux business. SCO claims that AutoZone had old applications that ran on Unixware and could not be recompiled. This is unusual, in that most Linux users will not be moving software that they can't recompile. Caldera, now SCO, gave that compatibility software away for years, so they're going to have a very hard time showing that AutoZone didn't have a right to use it. A former AutoZone lead software engineer contradicts that the compatibility libraries were used at all.

SCO has run its campaign against Linux for over a year now, kiting their stock from fifty cents to over twenty dollars on many statements that, it is turning out, weren't true. When a company makes unfounded assertions for a month or two, it can be dismissed as a mistake or wishful thinking. When the distortions go on for a full year, it becomes difficult to explain their behavior as anything but a deliberate fraud meant to hurt Linux for Microsoft, their financial backer, while bringing SCO Millions in stock windfalls.

Perhaps the saddest part of this whole fiasco is its human dimension. Canopy Group was created and funded by Ray Noorda, who also founded Novell. Noorda would have hated SCO's current strategy. In fact, when the very similar USL v. BSDI lawsuit came up in the early 1990's, Noorda himself brokered the settlement between ATT's Unix System Labs and the University of California, so that Unix could go on without ambiguity. But more recently, Noorda has been afflicted with a very severe senility disorder and no longer participates in managing his own portfolio.

Canopy Group director Ralph Yarro, the self-proclaimed mastermind of SCO's strategy, was a graphic illustrator at Novell when he befriended Noorda. Noorda is said to have seen Yarro as "the only person who isn't after my money". Although we don't have oversight on the privately-held Canopy group, people close to the situation say that Yarro has been generous to his own portfolio with bonuses and other compensation. Yarro will probably be the major person to profit from SCO.

From a finanical standpoint, Canopy Group has already won. Because it's not a public company like SCO, we can't see all that's going on there. However, we know that they have swapped some of their other holdings, including a company called "Vultus", for SCO stock. And of course they've multiplied the value of their existing SCO stock as much as forty times over the past year. I've no doubt that much of this stock has already been converted to cash. The leaked email forecasts SCO's exit from this business in the near future. When they exit, Yarro and Canopy will walk away with tens of millions.