SCO, BayStar in Battle Again

Although The SCO Group and its former investor, BayStar Capital, seemedto have resolved their differences in June, a new flare-up has occurred,resulting in threats of legal action toward SCO.

The latest dispute revolves around licensing opportunities available in the SCOsource program.

In October 2003, BayStar had arranged a US$50 million investment in SCO,then recently sought to get its money back. The tussle seemed to bedecided when the two companies agreed on a plan that would allow SCO tobuy back all the preferred shares owned by BayStar. According to thearrangement, SCO would pay approximately 2.1 million shares and $13million in cash to BuyStar.

On Friday, SCO noted that it had bought the shares as planned, butBayStar countered by commenting that the transaction was incomplete dueto a dispute.

According to SCO, the main sticking point in the debate is the SCOsourceprogram, a vehicle for selling intellectual property. BayStar feels thatSCO has made inconsistent statements about the licensing opportunitiesavailable in SCOsource, while SCO has said that its disclosures wereaccurate.

Turn of Events

Neither company is commenting directly on the situation, but statementshave been made showing that disagreements still exist.

On Friday, SCO noted that the repurchase transaction was officiallyclosed as of July 21. But BayStar released a statement saying thetransactions have not closed. It went on to read: “BayStar intends tofile an action requesting a declaratory judgment with respect to itsrights under the Stock Purchase Agreement.”

This is a far cry from just six weeks before, when BayStar’s managingpartner, Larry Goldfarb, issued a statement that praised SCO, sayingthat the investment company was “extremely satisfied” with SCO’sperformance in cash management plans, new initiatives, management of theongoing litigation with IBM and other firms, and plans for improving thebusiness. SCO was also complimentary at the time, noting that itappreciated BayStar’s public support.

In a statement Friday, SCO mentioned BayStar’s recent allegationsregarding SCOsource, and noted that BayStar would not consider therepurchase transaction closed until SCO provided the company withconfidential information “supporting the accuracy of SCO’s recent publicdisclosures” regarding SCOsource. SCO refused to provide the information, claiming that it is confidential and proprietary.

Out of the Red

The original agreement in June was noted by some analysts as havingremoved uncertainty about SCO’s ability to pay for its expensive lawsuitagainst Linux, which so far involves several companies and could includemore in the future.

Although its lawsuit against one company, DaimlerChrysler, has ended, SCOmust still pursue a variety of avenues in pending cases. It hasalso noted that there is a possibility of more suits in the futureagainst companies that it feels have violated contractual agreementssurrounding SCO’s intellectual property rights.

SCO spokesperson Blake Stowell told LinuxInsider that although he cannotcomment on specific events, the company is not worried about running outof money for its legal battles.

“We’re fine, and we’ll be fine for a long time to come,” he said. “We’rewell funded to be able to continue the litigation we’ve started. We’renot worried.”

See You in Court

For some, watching SCO’s legal squabbles is akin to following a sportsteam as it tries to make its way through a season. Intellectual propertyattorney Jeff Norman of Chicago-based firm Kirkland & Ellis toldLinuxInsider that attorneys and legal observers post comments about SCOoften to Groklaw, an online legal bulletin board.

The unveiling of further squabbles with BayStar is no exception, andmany have already posted thoughts about the situation. One member notedthat the case sounded like the movie “The Rock,” in which the charactersshoot each other when their extortion plans go awry.

“People would like to see the suits just wrap up,” Norman said. “But inthe meantime, there are many people watching to see how this all playsout.”

For SCO, a case with BayStar could make its litigation movements evenmore lively. Norman noted that with cases still pending against IBM,Novell and AutoZone, those who enjoy watching fierce legal battlesshould have plenty to observe.

“This stuff is going to drag on for awhile,” he said. “We should justget used to SCO being in the courtroom.”

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