"Unintended consequences of our lawsuit against IBM may adversely affect our business," the Lindon, Utah-based seller of Unix and Linux products warned in a regulatory filing that permits two major shareholders to sell all their stock. The shareholders received the stock in 2002 in connection with SCO's efforts to get financial help, including the possibility of finding a buyer.
SCO sued IBM earlier in March, alleging IBM misappropriated trade secrets by taking SCO intellectual property in the Unix operating system and moving it into Linux. The suit also alleges unfair competition, breach of contract and tortuous interference with SCO's business. The company is seeking more than US$1 billion in the case, has hired high-profile attorney David Boies to pursue the claim and is threatening to revoke IBM's license to ship its version of Unix, called AIX.
The filing warns of several possible ways the suit could hurt SCO: legal fees likely will "increase substantially" and revenue from joint ventures with IBM and Big Blue's partners could decrease. In addition, SCO warns that IBM could influence customers to shun SCO products.
"There is also a risk that the lawsuit against IBM will be negatively viewed by participants in our marketplace, and in such event, we may lose support from such participants," SCO warned.
Indeed, the suit has been criticised by some industry analysts and several people in the open-source community that collectively develops Linux. And SuSE, a SCO business partner and another Linux seller, said it is re-evaluating its relationship with SCO.
Last week, IBM took its first formal action, moving the suit from Utah state court to federal court in that state. The move was possible because IBM is incorporated in New York, whereas SCO is incorporated in Delaware.
"Since the parties are incorporated in different states, both parties are entitled to have their dispute heard in a federal rather than a state court," said John Ferrell, an intellectual property attorney with Carr & Ferrell in Palo Alto, California.
SCO's warning about the lawsuit's side effects appears in a list of risk disclosures that companies must provide to investors. The filing also permits two major shareholders to sell a total of 1 million shares of SCO's 12.2 million outstanding shares of stock.
The first shareholder is Vista.com Chief Executive John R. Wall, who obtained a 6.6 percent stake, or 800,000 shares, of SCO stock. Wall received the stock in connection with a transaction involving a SCO investment in Vista.com, a SCO license to market Vista.com's services and a US$1 million convertible note SCO acquired that is payable by Vista.com. The transaction took place in the quarter ended 31 October, according to SCO's annual report.
The second is Morgan Keegan & Co., an investment banking firm that in August received a warrant for 1.6 percent of SCO, or 200,000 shares. SCO retained the firm to explore and possibly execute plans including finding financing or selling SCO to another company, according to SCO's filing for the quarter ended 31 January.
Under the agreement, Morgan Keegan would get between 1 percent and 6 percent of money raised. If SCO is acquired or acquires others, Morgan Keegan would receive the greater of US$250,000 or 2 percent of the transaction price, according to the filing.
In a separate filing Monday, the company announced its annual stockholder meeting will be May 16, when the company plans to officially change its name from Caldera International to SCO Group.
