Novell attempts an end run around SCO's bankruptcy

. . . keeping an eye on the penguin

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Oct. 06, 2007

When SCO went for Chapter 11 bankruptcy, it was thought that SCO was doing it in part to avoid losing its cash reserves and more to Novell in the next stage of the Novell/SCO lawsuit. Now, Novell is pursuing SCO from the IP (intellectual property) courts to the bankruptcy courts.

SCO filed for Chapter 11 bankruptcy on Sept. 14. This came after SCO had been slammed by one defeat after another in its anti-Linux lawsuits. Most recently, the U.S. District Court ruled that Novell, not SCO, owned Unix's intellectual property. This cracked the foundation to many of SCO's other lawsuits.

At the same time, SCO has been getting mauled in the stock market. It hasn't helped any that Nasdaq is threatening SCO with delisting not once, but twice. The first time is simply because SCO filed for bankruptcy. SCO appealed and will have a chance on Nov. 8 to convince the Nasdaq Listing Qualifications Panel that it shouldn't be delisted for seeking Chapter 11 bankruptcy.

Nasdaq, however, has also informed SCO that it may also be delisted because its stock price has dropped below a dollar a share for more than 30 business days. With a stock price of sixteen cents a share at the market close on Oct. 5, it seems unlikely that SCO will get its price high enough to avoid being delisted even if it manages to convince the Nasdaq Panel that its stock should still be allowed on the Nasdaq big board.

The U.S. District Court decision also made it likely that SCO owes Novell at least some of the 26.5 million dollars it received from Sun and Microsoft in 2003. These funds had been used, in turn, to fuel SCO's anti-Linux litigation. Now, Novell argues, SCO is using its money to fund its bankruptcy.

To quote from Novell's motion, SCO is trying to "turn Novell's property into an involuntary gift to the estate and its creditors. Nothing in the APA (Asset Purchase Exchange) or Bankruptcy Code sanctions SCO's use of Novell's property this way."

So what does Novell propose to remedy this situation? It has asked the bankruptcy court in Delaware to lift the stay on the Novell/SCO case so that that Judge Dale Kimball of the U.S. District Court can get on with the business of resolving the final issues of the major case.

The bankruptcy court will hold a hearing on Novell's motions on Nov. 6. As Pamela Jones, editor of Groklaw, said "This is the one not to miss, I'd venture to guess, if you enjoy fireworks." At this point, every decision SCO faces both in the courts and in the stock market holds the potential to bring the company much closer to its end.

-- Steven J. Vaughan-Nichols

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