UNIX source code licensees required to provide written certification of compliance
SCO shows additional code detailing copyright violations in Linux through DMCA notification letters
LINDON, Utah – Dec. 22, 2003 – The SCO Group, Inc. (Nasdaq: SCOX), the owner of the UNIX® operating system and a leading provider of UNIX based solutions,
today announced new initiatives to enforce and protect the companys intellectual property rights. These initiatives include two components:
– Under the terms of SCOs System V UNIX contracts, the company has commenced issuing written notice to thousands of licensees requiring each licensee to
provide written certification that it is in full compliance with their UNIX source code agreement, including certification that such licensee is not using
proprietary UNIX code in Linux, has not allowed unauthorized use of the licensed UNIX code by its employees or contractors, and has not breached
confidentiality provisions relating to the licensed UNIX code.
– SCO has also begun providing notice of Digital Millennium Copyright Act (DMCA) violations via letters sent to select Fortune 1000 Linux end users. The
letters outline additional evidence of copyright infringement in Linux and the legal options available to commercial end users regarding the continued use of
Linux.
The initiatives SCO is launching today reflect our commitment to protect our rights to the UNIX operating system as well as the growing foundation of evidence
that SCO-owned UNIX source code and files have been misappropriated, said Chris Sontag, senior vice president and general manager, SCOsource division, The SCO
Group. We are taking action today to formally communicate to UNIX source code licensees and certain commercial Linux end users that they must utilize SCOs
intellectual property within the bounds of their existing legal agreements and the Digital Millennium Copyright Act.
– UNIX Source Code Licensees Required to Provide Written Certification of Compliance –
As the owner of UNIX System V, SCO has source code license agreements with more than 6,000 licensees. These license agreements serve as the legal foundation
upon which much of the industrys enterprise UNIX operating systems are licensed. These UNIX licensees include some of the largest companies in the
pharmaceutical, financial services, transportation, energy, automotive, computer hardware and software industries. These UNIX licensees include 41 companies of
the Fortune 100.
Under the terms of these license agreements, SCO has the right to require each licensee to provide written certification that they are in full compliance with
the terms of their UNIX source code agreement. Specifically, SCO claims each licensee must certify:
- The company is not running Linux binary code that was compiled from any version of Linux that contains SCOs copyrighted application binary interface code
(ABI Code) specifically identified in the attached notification letter. - The company, its employees and contractors have held, at all times, all parts of the UNIX products in confidence for SCO.
- The company has notified each employee and its contractors to whom they have disclosed UNIX that their disclosure must be kept in confidence.
- No employees or contractors that have had access to UNIX have contributed any software code based on that product to Linux or any other UNIX-based software
product. - The company, its employees and its contractors have not used any part of UNIX directly for others, allowed use of the product by others, including, but not
limited to, use in Linux or any other UNIX-based software product. - The company has not made available for export, directly or indirectly, any part of UNIX covered by their agreement to any country that is currently
prohibited from receiving supercomputing technology, including Syria, Iran, North Korea, Cuba, and any other such country, through a distribution under the
General Public License (GPL) for Linux, or otherwise. - The company, its employees and contractors have not transferred or disposed of, through contributions to Linux or otherwise, any part of UNIX.
- The company, its employees and contractors have not assigned or purported to assign, any copyright in UNIX to the GPL, or otherwise for use in Linux or
another Unix-based software product. SCO has requested that each licensee respond by the end of January. According to the terms of the license agreement,
failure to respond to the request or failure to certify full compliance gives SCO the right to terminate the agreement and require the licensee to discontinue
use of the software.
– DMCA Notification Letter –
SCO has commenced providing notification to selected Fortune 1000 Linux end users outlining additional violations of SCOs copyrights contained in Linux.
Certain copyrighted application binary interfaces have been copied verbatim from the UNIX System V code base and contributed to Linux without proper
authorization and without copyright attribution. Any part of any Linux file that includes the copyrighted binary interface code must be removed. This ABI code
-as part of a 1994 settlement agreement involving the University of California at Berkeley and Berkeley Systems Development, Inc., (BSDI).
The letter states: Distribution of the copyrighted ABI code, or binary code compiled using the ABI code, with copyright management information deleted or
altered, violates the Digital Millennium Copyright Act codified by Congress at 17 U.S.C. §1202. DMCA liability extends to those who have reasonable grounds to
know that a distribution (or re-distribution as required by the GPL) of the altered code or copyright information will induce, enable, facilitate, or conceal
an infringement of any right under the DMCA.
The letter also states, In addition, neither SCO nor any predecessor in interest has ever placed an affirmative notice in Linux that the copyrighted code in
question could be used or distributed under the GPL. As a result, any distribution of Linux by a software vendor or a re-distribution of Linux by an end user
that contains any of the identified UNIX code violates SCOs rights under the DMCA, insofar as the distributor knows of these violations.
– Conference Call –
As previously announced, the Company will host a conference call at 11:00 a.m. EST today, December 22, 2003, to discuss this announcement as well as the
companys fourth quarter and fiscal year 2003 results and fiscal 2004 guidance. To participate in the teleconference, please call (800) 289-0436, or (913)
981-5507; and use the confirmation code 510065, approximately five minutes prior to the time stated above. A listen-only Web cast of the call will be broadcast
live with a replay available the following day. The Web cast and replay may be accessed from
http://ir.sco.com/conference.html.
– Note Regarding Forward-looking Statements:
This press release contains forward-looking statements related to SCO’s efforts to protect its intellectual property rights and evidence of copyright
infringement by Linux of UNIX System V code. These forward-looking statements are subject to risks and uncertainties, including the risk that SCO may not
prevail in pending or contemplated litigation or otherwise be successful in its efforts to protect its intellectual property rights. Other risks and
uncertainties related to these forward-looking statements are set forth in SCO’s filings with the Securities and Exchange Commission.
About The SCO Group
The SCO Group, Inc. (NASDAQ: SCOX) helps millions of customers in more than 82 countries to grow their businesses with UNIX business solutions. Headquartered
in Lindon, Utah, SCO has a worldwide network of more than 11,000 resellers and 4,000 developers. SCO Global Services provides reliable localized support and
services to all partners and customers. For more information on SCO products and services visit http://www.sco.com.
SCO and the associated SCO logo are trademarks or registered trademarks of The SCO Group, Inc., in the U.S. and other countries. UNIX is a registered trademark
of The Open Group in the United States and other countries. Linux is a registered trademark of Linus Torvalds. All other brand or product names are or may be
trademarks of, and are used to identify products or services of, their respective owners.
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The SCO Group reports strong fourth quarter and fiscal 2003 results
Fourth Quarter Revenue Increases 57% Year-Over-Year
SCO Reports Annual Net Income for First Time in the Company’s Operating History
LINDON, Utah Dec. 22, 2003 The SCO Group, Inc. (NASDAQ: SCOX), owner of the UNIX operating system and a leading provider of UNIX-based solutions, today
reported revenue of $24.3 million for the fourth quarter of its fiscal year ended October 31, 2003, a 57% increase over revenue of $15.5 million for the
comparable quarter a year ago.
Fourth quarter revenue from UNIX products and services was $14.0 million. In addition, revenue generated from the Company’s SCOsource licensing initiative was
$10.3 million, which was derived from licensing agreements reached with Microsoft Corporation and Sun Microsystems, Inc. earlier in fiscal 2003.
For the fourth quarter of 2003, the Company reported a net loss to common stockholders of $1.6 million, or $0.12 per diluted common share. Excluding the
previously reported charge of approximately $9.0 million incurred in connection with its October 2003 private placement for compensation paid to law firms
engaged to enforce its intellectual property rights, the Company would have reported net income for the fourth quarter of $7.4 million, or $0.44 per diluted
common share. The Company reported a net loss to common stockholders of $2.7 million, or $0.26 per diluted common share, in the comparable quarter a year ago.
A GAAP reconciliation of net income (loss) and earnings per share for the fourth quarter and fiscal 2003 excluding the above charge is included in the
financial tables at the end of this release.
For fiscal year 2003, the Company reported net income to common stockholders of $5.3 million, or $0.34 per diluted common share, reversing a net loss of $24.9
million, or $1.93 per diluted common share, in fiscal 2002. Excluding the charge of $9.0 million stated above, the Company would have reported net income for
fiscal 2003 of $14.3 million, or $0.91 per diluted common share. This marks the first time in its operating history that the Company has been profitable on a
full-year basis. Additionally, fiscal 2003 revenue rose 23% to $79.3 million from $64.2 million in the previous fiscal year.
“Fiscal 2003 was a pivotal and successful year for SCO,” said Darl McBride, president and CEO. “We generated record financial results, including our first
full year of profitability. Full-year revenue grew over 23% on the strength of both our core products and services business and our SCOsource licensing
initiative. Our financial position was significantly strengthened by the $50 million private placement that closed in October 2003, and the Company closed the
2003 fiscal year with a strong balance sheet including $64.4 million in cash. This gives SCO the resources and flexibility to both enforce and protect its
UNIX intellectual property and expand its core business.”
Financial Outlook
The following financial outlook reflects expected contributions from the Company’s two business lines, SCOsource and UNIX products and services. These
statements are forward looking and actual results may differ materially. See the discussion of certain risks and uncertainties related to this financial
outlook at the end of this release under forward-looking statements.
In its first fiscal quarter ending January 31, 2004, the Company expects total revenue to be in the range of $10 million to $15 million, which is in line with
first quarter revenue in the previous year. UNIX products and services are expected to represent the majority of consolidated first quarter revenue. Revenue
from SCOsource licenses is expected to be minimal in the first quarter as the Company finalizes license agreements with vendors and continues to implement its
intellectual property license initiative.
The Company anticipates significant revenue in subsequent quarters from both the vendor license and intellectual property license programs, its two SCOsource
initiatives. The nature and predictability of these revenue streams and variability of the timing of revenue recognition does not allow for accurate
short-term guidance. Management anticipates that these revenue streams will continue to develop momentum during the next several quarters.
Operating expenses relating to the Company’s UNIX business are anticipated to remain flat during fiscal 2004. Expenses associated with SCOsource initiatives
are expected to increase in fiscal 2004 as the Company pursues and expands the scope of its legal strategy to enforce and protect its UNIX intellectual
property.
Mr. McBride concluded, “This year, in addition to the successful and ongoing SCOsource vendor licensing program, we are moving forward with the SCOsource
intellectual property licensing initiative, which are both expected to add recurring revenue streams that will drive sustained growth for the future. Although
we are not able to predict the timing of significant revenue, with over 3,000 vendor contracts and 2.5 million servers running Linux, our confidence in
generating increased revenue from SCOsource initiatives has never been stronger.”
Conference Call
As previously announced, the Company will host a conference call at 11:00 a.m. EST today, December 22, 2003, to discuss fourth quarter and fiscal year 2003
results and fiscal 2004 guidance. To participate in the teleconference, please call (800) 289-0436, or (913) 981-5507; confirmation code 510065, approximately
five minutes prior to the time stated above. A listen-only Web cast of the call will be broadcast live with a replay available the following day. The Web cast
and replay may be accessed from http://ir.sco.com/conference.html.
Forward Looking Statements
This press release, particularly the “Financial Outlook” section, contains forward-looking statements representing the Company’s current expectations and
beliefs, including, among other things: (i) the Company’s cash position giving it resources and flexibility to enforce and protect its UNIX intellectual
property and expand its core business; (ii) expected consolidated revenue in the first quarter of fiscal 2004 of $10 million to $15 million with UNIX products
and services representing a majority of such revenue and revenue from SCOsource licenses expected to be minimal in the first quarter as the Company finalizes
license agreements with vendors and continues to implement its intellectual property license initiative; (iii) the Company’s anticipation that revenue will be
significant in quarters subsequent to the first quarter of fiscal 2004 from vendor license and intellectual property license programs, and that these revenue
streams will continue to develop momentum during the next several quarters; (iv) the expectation that operational expenses related to the Company’s UNIX
business will remain flat during fiscal 2004 and expenses related to SCOsource initiatives will increase during fiscal 2004 as the Company pursues and expands
the scope of its legal strategy to enforce and protect its UNIX intellectual property; and (v) the expectation that the SCOsource vendor licensing program and
the intellectual property licensing initiative will add recurring revenue streams that will drive sustained growth for the future, and management’s confidence
that SCOsource initiatives will generate increased revenue. These forward-looking statements and related assumptions are subject to risks and uncertainties
that could cause actual results and outcomes to differ materially from any forward-looking statements contained herein. These risks and uncertainties include,
without limitation: (a) risks that the Company will not be successful in its efforts to protect and enforce its intellectual property rights; (b) risks that
the Company will not be able to expand and grow its core UNIX business and that such business may decline; (c) risks that the Company will face increasing
competition from competing providers of operating system products and services; (d) risks that the U.S. and international economic and political conditions
will worsen and adversely affect technology purchases; (e) risks that the Company’s SCOsource licensing initiatives will yield fewer licenses or less licensing
revenue than anticipated or that such licensing revenue will not be generated when or in amounts currently anticipated; (f) risks that the Company will require
more capital than anticipated; and (g) other risks and uncertainties set forth in the Company’s filings with the Securities and Exchange Commission. These
forward-looking statements speak only as of the date hereof, and the Company undertakes no obligation to update such forward-looking statements after the date
hereof.
About SCO
The SCO Group, Inc. (Nasdaq: SCOX – News) helps millions of customers in more than 82 countries to grow their businesses everyday. Headquartered in Lindon,
Utah, SCO has a worldwide network of more than 11,000 resellers and 4,000 developers. SCO Global Services provides reliable localized support and services to
partners and customers. For more information on SCO products and services, visit http://www.sco.com.
SCO and the associated SCO logo are trademarks or registered trademarks of The SCO Group, Inc. in the U.S. and other countries. UNIX is a registered trademark
of The Open Group. All other brand or product names are or may be trademarks of, and are used to identify products or services of, their respective owners.
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For Full Condensed Consolidated Balance Sheets, please visit the following URL:
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/12-22-2003/0002079615&EDATE=
