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SCO Jumps on IBM Ruling

Shares of SCO Group (SCOX) bounced Thursday after a judge ordered IBM (IBM - Get Report) to turn over billions of lines of source code to the tiny software company.

Shares of SCO were recently up 59 cents, or 16.7%, to $4.12.

Lindon, Utah-based SCO sued IBM nearly two years ago, charging that Big Blue misappropriated Unix code, which SCO claims it owns, for use in IBM's Linux open-source software business. IBM, which is seeking partial summary judgment in the case, argues that its agreements with SCO do not prevent it from releasing code that it generates on its own without Unix. And even if they did, IBM adds, Novell (NOVL) -- which has since claimed copyright ownership of Unix -- has waived such rules.

Critics of SCO in legal and financial circles say the company hasn't offered compelling evidence that Linux contains Unix code -- or even proved that it owns the rights to the code. The skepticism has shown up in the stock, which traded at a 78% discount from its 52-week high before Thursday's bounce.

But on Thursday, investors appeared to view the order against IBM as a step toward SCO getting more information to prove its case against the tech giant. Decatur Jones analyst Dion Cornett, the only sell-side analyst who still follows SCO, called the discovery order handed down this week SCO's "biggest win to date."

"They basically have the right to go on a fishing expedition to try to prove their case," said Cornett, who has a market perform rating on SCO. (His firm doesn't do investment banking.)

Still, while Cornett believes SCO may have a good case for a jury trial, he remains skeptical of the company's claims.

Calling the order a "homerun for SCO," one buy-side investor who is long SCO said he believes the order this week requiring IBM to produce more information puts added pressure on the company to settle. It also postpones any potential dismissal of the case by the judge in response to IBM's request for summary judgment, said the source, who asked to remain anonymous.
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