SCO Group Hit by Double Whammy

Updated from 2:21 p.m. EST.

Shares of SCO Group(SCOX Quote), the company challenging the popular Linux movement, fell sharply Monday after the company lost a court motion Friday and postponed its earnings report.

After trading as low as $15.10 intraday Monday, SCO shares closed down $1.32, or 8%, at $15.27.

Two events from Friday were feeding the selloff. First, SCO lost a motion asking IBM(IBM Quote) for source code. The court also ruled SCO must provide the code relevant to the case to IBM within the next 30 days.

In its suit, Lindon, Utah-based SCO has charged that IBM breached a contract with SCO by misappropriating SCO's Unix code in IBM's Linux business.

"We are pleased that the court has indicated that it will compel SCO to finally back up its claims instead of relying on marketplace FUD, or fear, uncertainty and doubt," IBM spokesman Mike Darcy said in a prepared statement Monday.

The legal setback may prove temporary for SCO, however. SCO spokesman Blake Stowell said the company will have the opportunity to argue again in Jan. 23 that IBM also should produce source code.

The judge's order compelling SCO to produce its code was "absolutely not a surprise to us at all," Stowell said. "We were sure at some point we would need to be more specific, and this was that point."

Secondly, SCO on Friday postponed its fourth-quarter earnings report, initially scheduled for Monday, in order to work through the accounting treatment of its recent private placement convertible stock issue. SCO sold a $50 million convertible note last month to fund its Linux campaign and to help pay lawyer David Boies, who has a history of litigating high-profile cases against Microsoft(MSFT Quote) and George W. Bush, and against the recording industry on behalf of Napster.