Shares of SCO Group ( SCOX) bounced Thursday after a judge ordered IBM ( IBM) 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.
In her order Tuesday, U.S. Magistrate Judge Brooke Wells told IBM to provide all versions and changes to its Unix-based products, called AIX and Dynix, contained in what is known as IBM's "revision control system," which tracks and documents aspects of software development and could shed light on any contribution Unix made to Linux. That includes approximately 2 billion lines of code, according to IBM. The judge said she denied SCO's request for complete access to IBM's revision control system because it also contains code unrelated to the case. "However, if IBM fails to provide all AIX and Dynix information, the court will order IBM to allow SCO unfettered access to the ... systems," the judge added. The judge also ordered IBM to provide programmer's notes, design documents, white papers, comments and notes made by programmers who made code changes, and the names and contact information of individuals who made changes and what changes they made to code. The judge said information must be provided for approximately 3,000 individuals who made the most contributions and changes to the development of AIX and Dynix. The judge called 3,000 individuals a "representative sample" of 7,200 individuals that IBM said have contributed to AIX or Dynix. The judge set a deadline of March 18 for IBM to produce the software code and programmer information. The court postponed a decision on SCO's demand for files from IBM executive management. As a result of the order forcing IBM to produce more discovery, the judge asked both sides to come up with a new schedule for the case, which is currently slated to go to trial in November.