Judge prevents SCO from selling off assets

A bankruptcy court judge has denied a request by the SCO Group to sell off part of its business, a move that could have helped it pursue court cases against Novell and IBM.

SCO, which has been in bankruptcy court since 2007, had proposed to sell off most of its Unix business assets to a company called Unxis, the latest in a series of proposals aimed at allowing the company to exit bankruptcy and continue its high-profile Unix litigation.

IBM and Novell, on the other hand, had requested that SCO's assets be liquidated, effectively putting an end to the cases against them.

On Wednesday, U.S. bankruptcy court judge Kevin Gross denied both motions. Instead, he appointed a trustee to take control of SCO and evaluate how the company should proceed in its efforts to exit bankruptcy protection. Part of the trustee's remit will be to evaluate SCO's chances of winning its Unix case, Gross said.

"The 'potential' of the litigation must...be weighed against the reality of the cost," Gross wrote. "A trustee will be in a better position to make that assessment without the personal and emotional investment of SCO's management."

In 2003, SCO launched a lawsuit against IBM, saying the company infringed on SCO's intellectual property by including code from Unix in Linux. However, in 2007 a judge found that Novell, rather than SCO, owns the copyrights covering Unix. As a consequence of that decision, Novell is pursuing SCO in court for a share of the fees SCO received from licensing Unix to Sun and Microsoft.

Gross noted that since 2007, SCO has offered several plans for reorganization and then withdrawn them, and argued that the latest sale proposal "calls into question whether the sale has a sound business purpose and raises doubts of the parties' good faith."

It is now necessary for a third party to take charge, according to Gross. "No one can fairly argue that the court has not been patient with the debtors. The court is now unwilling to continue to wait while debtors' losses mount," he wrote.

SCO had proposed to sell its Unix business for $5.25 million (3 million British pounds), keeping only its mobile applications business, which the judge deemed "virtually worthless." He said SCO's officers had "bet the company" on the litigation, which would be SCO's "sole business" if the Unix assets were allowed to be sold.

In a statement, SCO said it was reviewing the decision and evaluating its options.

Matthew Broersma of ZDNet UK reported from London.