Now is the winter of SCO discontent

The Royal Bank of Canada (RBC) has changed the terms of its investment in the SCO Group, providing a further hint that the tide may have turned against SCO in its $3bn lawsuit against IBM.

According to a new SCO filing with the US Securities and Exchange Commission, the RBC now has the power to veto any action by SCO to give its lawyers a 20 per cent cut of any potential settlement awarded to the company.

RBC would only say that the filing was concerned with how SCO operates its business. But there is concern in the banking industry about the high contingency fees that SCO is paying to its lawyers, Boies, Schiller & Flexner.

In October, RBC and investment company BayStar Capital Partners pumped $50m into the law firm, partly to cover the litigation costs.

SCO said auditors were still looking at the investment, which is why its conference call for third-quarter earnings had been delayed by two weeks until 22 December.

It comes in the middle of an eventful December for SCO.

Earlier this month, chief executive Darl McBride released the first of a series of letters due in the coming months examining the issues raised by the SCO case.

He indicated that the GNU general public licence violated US copyright law and the authority of Congress - raising a torrent of controversy from lawyers and analysts.

Ten days ago, in its breach of contract dispute with IBM, a US judge ordered SCO to produce its evidence of Big Blue's alleged placement of SCO code into Linux.

Then last week, SCO's website came under a denial of service attack lasting several days.

Blake Stowell, director of public relations at SCO, said all requested evidence would be produced within 30 days.

Gary Barnett, principal analyst at Ovum, commented: "The legal decision to compel SCO to detail any infringing code is significant and proves it hasn't done a good job."

He also thought it unlikely SCO would now sue a big Linux user enterprise. The judge in any such case would probably rule it should wait until after ownership of the code had been proved.

But SCO has vowed to press on. "The Linux end-user lawsuits will hinge on much more than our case against IBM," said Stowell.

"These are preliminary hearings. The case won't come to court until April 11, 2005. I would hardly jump to any conclusions based on the outcome of a preliminary hearing."