SCO prepares first case against Linux user

SCO is to launch legal action within the next 90 days against a major company for using Linux without its licence.

The move marks an intensifying of SCO's battle against what it claims is the illegal use of its Unix System V code in corporate Linux systems.

"In August we announced a period of time for companies to license [their Linux systems]. Now we are moving to the litigation phase," said Darl McBride (pictured), chief executive of SCO Group.

Legal cases against other companies are likely to follow but the first case will be key, said SCO and its legal team.

"We will look to identify a defendant that will illustrate the nature of the problem," said David Boies, managing partner of Boies, Schiller & Flexner LLP, the law firm representing SCO.

"It will be a significant user that has not paid licensing fees and so is using proprietary and protected material illegally."

According to McBride, the case may be against one of a number of large companies that have already rejected SCO's offer of licensing in favour of seeking a solution in the courts.

SCO's UnixWare licence scheme set the price at $1,399 (£828) per server for Fortune 1000 companies, but offered a special price of $699 for those who signed up by October - a deadline that has since been extended to the end of the year.

The decision to litigate comes as SCO announced that it is to pay Boies, Schiller & Flexner $1m in cash and 400,000 shares of company common stock, valued at $7.9m. SCO will take an $8.9m charge in its fourth quarter to offset the stock and cash payment.

Earlier this month it was disclosed that Microsoft had invested at least $8m in SCO.

Boies, Schiller & Flexner has maintained that its decision to opt for stock is a sign of its faith in SCO's position. "We opted to take a very substantial portion in the form of stock because we have confidence in where the company is going," said Boies.

The share payment will give the legal firm between two and three per cent of SCO's stock.

The payment is part of Boies, Schiller & Flexner's fee of 20 per cent of any potential settlement awarded to SCO, as well as other contingency payments that can be triggered by the sale of SCO, new investment in SCO or new licence revenues arising from its work in protecting SCO intellectual property rights.