May 14, 2003 5:54 PM PDT

SCO targets Linux customers

SCO Group, a financially struggling company that claims its Unix intellectual property has been illegally incorporated into Linux, has sent letters to about 1,500 of the world's largest corporations warning they could be liable for using Linux.

The move, announced Wednesday, dramatically broadens the Lindon, Utah-based company's potential legal actions beyond its initial target, IBM. Big Blue, a SCO licensee, was sued in March for more than $1 billion on allegations that include inappropriately using Unix trade secrets to improve Linux.

"We think it is appropriate that we warn commercial companies that there are intellectual property issues with Linux," Chris Sontag, head of the effort to derive more revenue from SCO's intellectual property, said in an interview. "We sent it to the Fortune 500 and effectively the global 2000. It ended up being about 1,500 top international companies."

"We believe that Linux infringes on our Unix intellectual property and other rights," the letter said. "We intend to aggressively protect and enforce these rights. Legal liability that may arise from the Linux development process may also rest with the end user."

Industry analysts viewed the move as an escalation of the company's intellectual property war and an attempt to put more pressure on companies to acquire SCO.

"SCO has lobbed its dirty bomb into the user community, saying, 'You'd better clean this up in a big hurry or there's going to be a lot of damage,'" said Illuminata analyst Gordon Haff. "I guess suing IBM wasn't enough to get them acquired, so this is the next stage."

The company warned that it expects to report revenue of $21 million for its most recent quarter, $2 million to $4 million less than earlier projected. But that's enough to carry it to its first-ever net income, about $4 million, SCO said.

The revenue from the quarter, which ended April 30, consists of about $12.8 million from operating system products and $8.2 million from licensing. The company said Wednesday that a second major customer has signed a license under its SCOsource plan, the name for its effort to collect revenue from its Unix intellectual property. One of those licensees is willing to be named, but a SCO representative said it won't be revealed until later.

Gartner analyst George Weiss agreed that SCO's actions appear designed to make the company an acquisition target, but in the meantime, the company is raising hackles.

"They're not well loved," Weiss said. "I guess SCO is really attempting to create a fairly large disruption of Linux, and will attempt to take the Linux community with them in the defense of their intellectual property, regardless of how poorly it goes off in the Linux community."

Haff of Illuminata concurred. "The only rational explanation for this is it's a plea for money, essentially, from IBM and others that can't afford to let Linux be derailed," he said. "SCO is not the least afraid of being the bad guys here."

Indeed, SCO was the victim of a computer attack that crippled its Web site earlier this month. Though it's not clear who launched the attack, SCO was quick to blame Linux enthusiasts.

Despite the consternation SCO?s actions are causing, the company vehemently argues it's behaving in a principled manner, comparing its fight to the one being waged by the music industry to defend its copyrights.

But that?s precisely what some Linux advocates dislike about SCO?s campaign.

"They're raising a banner equal and opposite to the Linux community," Weiss said. Linux fans, with their philosophical roots in the Free Software Foundation often bring a moral tone to their advocacy.

"They've compared themselves in glowing terms to the record industry in how they're taking actions to look after their own rights," Haff said. But ?not many people these days hold the recording industry as an exemplar of corporate behavior."

Also Wednesday, SCO said the legal problems with Linux are severe enough that it has ceased sales of its own version of Linux.

But that product has never been very successful. The software's high-water mark occurred in March 2000, when it was the centerpiece of an initial public offering that raised $70 million for SCO, then called Caldera Systems.

SCO, though, eventually acquired the Unix intellectual property from the Santa Cruz Operation and later scrapped its own Linux version for one built by rival SuSE through a consortium called UnitedLinux.

Following the legal actions taken by SCO, its relationship with SuSE has deteriorated.

"We certainly have suspended our activities with UnitedLinux," SCO?s Sontag said. SuSE's argument that its UnitedLinux contract protects it from SCO legal action is baseless, he added.

"That simply is not the case at all," Sontag said. "Public statements to that effect (are) the farthest thing from the truth."

SuSE didn't immediately respond to requests for comment.

Linux once was only peripherally involved in SCO's Unix-centric lawsuit against IBM, but is now becoming more important. Two weeks ago, SCO Chief Executive Darl McBride said programming code from SCO's UnixWare product had been copied into Linux, sometimes line by line and sometimes "obfuscated" to disguise its origin.

Sontag declined to reveal details about the copying, but said SCO will disclose specifics in court and to credible third parties who sign nondisclosure agreements.

"We've identified a large number of contributions from various sources which are very disconcerting to us, and additional areas of code with no attribution to any contributor or maintainer at all," Sontag said. "This is in the kernel, and also in extended areas of Linux."

Sontag said IBM employees were among those who copied code. In reading Big Blue's Web site describing Linux contributions, one can "find a lot of areas they mention code contributions they have made from AIX into Linux," Sontag said. AIX is IBM's version of Unix.

IBM, which is vigorously defending the SCO lawsuit, declined to comment on the accusation, but a representative did iterate the company's position that IBM believes it has a perpetual and irrevocable right to use Unix. As part of its legal action, SCO has threatened to revoke IBM's Unix license starting June 13.

SCO said the apparent copying led to its SCOsource strategy. "It's way wider than we expected. We thought our main focus would be with IBM. It still is our predominant effort," Sontag said.

SCO also argues that customers aren't protected from the alleged infringement of companies from which they bought their versions of Linux.

"Legal liability may rest with the end users. It is not carried by the distributor or by anyone else involved in selling that Linux distribution into these commercial accounts. It resides with the end users, which is unheard of. They need to know they have exposure in this issue," Sontag said.

While SCO's fight may seem quixotic to some, it could have serious repercussions, Haff said.

"On the one hand, you want to laugh and say this is an interesting sideshow," Haff said. "But if directives were to start coming down from CEOs of, 'Get that Linux stuff out of my shop,' it's going to be very disruptive for a lot of IT shops, very disruptive for a lot of vendors and very expensive."

 

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