January 14, 2003 6:12 AM PST

SCO fees may hit some Linux users

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SCO Group, the struggling company that holds the copyright to the Unix operating system, plans to boost its revenue by charging fees to some customers who have moved from its products to Linux.

The company, which is seeking untapped revenue from customers who migrated from SCO Unix to Linux but are still using SCO Unix software components, plans to detail its efforts in the coming weeks or months. SCO Chief Executive Darl McBride created an organization last fall "to formalize the licensing of our intellectual property," according to a company presentation seen by News.com and according to sources close to SCO.

"SCO is concerned about violations of our software license copyrights. SCO pays royalties on software, and we're asking companies/customers to do the same," according to the October presentation.

SCO's two versions of Unix--OpenServer and UnixWare--are used often at "replicated sites," or retail chains whose outlets dot hundreds of mini-malls and shopping centers. McDonald's is among SCO's biggest customers, recently increasing its OpenServer license from 4,000 stores to 10,000 stores.

The move to charge customers could have implications for companies that have switched from SCO Unix to Linux. But such fees could help ease the SCO's financial woes. The company had a net loss of $25 million on revenue of $64 million for its fiscal year that ended Oct. 31, though it hopes to become profitable in fiscal 2003.

Chris Sontag, hired in October as senior vice president of SCO's Operating Systems division, leads the intellectual property organization, sources said. Earlier in his career, Sontag led marketing and product development for Novell, a once-powerful operating system seller with ties to SCO.

The intellectual property organization initially was called SCO Tech but now sports a different, undisclosed name, sources said.

Lindon, Utah-based SCO declined to comment on details of its efforts but said it does plan to exploit its Unix intellectual property (IP).

"Our Unix IP is a significant asset. And for several months, we have been holding internal discussions, exploring a wide range of possible strategies concerning this asset," the company said in a statement Monday. SCO hasn't decided how exactly to collect more Unix revenue, the company added.

A common strategy
Turning to untapped intellectual property assets in times of need is increasingly common strategy in economic hard times, said Richard Belgard, an independent patent-researcher in Saratoga, Calif. "Since the end of the dot-com era, there's a lot more application of intellectual property" in licensing and lawsuits to boost revenue.

Intergraph, which once made hardware but now focuses on services and software, has succeeded in wresting hundreds of millions of dollars from chipmaker Intel in a patent infringement suits regarding Intel's Pentium and Itanium processors. Intergraph is now pursuing PC makers with related claims.

Sources said SCO plans to charge for use of two software "libraries," essential packages of pre-written software that higher-level programs routinely call on to perform basic operations such as opening files. A source said SCO libraries that accompany the SVR4 and OSR5 versions of Unix may be used with UnixWare and OpenServer, respectively, but using them in conjunction with Linux is prohibited by the software's license.

"There's a little bit of ignorance on the part of some customers," a source familiar with the plan said. But at the same time, the source added, "there are customers using the libraries that know they're not supposed to be using it."

Using the libraries allows programs designed for SCO Unix to be run, unmodified, on Linux machines in conjunction with a package called Linux-ABI. That's a key step for companies moving servers from SCO Unix to Linux with minimum disruption.

Under SCO's plan, sources said, it would make the libraries available to those customers. It also is considering additions that make the libraries more valuable and services to help with the transition.

SCO essentially is "trying to capture some of the revenue from people who have already made the decision to move off OpenServer to Linux," Illuminata analyst Gordon Haff said. "From SCO's point of view, people are more than welcome to use (the libraries), but they should be paying SCO for the privilege."

The license issue triggered the formation of the intellectual property organization within SCO, but the company is looking at other technology license possibilities as well, sources said.

Final decisions?
Words of SCO's intentions first were reported Friday in the LinuxGram newsletter, which said SCO is considering charging Linux users $96 per processor for rights to Unix software. In a response Monday, SCO said unspecified portions of the story speculated in areas where the company had not made final decisions.

Red Hat spokeswoman Dayna Muller said the company is not engaged in any discussions about licensing current or future SCO Unix technology. Red Hat is the top seller of Linux, according to market researcher IDC.

Red Hat is affected by the issue, however. A Red Hat Web site that describes how to use Corel WordPerfect software for SCO on Linux advises, "Do not violate SCO's copyrights." It then instructs, "You should get a copy of SCO's shared libraries and install them."

Another company potentially affected by SCO's intellectual property moves is SuSE, the second-ranked Linux seller and a close SCO partner through the UnitedLinux consortium. SuSE declined to comment on SCO's plans, although a spokesman said that overall SuSE isn't concerned.

"SCO is a trusted UnitedLinux partner," spokesman Joe Eckert said. "We have faith in what they're doing."

There are others in the Unix world with vastly more revenue than Linux specialists Red Hat and SuSE. SCO's Unix software is used in several versions of Unix, including IBM's AIX, Sun Microsystems' Solaris and Hewlett-Packard's HP-UX.

IBM spokeswoman Willow Christie said IBM's Unix software is "fully licensed. We're in good standing." Sources said IBM and Unisys still make periodic payments to SCO for Unix intellectual property.

Sun signed a license agreement with Unix creator AT&T in the early 1990s and later extended that agreement, paying more so it wouldn't have to pay royalties each time it sold a copy of Unix, said Graham Lovell, director of Solaris product marketing.

Sun and IBM declined to comment on current or future licensing discussions. HP and Unisys didn't respond to requests for comment.

Unix has a complicated history even without factoring in cousins such as Linux, which works in many ways identically to Unix but which is covered by vastly different licensing provisions. AT&T's Bell Labs originally wrote Unix, but the company sold the "System V" version to Novell in 1993. Novell in turn sold it to the Santa Cruz Operation in 1995.

Linux seller Caldera International acquired the Unix products from Santa Cruz Operation in 2001. Last year, Caldera renamed itself SCO Group, reflecting the fact that the vast majority of its revenue came from the Unix products.

 

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