July 21, 2003 5:07 PM PDT

SCO takes aim at Linux users

SCO Group, a company that says Linux infringes on its Unix intellectual property, announced on Monday that it has been granted key Unix copyrights and will start a program to let companies that run Linux avoid litigation by paying licensing fees.

Read more about SCO and Linux
The company, which is at the heart of a controversial lawsuit over Linux code, said it plans to offer licenses that will support run-time, binary use of Linux to all companies that use Linux kernel versions 2.4 and later.

"We have a solution that gets you clean, gets you square with the use of Linux without having to go to the courtroom," SCO Chief Executive Darl McBride said in a conference call Monday.

SCO sparked a major controversy in the Linux world in March, when it sued IBM, saying the company had incorporated SCO's Unix code into Linux and seeking $1 billion in damages. The company alleged, among other things, trade secret theft and breach of contract. SCO then updated its demands in June, saying IBM owed it $3 billion. In the meantime, it sent out letters to about 1,500 Linux customers, warning them that their use of Linux could infringe on SCO's intellectual property.

The claim of copyrights on the Unix code in question may raise the stakes in the dispute. Some attorneys say a copyright claim, which was not included in the earlier allegations against IBM, could be easier for the company to prove.

SCO said prices for licensing its Unix System V source code would be announced in coming weeks. Pricing will be based on the cost of UnixWare 7.13, the company's current Unix product. SCO, at least initially, isn't directly targeting home users of Linux, McBride said.

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SCO's lawsuit against IBM hits next stage
Darl McBride, CEO, SCO

The move bypasses companies such as Red Hat that develop, distribute and advocate Linux and goes straight to users who might be inclined to just pay up rather than to get ensnared in an ideological and legal battle.

"It's a very smart strategy, if it works," said Mark Radcliffe, an intellectual property attorney with Gray Cary. "If the price is low enough, better to buy a certainty than get tangled in a murky war."

But the move hinges on several complicated issues, some of them at the heart of SCO's suit against IBM. Specifically, SCO must be able to persuade courts or Linux users that IBM and other Unix licensees weren't permitted to transfer to Linux the programming code they'd created themselves for use in Unix.

And proving Unix copyrights isn't a simple matter. "Unix is now a patchwork of stuff that's in the public domain and stuff that isn't in the public domain," Radcliffe said.

If successful, SCO's move essentially would impose a tax on Linux, an operating system that has spread quickly across the computing industry in part because its open-source nature has sparked a broad, lively, unfettered development process. But a tax would undermine that movement, Illuminata analyst Gordon Haff said.

"I'm not sure I really see the option where SCO in the long term succeeds in collecting a tax on every copy of Linux sold, because that really destroys what Linux is," Haff continued. "It seems to me that either someone ends up buying SCO, or SCO basically succeeds in destroying Linux."


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SCO previously hadn't been able to base any actions on Unix copyrights, because the U.S. copyright office had them registered to Novell, an earlier owner of Unix intellectual property. A contract unearthed from a filing cabinet showed that SCO had some of the copyrights, and now SCO has registered copyrights for Unix System V and Unixware, McBride said.

"Since the year 2001 commercial Linux customers have been purchasing and receiving software that includes misappropriated Unix software owned by SCO," Chris Sontag, senior vice president and general manager of the company's SCOsource intellectual property division, said in a statement. SCO intends to provide them with choices to help them run Linux in a legal and fully paid-for way, he said.

The move further erodes SCO's aspirations to be a technology company instead of just a licensor of intellectual property. Although most of SCO's 330 employees are still working on developing new technology, the "huge uplift" in revenue is now on the intellectual property side. "Clearly, the upside of this side of the business would be greater than the (products) side," McBride said.

Investors welcomed SCO's move, sending its stock up $1.37, or 11 percent, to close at $13.32 on Monday.

SCO's claims have raised the ire of many Linux enthusiasts who have said the ailing company is engaging in a last-ditch effort to save itself by recouping license fees when it has no rights to do so. The company further alienated itself from the Linux community in May, when it agreed to a licensing deal with Microsoft, which has roundly blasted Linux for years. Some Linux fans have suspected that Microsoft jumped into the fray in order to spread uncertainty about its rival operating system, which has displaced Windows in some markets.

Earlier this year, SCO hired high-profile attorney David Boies, who led the U.S. Department of Justice's antitrust case against Microsoft, to help it in its case against IBM.

Registering the copyrights expands SCO's legal options while increasing the pressure to follow up on its legal warnings, said John Ferrell, an attorney with Carr and Ferrell.

"For the first time in history, SCO is in a position to bring a copyright infringement case against a third-party company," Ferrell said. "It's really time for them to put up or shut up. There should be nothing barring them from bringing a lawsuit."

A successful lawsuit will likely be a crucial step in convincing many companies that they need to pay, Ferrell added. "There needs to be a validation of the infringement," he said. "It's probably not going to be enough for SCO just to write a letter saying 'We believe the Linux code you're using violates Unix copyrights.'"

And companies' herd mentality will be important, said Gartner analyst George Weiss. "I think all the users are going to look at each other over their shoulders and try to figure out who's doing what," he said.

If customers do cede to SCO's demands, the pressure will quickly shift to the companies from which they bought their Linux products. "As soon as people pay, they're going to talk to their Linux vendor and say, 'Pay up, guy,'" Radcliffe said. "It's another way of putting pressure on the IBMs and Red Hats of the world to settle."

SCO tried to make it easier for customers to draw that connection. "By not providing a warranty, IBM and others have profited from Linux and at the same time shifted the risk to end users," McBride said.

SCO declined to detail how having Unix copyrights will affect its positions with companies such as Red Hat, TiVo, Hewlett-Packard, Dell, SuSE or Linux Networx that sell Linux products. But it's clear that SCO has them in mind.

"Under the copyright laws, you may sue both for infringement and contributory infringement," Boies said in the conference call. "If anyone contributes to anyone else's infringement, that is someone who can be sued directly under the copyright laws. If a third-party distributor is found to engage in (actions) that contribute to infringement, that person would also be liable."

IBM remains unyielding in its insistence that it has done nothing wrong. "SCO has not shown us any code contributed to Linux by IBM which violates SCO copyrights," Big Blue spokeswoman Trink Guarino said Monday. "SCO needs to openly show any copyrighted Unix code which they claim is in Linux. SCO seems to be asking customers to pay for a license based on allegations, not facts."

SCO said there are three types of code in Linux that infringe Unix copyrights. First, there is code that has been copied line by line--not by IBM, at least not "primarily," McBride said. Second, there are extensions of Unix that companies such as IBM wrote and then moved to Linux. This category includes specific code such as "read-copy update" (RCU) and "non-uniform memory access" (NUMA) features, both which help an operating system run on a large server, McBride said. Third, there are Unix "methods and concepts" in Linux, McBride said.

Line-by-line copying can make for a solid case, but SCO makes a great deal of the high-end features that it says arrived in Linux by the other two routes. "The farther removed SCO goes from line-by-line copying, the more complex the case is going to become," Ferrell said.

 

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