August 11, 2003 3:27 PM PDT

SCO wins Linux licensee

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SCO Group, the Unix copyright holder that's threatening Linux-using companies with legal action if they don't pay for a license to run the open-source operating system, said Monday that one company in the Fortune 500 list of the world's biggest corporations had been convinced by its arguments. SCO declined to say which company took out the license or to reveal licensing specifics.

The Lindon, Utah, company said the deal illustrates the merits of its case, but analysts said the undisclosed terms of the deal could mean that it offered a good price to try to build momentum for its plan.

SCO denied that it offered a special deal. SCO spokesman Blake Stowell said the unnamed company paid a "slight discount" to the price SCO announced last week. The unnamed company bought licenses "for a large number of servers" and will have to pay more if it buys more Linux servers, Stowell added.

In a lawsuit, SCO argues that IBM violated its Unix contract when it moved improvements it had made to Unix into Linux. SCO also says Unix code has been copied directly into Linux. Last week, the company began asking $699 for the right to run Linux on a single-CPU server.

The company ran into legal challenges of its own last week, though. IBM countersued SCO, a move that included four patent-infringement claims, while another suit, from Linux seller Red Hat, seeks a swift verdict about whether its version of Linux violates SCO's copyrights or trade secrets.

SCO said it hopes the deal will set a precedent.

"This Fortune 500 company recognizes the importance of paying for SCO's intellectual property that is found in Linux, and (they) can now run Linux in their environment under a legitimate license from SCO," Chris Sontag, head of the company's SCOsource effort to extract more revenue from its Unix intellectual property, said in a statement. "We anticipate this being the first of many licensees that will properly compensate SCO for our intellectual property."

It's likely the company got a good deal from SCO, said Carr and Ferrell intellectual property attorney John Ferrell, because SCO can't use any legal verdict as a bargaining chip to support its case.

"It is impossible to know whether any money was exchanged in this deal, since terms were not disclosed," Ferrell said. "However, with litigation over the need for a SCO license pending, I would expect that anyone signing up now would be doing so at rock bottom, fire-sale prices."

Ferrell recommended that companies hold off on paying. "If a company is truly concerned about infringing SCO, they should set aside licensing fees but wait to make any payment to SCO until the legal fog in this case clears," Ferrell said.

"Companies signing up now should insist on a most-favored-nation's agreement--their payments are no higher than any other license--and some form of protection in the event that SCO's claim of copyright ownership fails," Ferrell said.

Another approach could be for customers to "get vendors to step up and provide legal defense and indemnity," protecting the customers from lawsuits that regard the software they buy, Gartner analyst George Weiss said.

SCO might well have offered a good deal so it could use peer pressure to try to coax others to pay, Illuminata analyst Gordon Haff said.

"One could imagine SCO making some particularly nervous CEO or CIO a sweetheart 'first licensee' deal just so they could send out this press release," Haff said. "In any case, though, I fully expect that some companies will just not want to get involved in any potential litigation and will pay up just to make SCO go away."

 

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