SCO: Make-or-Break Moves?

By Peter Galli  |  Posted 2004-03-08 Print this article Print

After months of ratcheting up threats to sue enterprise Linux users, SCO last week filed a pair of lawsuits that legal experts and members of the open-source community said is a make-or-break turning point for the company.

After months of ratcheting up threats to sue enterprise Linux users, The SCO Group last week filed lawsuits against DaimlerChrysler Corp. and AutoZone Inc. in a move that legal experts and members of the open-source community said is a make-or-break turning point for the Lindon, Utah, company.

They question how SCO, which is already engaged in lawsuits against billion-dollar enterprises such as IBM and Novell Inc., will be able to maintain and fund all these legal actions at a time when its revenues and profits are falling.

"You now have a little company suing four immense companies in different places on very different claims and supposing that [SCO] can take all of this on at once," said Eben Moglen, a law professor at New Yorks Columbia University and general counsel for the Free Software Foundation. "My advice to potential and/or existing Linux customers who might be worried about being sued by SCO is that the lesson here is that your greatest danger of that is to be a SCO customer."

"The only thing they have left is literally old contracts with people who have largely already walked away from them," Linus Torvalds, Linux creator and fellow at the Open Source Development Lab, in Beaverton, Ore., told eWEEK in an e-mail exchange. "So they try to milk those connections for all they are worth—and since clearly nobody sane would be interested in renegotiating with them, what have they left?"

The day SCO announced the AutoZone and DaimlerChrysler lawsuits, it released earnings results for its first fiscal quarter, ended Jan. 31. SCO reported a net loss of $2.25 million, compared with a loss of $724,000 a year earlier. Revenue for the quarter also fell, to $11.4 million, from $13.5 million in the same period a year ago.

Officials for AutoZone, of Memphis, Tenn., and DaimlerChrysler, of Stuttgart, Germany, declined to comment, as did IBM and Novell officials, citing the ongoing litigation with SCO.

In the earnings call last week, SCO CEO Darl McBride declined to specify why DaimlerChrysler had been singled out but did say the automaker had not responded to SCOs letter asking Unix licensees to certify their compliance.

In the DaimlerChrysler and AutoZone cases, however, McBride said the companies were "not just two users; theyre at the head of two different classes that are violating our agreements."

McBride also said the legal warpath wouldnt stop in the United States: "Although we started here in the U.S., we do have other initiatives in Europe, as well as Asia."

For its part, the IBM suit moved forward last week when U.S. Magistrate Judge Brooke Wells, in Salt Lake City, ordered SCO to provide "all specific lines of code that IBM is alleged to have contributed to Linux either from AIX or Dynix." The order includes providing specific code from Unix System V that allegedly found its way into AIX or Dynix. IBM was ordered to provide the AIX and Dynix product releases in question. SCO and IBM were ordered to produce all the code within 45 days.

Next page: A complicated legal picture.

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at


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