SCO: Make-or-Break Moves?

By Peter Galli  |  Posted 2004-03-08

SCO: Make-or-Break Moves?

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.

Page Two

The legal picture for SCOs customer lawsuits is complicated. Experts such as Mark Radcliffe, a licensing attorney at the technology law firm Gray Cary Ware & Freidenrich LLP, in Palo Alto, Calif., say the latest lawsuits will be challenging for SCO.

In the lawsuit filed last week in U.S. District Court in Las Vegas against auto parts retailer AutoZone, SCO alleges copyright infringement due to the use of Linux. SCO claims AutoZone violated its Unix copyrights by running versions of Linux that contain code, structure, sequence and/or organization from SCOs proprietary Unix System V code.

"The problem is that Novell has disputed that the copyrights were transferred to SCO. Without that copyright, SCO may only bring suit under the licenses it bought from Novell under the Asset Purchase Agreement. The ownership issue may prove a powerful defense for AutoZone and will probably prevent the issuance of a preliminary injunction," Radcliffe said.

In the DaimlerChrysler lawsuit, filed in Michigans Oakland County Circuit Court, SCO contends that the company violated SCOs Unix license by failing to certify compliance with the terms as required by the license. In December, SCO demanded that Unix licensees certify that they had not moved the companys Unix technology to Linux.

But according to Radcliffe, Novell has a "silver bullet" provision under the APA to block SCOs actions under these licenses. "This provision permits Novell to amend, supplement, modify or waive provisions of the Unix licenses sold to SCO," Radcliffe said. "Novell also retained the unusual right to require SCO to follow its directions to amend, supplement, modify or waive these licenses and, if SCO does not comply, Novell can do so on SCOs behalf."

The SCO Group in the Courts

SCO is suing ...

  • IBM for more than $5 billion in damages; IBM has countersued
  • Novell, which has claimed ownership of Unix copyrights
  • AutoZone, alleging copyright infringement due to the use of Linux
  • DaimlerChrysler, alleging it violated its Unix license

    Additional reporting by Shelley Solheim
  • Technology providers and vendors do not expect the latest legal actions to discourage Linux adoptions.

    John Parkinson, chief technologist for the Americas at Cap Gemini Ernst and Young U.S. LLC, in Chicago, said the consulting services company is telling its clients that if the business case for going with Linux was present in the first place, its still there today.

    Leigh Day, a spokeswoman for Linux provider Red Hat Inc., in Raleigh, N.C., also does not expect the latest lawsuits to have any impact on demand for Linux. "Over the past few quarters, we have had good success in attracting new customers," Day said. "In the quarter to November we reported 3,500 new customers and have seen an incremental demand for our enterprise Linux products from large companies. That came while SCO was suing IBM, Novell, us and threatening to sue users."

    Columbias Moglen noted the risk SCO is taking in filing these user lawsuits, saying that if they are not settled quickly, other enterprises will be even less likely to buy the Unix license from SCO that grants immunity for using Linux and will simply sit back and see how these cases are resolved.

    "By bringing these lawsuits, SCO has made its licensing program effectively a dead letter until it wins some of these lawsuits," Moglen said. "So if were in for months and years of motions and moving slowly towards trial, and in the meantime its licensing program isnt going anywhere, what is SCO?"

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