SCOs Linux Case: Is Winning Everything?

By Peter Galli  |  Posted 2003-11-21

SCOs Linux Case: Is Winning Everything?

As the SCO Group prepares to battle at least one Linux user in court, legal experts said that the companys strategy is less about the legal merits of its claims and more about compelling additional Linux users into paying its license fees.

Earlier this week, the SCO Group said it planned within 90 days to sue a Linux user over copyright infringement related to its Unix System V code that it alleges is included in Linux. The move marked an expansion of the Lindon, Utah-based companys legal wrangle over Linux, which began with its high profile lawsuit against IBM.

"They knocked on one door and didnt get any money, and now theyre moving to the next door," said Phil Albert, a partner at intellectual property law firm Townsend and Townsend and Crew LLP, in San Francisco. "Part of their strategy may be that it doesnt really matter if they have any copyright claim."

Proving a copyright claim is difficult, and SCO will need to overcome major hurdles to do so, legal experts said. But the fear of litigation alone may force a defendant company into a settlement, which would set an example that could push other Linux-using companies to pay SCO the license fees it has been seeking from end users, they say.

Albert expects that SCO will bring a fairly small claim, maybe similar to its current discounted Linux run-time licensing offer of $699, with the assumption that most companies would rather settle than face the cost of litigation that would far exceed such a claim. A non-technology company with a heavy reliance on Linux for its Web presence is a likely target, he said.

Other legal experts, though, anticipate that SCO will file a large claim that includes punitive damages. Anupam Chander, a law professor at the University of California at Davis School of Law and a visiting professor at the Cornell Law School, said the claim will likely be between $50 million and even $250 million and be against a high-profile enterprise.

"Once you sue a company for a quarter billion dollars you have an impact against everyone else," Chander said. "It doesnt depend then on the merits of the claim but the risk of sitting out there and waiting to be sued."

SCO President and CEO Darl McBride, in earlier interviews, has maintained that the company has a legitimate claim and is simply defending its intellectual property. SCO was months away from running out of money when he came on board in 2001. Today, McBride said the company has $60 million in cash.

Chander, who initially didnt expect that SCO would sue an end user, said the companys strategy likely changed after Red Hat in August filed a lawsuit against SCO seeking a pre-emptive ruling that the code in its Linux distribution does not violate SCOs copyright.

To read more about Red Hats legal counteroffensive against SCO, click here.

Chander expects that a judge is likely to side with Red Hat, so in the meantime SCO needs a legal strategy that supports its business model of gaining significant revenues from Linux users who fear litigation, he said.

"SCO realized the gig will be up in two or three years from when theres a ruling on the Red Hat case," Chander said. "So what do they do? They hit the cash register as much as possible between now and then."

Legal Experts Look at the DMCA and Novell Angles to SCOs Strategy.

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SCOs McBride also said this week that part of any copyright lawsuit against an end user would be based on the Digital Millennium Copyright Act (DMCA), a 1998 law that protects software copyrights.

To intellectual property attorneys, though, applying the DMCA to what essentially appears as if it will be a copyright infringement case is a stretch.

"If somebody copied SCOs proprietary code into Linux you dont need the DMCA to create a cause of action, you simply need copyright infringement," Albert said. "By adding the DMCA label, that generates more fear and uncertainty."

The DMCA typically covers infringement that occurs because someone has broken technological barriers, like encryption scheme, to access copyrighted content or software code, Chander said.

Is everything covered under the Digital Millennium Copyright Act? eWEEK Labs Anne Chen wonders if its time to dump the DMCA.

On another legal front, SCO is also taking aim at Novell Inc., which recently announced that it would buy SuSE Linux AG McBride said that SCO is considering possible legal action against Novell once it completes the SuSE acquisition. He claims that SCO has a non-compete agreement with Novell from the time it purchased the Unix System V code from Novell.

To read more about Novells SuSE Linux buyout, click here.

SCO spokesman Blake Stowell told eWEEK that the non-compete claim comes from wording in both the Asset Purchase Agreement and in the License-back agreement between SCO and Novell.

The Asset Purchase Agreement holds that the "Seller [Novell] agrees that it shall use the Licensed Technology only (i) for internal purposes without restriction or (ii) for resale in bundled or integrated products sold by Seller which are not directly competitive with the core products of Buyer [SCO] and in which the Licensed Technology does not constitute a primary portion of the value of the total bundled or integrated product."

But legal experts said the interpretation of that clause appears to be dependent on Linux actually containing SCOs code, something that has yet to be proved.

"SCOs claim strikes me as rather odd, even novel, " Chander wrote in a follow-up e-mail interview. "Has Novell really used the technology it received from SCO by purchasing SuSE and distributing SuSEs products? It would seem to me that Novell would only be misusing the technology if it actually infused that technology into Linux."

Novell spokesman Bruce Lowry, in San Francisco, denied that any non-compete provision existed and said that its acquisition of SuSE doesnt violate any agreement between Novell and SCO.

"As often seems to be the case, with SCO, we havent heard anything directly from them on this and they havent filed a claim against us, we heard it first through the press," he said.

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