AutoZone is a Memphis, Tenn.-based auto parts chain that trades on NASDAQ and is a member of the Fortune 500. SCOs lawsuit announcement came immediately before the AutoZones second fiscal quarter teleconference. The company reported sales of $1.159 billion for its second fiscal quarter.
Specifically, SCO alleges that “AutoZone violated SCOs UNIX copyrights by running versions of the Linux operating system that contain code, structure, sequence and/or organization from SCOs proprietary UNIX System V code in violation of SCOs copyrights.
In a statement, SCO President and CEO Darl McBride promised more lawsuits on the horizon. “In coming quarters, we will continue to expand our SCOsource initiatives, with an ongoing campaign to defend and protect SCOs intellectual property assets, which will include continued end-user lawsuits and negotiations regarding intellectual property licenses,” he said.
In a earnings conference call later that morning, SCO on Wednesday also took aim at Stuttgart, Germany-based DaimlerChrysler, one of the worlds largest automotive companies and which has U.S. offices in Auburn Hills, Mich., filing suit against it in Michigans Oakland County Circuit Court for alleged violations of the automotive companys Unix software agreement with SCO. A DaimlerChrysler spokesman had no immediate comment on the lawsuit when contacted by eWeek.
When asked during this mornings conference call why DaimlerChrysler had been targeted, SCO CEO Darl McBride said, the automaker was “one of a number of companies that didnt respond when we asked our Unix licensees to certify their compliance.”
As for why Daimler was chosen out of these companies, McBride said at the conference call, “there are a variety of factors I wont get into,” but he did say that Daimler and AutoZone were “not just two users; theyre at the head of two different classes that are violating our agreements.” Meanwhile, Novell Inc. maintains that SCO does not have copyright to Unixs code. SCO then sued Novell over this issue. This matter has yet to be decided in a court of law.
The AutoZone lawsuit, filed in U.S. District Court in Nevada, requests injunctive relief against AutoZones further use or copying of any part of SCOs copyrighted materials and requests damages as a result of AutoZones infringement in an amount to be proven at trial.
AutoZone will not have to face the suit alone. Stuart Cohen, CEO of Open Source Development Labs (OSDL), has indicated that OSDL, as per its announcement of a Linux legal defense fund, may defray part of their legal expenses.
Specifically, Cohen said, “The entire Linux ecosystem, including OSDL and its 35-plus member organizations, will stand firm against any legal actions against Linux end users made by the SCO Group. This is why OSDL announced our defense fund in January. SCOs decision to move forward with their end-user lawsuit is unfortunate, but due to the questionable merits of the case, we see no reason why this case will have an impact on the growth of Linux in the enterprise.”
This latest SCO move, while delayed beyond what SCO had predicted for its first lawsuit against an end user, comes as no surprise. Philip Albert, intellectual property attorney and partner in the San Francisco office of IP law specialist Townsend and Townsend and Crew LLP, said, “This is a natural progression of the SCO-Linux dispute. SCO is not getting anywhere against IBM and SCO said they would sue an end-user company, so SCO really has no choice but to follow through. Not that SCO should expect much success. While not having seen the complaint, I can be sure this latest action is not likely to win SCO any lawsuits and for sure not likely to win them any friends.”
John S. Ferrell, founder of Carr & Ferrell LLP, a Silicon Valley intellectual property and corporate law firm, thinks that SCOs latest move is a risky one. “Suing the end user in a supply chain can be the most profitable litigation strategy, but it is also the costliest. Since IP infringement royalties are often calculated as a percentage of the product sale price, the farther down the supply chain you attach the royalty, the greater the value of the royalty assessed. The downside is that you have to collect lots of smaller payments, and you run the risk of alienating more potential future customers.”
Glenn Peterson, intellectual property attorney and partner with the Sacramento-based law firm McDonough Holland & Allen PC, thinks even less of SCOs lawsuit. “Suing an end user seems incredibly stupid. The direct and tangible costs of this litigation are daunting enough. I cant imagine that they have thoughtfully considered the intangible costs: damage to good will, public relations and customer satisfaction. I am leery of any company that has litigation as the centerpiece of its business plan.”
Peterson goes on to explain, “Their choice of suing IBM on a misappropriation theory, instead of for copyright infringement, is revealing. They have another huge obstacle to overcome with the GPL license issue. All indications are that SCO does not have the ownership rights [copyrights] to the relevant code. And, even if they did have the rights, they licensed those rights to the general public under the GPL. Stated simply, they never had what they claim is being misappropriated. But if they did, they gave it up to the public domain.”
He adds, “SCO has declined every invitation to reveal any specific information underlying the merit of its claims. This latest announcement about suing end users is truly a tempest in a teapot. I agree with Professor Moglens [Eben Moglen, Columbia University law professor and general counsel for the Free Software Foundation] statement that SCOs threatened litigation letters can be safely put in the wastebasket. I think the same sentiment will ultimately apply to their court papers.”
Not every attorney thinks SCOs first end-user case can be dismissed out of hand though. Kelly Talcott, an IP specialist and partner in the New York offices of Kirkpatrick & Lockhart LLP, a major corporate law firm, comments, “Obviously this is a questionable move strategically, as it may drive future customers away from SCO. The question of whether the move will be successful depends in large part on the strength of SCOs claim that IBM misappropriated material amounts of code owned by SCO and included it in its version of Linux. There is no innocent infringer defense for copyright infringement. If the end-user company is using tainted code, then it is liable. SCO has been a bit stingy about disclosing exactly what code was taken, so the true merits of both of these cases remain subject to speculation.”
SCO announced earnings Wednesday. SCO for the first quarter took in $11.4 million, a drop from its year-ago revenue of $13.5 million. For the quarter, ended Jan. 31, the company reported a net loss of $2.25 million, or 16 cents per share, which compares to $724,000, or 6 cents per share, for the same year-ago period. SCO reported costs of $3.44 million related to its SCOsource licensing initiatives.
Additional reporting by Shelley Solheim, Peter Galli and Scot Petersen
Editors Note: This story was updated to include information and comments from a phone conference with analysts.
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