What SCO Wants, SCO Gets - (Linux Assault)

Forbes ^ | 06.18.03, 12:00 PM ET | Daniel Lyons,

[Ernest_at_the_Beach]

NEW YORK - Linux vendors are under attack. In March, IBM was sued for $1 billion by The SCO Group, of Lindon, Utah, which claims IBM has put SCO's Unix code into Linux, the open-source software program. SCO also has sent letters to 1,500 large companies warning them that if they are using Linux, they may face legal problems. Though IBM is the only company named in SCO's lawsuit, other Linux vendors, like Red Hat and SuSE Linux, could suffer collateral damage.

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So how are the Linux companies fighting back? IBM (nyse: IBM - news - people ) put out a statement saying it will fight SCO's (nasdaq: SCOX - news - people ) claim and has issued bulletins to its sales force, providing talking points to use with customers. Red Hat (nasdaq: RHAT - news - people ) is posting pro-Linux commentary and analyst reports on its Web site. SuSE Linux, a German company, claims customers aren't scared by the SCO lawsuit. "Everyone has seen through this," a SuSE spokesman says.

In other words, like many religious folk, the Linux-loving crunchies in the open-source movement are a) convinced of their own righteousness, and b) sure the whole world, including judges, will agree.

They should wake up. SCO may not be very good at making a profit by selling software. (Last year the company lost $24.9 million on sales of $64.2 million.) But it is very good at getting what it wants from other companies. And it has a tight circle of friends.

In 1996, SCO's predecessor company, Caldera, bought the rights to a decrepit version of the DOS operating system and used it to sue Microsoft (nasdaq: MSFT - news - people ), eventually shaking a settlement out of the Redmond, Wash., software giant. In 1997, Darl McBride, now SCO's chief executive, sued his then employer, IKON Office Solutions (nyse: IKN - news - people ), and won a settlement that he says was worth multiple millions. (IKON acknowledges the settlement but disputes the amount.)

McBride joined Caldera as chief executive in June 2002. Two months later he changed the company's name to The SCO Group, based on the name of an ailing Unix product that Caldera had purchased in 2001 from its creator, The Santa Cruz Operation, of Santa Cruz, Calif. The Santa Cruz Operation now calls itself Tarantella (nasdaq: TTLDC - news - people ).

As with the 1996 DOS lawsuit against Microsoft, in the current lawsuit over Unix and Linux this company aims to take a nearly dead chunk of old code, bought for a song, and parlay it into a windfall. Not only is the strategy the same--so are some of the players.

SCO is basically owned and run by The Canopy Group, a Utah firm with investments in dozens of companies. Canopy's chief executive, Ralph J. Yarro III, is chairman of SCO's board of directors and engineered the suit against Microsoft in 1996. Darcy Mott, Canopy's chief financial officer, is another SCO director, along with Thomas Raimondi, chief executive of a Canopy company called MTI Technology (nasdaq: MTIC - news - people ). In this cozy company, SCO even leases its office space from Canopy--a fact disclosed in Securities and Exchange Commission filings, along with the fact that SCO's chief financial officer, Robert Bench, has a side job as a partner in a Utah consulting firm that last year billed SCO for $71,200.

Canopy companies sometimes share more than a common parent. They form joint ventures and buy and sell one another's stock. Last November SCO formed a joint venture called Volution with Center 7, a Canopy company. In 2000, Caldera sold off part of its business to EBIZ Enterprises (otc: EBIZQ - news - people ), a Texas company in which Canopy holds a controlling interest and whose board boasts three Canopy execs, including Mott, according to SEC filings. Previously, Caldera bought shares in two other Canopy companies, Troll Tech and Lineo, and later wrote off the Troll Tech investment but sold the Lineo shares at a profit, according to SEC filings. In 1999, Caldera sold its own shares to MTI, then bought those shares back last year, according to SEC filings.

What's the point of all this horse trading? McBride says he has no idea, since those deals happened before he joined Caldera. "I wasn't involved in those transactions," he says.

Yarro says the investments were made based on each company's belief in doing what's best for itself. "There's no hidden agenda," he says.

Yarro won't apologize for the IBM lawsuit. "I'm not a guy who goes away quietly in the night. I fight," he says. "If you take something from me, if you break a promise, I'm going to come after you."

And he doesn't give up. In 2001, Canopy and Center 7 sued software giant Computer Associates (nyse: CA - news - people ) in a squabble over a business partnership that turned sour. Two years later the litigation continues.

The IBM lawsuit could bring a windfall to Canopy, which owns 46% of SCO. Another beneficiary could be John Wall, chief executive of Vista.com, a Redmond, Wash., company that last August struck a licensing arrangement with SCO. Wall got 800,000 shares of SCO stock in the deal and still holds 600,000, making him SCO's biggest individual shareholder after Canopy. Those shares, which were worth about $1 each when Wall made the deal, now trade above $10.

One team that won't benefit is the folks at Tarantella, the company that sold its Unix code to Caldera in May 2001. After the deal, Tarantella still held 3.6 million shares of Caldera. But last year Caldera bought back all of them, paying 95 cents apiece for most. All told, Tarantella was paid a mere $36 million for its Unix code--the same code that Yarro and McBride now hope could generate $1 billion from IBM.

These guys in Utah are no dummies. The crunchies in the Linux community should be paying more attention.

[Servant of the Nine]

I don't recall us being that heavy handed!

FOFL

So9

[tubebender]

Will they be going after Apple also...

[dennisw]

THanks .. you read my mind

[HAL9000]

Will they be going after Apple also...

I haven't heard anything specific about Apple, but it's not out of the question. The SCO execs seem desperate enough to sue their own mothers for a quick buck.

[Lessismore]

The AT&T and IBM license contract that SCO has on their web site is for Unix System Vr1 dated in 1985. It looks like a normal per CPU license with an annex for resale. It also talks about Unix for 390. See http://www.sco.com/scosource/ExhibitA.qxd.pdf

When IBM talks about the license they use the language "perpetual, irrevocable, paid-up" license.

These sound like two different things. What are the odds that IBM really does have a different license? For example, after IBM got some experience with Unix, IBM may have gone back to USL and negotiated a later license for System Vr4. That release is generally the foundation for later versions of proprietary Unices, including AIX.

Perhaps, as the IP moved from AT&T to USL to Novell to the former SCO to the current SCO Group not all the paperwork moved along. IBM may have a surprise in their bottom drawer.

[PatrioticAmerican]

Like I said, "...if SCO has rights to the code they claim Linux uses."

[Nick Danger]

IBM may have a surprise in their bottom drawer.

I suspect that they do, for two reasons. The obvious reason is the way they are acting. IBM does not play poker as a form of amusement. They would not, in this situation, try a bluff. They have 'called' SCO, and that means they are holding real aces.

The second reason is that the term they are using, "perpetual, irrevocable, paid-up," was a specific class of license offered by AT&T in that time frame. I know this because I was involved in another vendor's negotiation with AT&T to acquire just such a license. If IBM has one of those, SCO has squat. Given IBM's commitment to AIX, I can't believe they didn't acquire it.

There could be some fun associated with the treatment of 'derivative works.' One of SCO's claims involves a symmetric multiprocessing kernel that IBM contributed to linux. IBM does not dispute that this code was originally part of Dynix, which was Sequent's version of UNIX for its line of parallel processing machines. IBM acquired Sequent in 1999, and presumably all of its intellectual properties. The SMP kernel was Sequent's original work. It was not a "modification" of System V code, it was -- and had to be -- a total re-write. At the time, Sequent was one of very few companies that had an SMP machine that worked. SCO's claim appears to revolve around the novel idea that writing a new kernel and shipping it with cc and troff makes it "UNIX" code and hence SCO's property -- as opposed to Sequent's original work and now IBM's property... which IBM can presumably donate to linux if it pleases. I could see a generalist lawyer like Boies trying to sell this idea to a judge, but I think IBM's IP guys would clean his clock.

[Golden Eagle]

If IBM had a "perpetual, irrevocable, and paid-up" license it was to USE the software within AIX, not to DISTRIBUTE it under a different name, much less to a public domain license for zero return revenue, which they very well may have done.

I'm no fan of laywers, but when something like intellectual property has been stolen, they are the only way you're going to get restitution. I wonder how many of the Linux proponents here were actually pulling for this same pack of lawyers when they milked a few hundred million from Microsoft for DR-DOS violations?

[lelio]

Shesh, she's trying to make hay out of that you don't get a linux HP driver for your printer on CD when you buy the thing. I must of been dreaming when I printed to my (albeit older) HP printer within 10 minutes of pluging it into my RH8.0 box.
I think she thinks this is some sort of winmodem case where MS had the product specs tied up that no linux driver would work for it. Perhaps HP has realized that it isn't making money in writing software drivers and should let some free hackers do it, or pay a nominal sum to a foundation to have it done.

[Nick Danger]

If IBM had a "perpetual, irrevocable, and paid-up" license it was to USE the software within AIX, not to DISTRIBUTE it under a different name, much less to a public domain license for zero return revenue, which they very well may have done.

You'll recall that I was careful to provide reasons for why I thought such-and-such might be true, and not to state things that I do not know for certain as facts.

I wish you had done the same. The truth is, you do not know what the terms of IBM's license are. You are claiming that it was strictly a "use" license, with no evidence to support that statement, and apparently some ignorance concerning how licenses at that level are worded. That AT&T was offering licenses to not only use, and distribute, and distribute under a different name, is clear from the fact that many firms were doing it, and AT&T was perfectly happy to watch them do it. Solaris, AIX, HP-UX, Dynix, Xenix... there have been dozens. You are just plain wrong about this.

Nothing in AT&T's license specified that the distributing licensee had to charge any particular price. To do so would have been restraint of trade, which is against the law. Your statement that no one could possibly have the right to distribute UNIX for "zero revenue" is false; pricing decisions are the purview of the seller. In fact the whole point of a "fully paid-up" license is that AT&T receives its entire royalty stream up-front. It is due no more, regardless of how many copies are sold, or at what price.

The bottom line here is that everything you said is wrong.

Whether there has been any intellectual property stolen, and by whom, and from whom, seems to be an unsettled matter. SCO has alleged that their property was stolen, but they have not demonstrated this to anyone. Meanwhile, they are exhibiting behavior commonly associated with shyster lawyers on an extortion mission. We shall see.

[csconerd]

How about this one? It cracked me up...

http://www.theregister.co.uk/content/53/31234.html

[Golden Eagle]

Sorry Nick, we completely disagree. SCO is under no obligation to publically show anyone their 'trade secret' lest the 'secret' be compromised.

You can write a lot of words to try to rationalize what IBM has done, but it's easy to sum it up in just a few - they took something that wasn't theirs, and gave it away to others as 'free'. It amazes me that so many on FR are apparently willing to accept this so long as they personally get to share in the spoils.

[Golden Eagle]

Nick - one more thing. Before you, or others, blast me with both barrels, take a moment to look at the modern day gangsters you are supporting. These are very some insightful comments from the leader of the Linux cult on patent infringements, and how they should be 'dealt' with, when responding to someone warning him he is likely infringing on someone else's property:

"I do not look up any patents on _principle_, because (a) it's a horrible waste of time and (b) I don't want to know. The fact is, technical people are better off not looking at patents. If you don't know what they cover and where they are, you won't be knowingly infringing on them. If somebody sues you, you change the algorithm or you just hire a hit-man to whack the stupid git."

(HTML auto-detected, see link)

[RinaseaofDs]

Proof, please.

[Nick Danger]

it's easy to sum it up in just a few - they took something that wasn't theirs, and gave it away to others as 'free'.

You are making a criminal accusations for which you have no evidence. We know that because SCO has not made their evidence public. You are therefore advocating from emotion, with no facts. That's just not very persuasive. If you had said that "SCO alleges..." or that "I believe, because I am a Microsoft munchkin and we are pounding the hell out of this case, that..." I could see it. But to just sit at your keyboard playing judge, jury, and executioner seems wasteful of other's time. Please don't bother. You are adding nothing to this but noise.

[RinaseaofDs]

>>>Meanwhile, they are exhibiting behavior commonly associated with shyster lawyers on an extortion mission. We shall see.

Do you feel the same way about Sun, Oracle, and AOL when they went after Microsoft.

I love this. Eagle has a point, though maybe he doesn't know for sure. IF the license was to use, and not to distribute, then IBM has a problem.

Our license agreement expressly prohibits distribution, and all license agreements address distribution. Freeware and shareware, for example, state the conditions under which you can distribute the software.

[RinaseaofDs]

Boy, that's news.

I've never seen that before.

I'll tell you this, after having to service my wife's Apple Titanium laptop running Jaguar, I'd say that UNIX is never coming to a desktop near you.

Jaguar is essentially a dynamically dual booting, dual operating system. To run Word, Jaguar boots OS9 and then you can use Word. If you install an HP printer, you have to do it twice, and there is no plug and play. You have to install the drivers on both the OS9 and 10.2.

Thanks for the quote.

[Golden Eagle]

Nick - keep your eyes and ears covered if you wish, but this is old news (http://www.eetimes.com/story/OEG20030609S0011):

Analysts who saw the samples of the allegedly stolen code said that the evidence is damaging and that SCO Group has a formidable legal case.

"If everything SCO showed me today is true, then the Linux community should be very concerned," said Bill Claybrook, research director for Linux and open-source software at the Aberdeen Group (Boston).

Last week, Claybrook and another analyst who had been given an opportunity to see examples of the alleged theft said the blocks of Unix and Linux were strikingly similar. The two blocks of software, they said, contained as many as 80 lines of identical code, along with identical developers' comments.

"One could argue that developers could write exact or very similar code, but the developers' comments in the code are basically your DNA, or fingerprints, for a particular piece of source code," said Laura DiDio, a senior analyst with the Yankee Group (Boston), who viewed the evidence.

"It's very unlikely that code and comments could be identical by pure chance," Claybrook said.

[Only1choice____Freedom]

I think she thinks this is some sort of winmodem case where MS had the product specs tied up that no linux driver would work for it.

Somebody has used Windows too much. Talk about mouse dependant! Winmodems suck, I have not seen one that worked right the first time. Is it me or does it seem that Linux is getting the media shaft from ignorant reporters because it's not Windows? I loaded RH8 on a Dell box and it printed great. I guess since I'm willing to go through a learning curve on a new system, that I'm in the minority again. Open minds learn faster. I have noticed more support lately from printer mfg. to make drivers for Linux.

[Nick Danger]

Eagle has a point, though maybe he doesn't know for sure. IF the license was to use, and not to distribute

That does not even qualfy as idle speculation. To anyone who works in or around the industry, it is laughable ignorance trying to sound smart.

To anyone familiar with Microsoft FUD efforts however, it is very recognizable. Microsoft FUD always targets consumers, relying on their ignorance of the industry to sell dubious propositions that no one familiar with the issue would fall for.

In this case that means associating "software licenses" with those things printed on the back of the envelope that you agree to if you open the CD.

I doubt many people will buy the idea that this is how things are done when the money changing hands is in the tens of millions of dollars, and the entities doing it are large computer and software manufacturers. Guess what? When you spend that kind of money, you get more than the EULA, and you get to negotiate what's in there, and you are doing it precisely to distribute, because otherwise you wouldn't even want it. What you're selling is like Dell buying chips from Intel under an agreement that they can't put them in computers and sell them. It's just stupid to even say such a thing.

If you do not wish to appear to be an absolute idiot, do not try to tell us that IBM licensed UNIX from AT&T for internal use. Don't even go there. It's ludicrous.