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.

[Golden Eagle]

FreeBird - so what do you want, a group hug?

How about the old fashioned view of these events instead: Some foriegners made a cheap rip off of US intellectual property, and starting giving it away as free. About that time, some losers from a company called Novell bought every company they could afford including an important one, then when it became apparent they had no idea what they were doing, they had a fire sale that scattered their crap everywhere. As the morals of the US continued to crumble under Clinton's leadership, people started to want to get their software free just like they had started getting their music. Finally, when Bush and Republicans took back over the government, companies starting trying to recoup some of the illegal copying that was going on. Thats where we are now.

[Dominic Harr]

Harr - maybe in the international 'open source' world you apparently live in that sort of thing happens, but not here in the USA when discussing corporate trade secrets that are still considered a company's treasure.

Dude, you've continually deliberately misunderstood what others say, then use 'straw man' tactics to change the subject.

You've taken that analysts comments out of context and tried to claim they mean the exact opposite of what he clearly stated -- that he could find no evidence to support SCOs claims.

You've made some *whopper* comments that indicate a total lack of knowledge of the software world.

You keep claiming there's "evidence" without pointing to any.

We're down to the point where we'll just have to see how this plays out. Maybe you'll surprise me, and turn out to be right. But on several occasions in the past on FR, it's turned out certain posters on the tech threads were *not* who and what they pretended to be. This appears to again be another case of that to me. But who knows?

It'll be an interesting day on FR when this case is settled on way or another, eh?

[Golden Eagle]

Harr - I've noticed the Linux guys like you love to try to attack someone's credibility, you guys think you and you alone are the only brilliant people of the tech world, who don't need to GUI to do ANYTHING, or anybody that uses one could ever teach you a single thing.

Truth is, if you didn't waste all your brain power convincing yourself the above is true, you'd realize how far off base and from the norm you are. All you know how to do is argue, and that's why crap like Linux is running on about 1% of the total computers in the world. Because you'd rather sulk in the corner with your superiority complex just so long as you didn't have to use that stuff that was good enough for the average person.

Have fun sulking.

[Dominic Harr]

I've noticed the Linux guys like you

*grin*

Just F.Y.I -- I'm not a "linux" guy. I barely know anything about linux.

I have one production web server running Linux, and a dev app server for some proof of concept testing. By far most of my stuff is published to Win2k and HPUX servers.

My current 'favorite flavor' of programming language is Java, but I came from the Cobol world so I'm just thrilled with any language for which I do not have to write JCL.

I'm basically OS agnostic.

I'm a real, working developer of top-quality n-tiered web-enabled systems for a top IT corp's Financial Services Group. I produce top quality, working tools every day.

You jump to a *lot* of incorrect conclusions over and over again, it would appear.

[Bush2000]

Was this article supposed to be a Microsoft zealot anti-Linux user hit-piece, or is this particular writer always rude and condescending.

Not surprising that those at the bottom of the barrel feel it was condescending...

[Bush2000]

At least IBM invents and manufacturers some useful products. SCO is nothing more than a patent boutique now.

Where were you self-righteous hypocrites when Caldera (aka SCO) was suing Microsoft?

[Bush2000]

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.

BS. This is the way that large companies operate: They circle the wagons. The draw the bridge. The initial reaction is always to fight.

[Bush2000]

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.

You're kidding, right? Linux print support is crap.

[Bush2000]

Under a 1958 consent decree in settlement of an antitrust case, AT&T (the parent organization of Bell Labs) had been forbidden from entering the computer business. Unix could not, therefore, be turned into a product; indeed, under the terms of the consent decree, Bell Labs was required to license its non-telephone technology to anyone who asked.

Read for comprehension next time: "Bell labs was required to license..."

Do you understand what that means?

[Bush2000]

Just F.Y.I -- I'm not a "linux" guy. I barely know anything about linux anything.

Fixed it for you.

[Bush2000]

Linux is not a "rip off". Your style of argument is unconvincing and perjorative. You may be a bigot, a troll, or maybe an astroturfer. Do you work for microsoft or sco? Do you have irons in the fire? It seems likely. Or are you just a psuedonym for Nick Danger?

Wrong. It is most certainly a ripoff of Unix. How you can sit there and claim otherwise is unfathomable.

[lelio]

You're kidding, right? Linux print support is crap.
What do you base this statement on? You're doubting that I was able to print? Should I mail you the printouts?

[Bush2000]

What do you base this statement on? You're doubting that I was able to print? Should I mail you the printouts?

Personal experience. I've used Linux print "support" (quotes intentional) -- and it's the most pathetic thing I've ever seen. Support for legacy (aka crappy old) printers is marginal. Support for new printers is practically non-existent.

[Golden Eagle]

Harr just because I don't post often doesn't mean you don't and I am a long time freeper. What me? isn't going to work here.

[Bush2000]

They have their problems, but you can't sit there and tell me that they and Intel didn't create the equivalent of the industrial revolution.

Of course he can say that -- because it makes for good fodder...

[Bush2000]

Harr just because I don't post often doesn't mean you don't and I am a long time freeper. What me? isn't going to work here.

Standard Harr "Debate" Tactic # 543: Claim your opponent is someone who he isn't in a vain attempt to change the subject.

[lelio]

When did you try? What distro of linux? What printers couldn't you print on?

[Bush2000]

When did you try? What distro of linux? What printers couldn't you print on?

RH8, HP D135. hpjs driver does not cut it. Crap output.

[Nick Danger]

The initial reaction is always to fight.

I agree that you always want to see what ammo the other guys have before giving in to one of these things -- you wouldn't want to pay on a bluff. Don't you suspect that SCO had already shown most of what they've got, back when they were hoping to walk out with a fat, easy check? SCO claims they've been talking with IBM about this for a long time.

I don't think we're watching the "initial reaction." I think we're watching the reaction after the parties had talked, after SCO had threatened to sue, after SCO did sue, and after IBM had 100 days to think about having their UNIX license yanked.

That's a serious threat. IBM's AIX business is worth several billion a year. It wasn't some Assistant Vice Presdident who made this decision. My guess is that SCO is getting stiffed by the Board, who ordered up the best legal and technical staff work that IBM can do before deciding.

Now SCO gets to wonder if it's a bluff. David Boies doesn't come cheap. SCO has about $25 million in cash and near-cash; IBM can easily keep them in discovery proceedings, pre-trial motions, and so on until that runs out. It's chump change to IBM.

It's gut-check time at SCO.

[no-s]

ripoff of Unix

never mind. It is well known your astounding pervicacity is unassailable.