SCO Group Gains Psychological Edge, Registers UNIX System V Copyrights

The SCO Group lawsuit against IBM for copyright infringement of the UNIX System V source code is not going away. In fact, it gets more interesting with each passing week. On July 21, Darl McBride, SCO’s CEO, announced in a teleconference for the media and industry analysts that the Lindon, Utah-based firm received U.S. copyright registrations of its UNIX System V source code.

SCO’s attorney, David Boies, a partner in the firm Boies, Schiller & Flexner, LLP, noted that registering the copyright is the jurisdictional prerequisite needed for SCO to enforce its UNIX copyrights. In other words, the way is now clear for SCO to sue infringing companies. Although SCO has given no indication it will file suit against any corporate customers in the near or intermediate term, registering the copyrights certainly gives the company the ability to do so.

SCO said this week it will offer UnixWare licenses tailored to support run-time, binary use of Linux for all commercial users of Linux based on kernel version 2.4.x and later.

Market Impact
The most tangible immediate result of SCO’s decision to register the copyrights will be to boost the perception among a large segment of the industry—although notably not among the Linux community—that SCO’s case is legitimate.

SCO’s move also puts more pressure on IBM to clearly articulate its position with respect to indemnifying its customers in the event SCO should prevail. I

IBM continues to dispute and dismiss as “baseless” SCO’s claims that IBM misappropriated large portions of UNIX System V source code and embedded them into its Linux software offerings. IBM recently surpassed Red Hat as the largest provider of Linux server software. In a public statement, IBM spokeswoman Trink Guarino said, “SCO needs to openly show the Linux community any copyrighted UNIX code which they claim is in Linux.”

There are strong indications that the industry at large takes SCO’s claims seriously.

Wall Street sees it that way. SCO’s stock soared nearly 15 percent on the news. It jumped $2.82 and was trading at $14.77 early on July 24, its highest level since February 2001. Since SCO filed the suit in March 2003, the stock has quintupled.

Enterprises will note SCO’s filing with heightened interest. In March, SCO sent letters to 1,500 large accounts informing them of potential liability. Since then, about four dozen enterprises contacted SCO for further information and the steps they need to take to legally license their IBM Linux 2.4 and 2.5 software. Expect those numbers to increase with the copyright filing. In addition, SCO is now ready to release a licensing plan so corporations can determine the cost of getting legal.

SCO’s decision to register the UNIX System V copyright will have minimal impact on the eventual outcome of the $1 billion lawsuit it lodged against IBM in Utah Federal Court on March 7. The case is not expected to come to trial for at least a year. In the interim, the case will be tried in the court of public opinion.

Expect IBM, SCO, and the very vocal Linux community to work overtime promoting their respective points of view to influence the opinions of corporate customers, the media, and analysts. Such posturing is designed to make one or the other party blink first and possibly hammer out a settlement. However, a settlement is unlikely in the next several months.

SCO’s success in the lawsuit is by no means assured. The case is complex and further complicated by the issue of where the disputed Linux code originated: SCO claims it comes directly from UNIX System V—the copyrights it owns—and not from other UNIX variants such as BSD UNIX. Until this issue is resolved or at least illuminated to a greater degree, the large majority of corporations will wait rather than pay anything right now.

Vendor Winners

• SCO has wisely elected to adopt a flexible and reasonable position on the licensing fees it seeks from IBM corporate customers. SCO CEO Darl McBride said, “SCO will hold harmless commercial Linux customers that purchase a UnixWare license against any past copyright violations, and for any future use of Linux in a run-only, binary format.” SCO is well advised to pursue its current course and not seek retroactive fees dating back two years ago when IBM first shipped Linux 2.4.

• IBM. Big Blue is a loser at this point—not on the technical merits of the case, which has yet to be decided, but for what it has not said or done with respect to user indemnification. IBM has been silent on whether or not it will indemnify its user base in the event SCO does prevail and if so, to what extent. IBM has only said it will “support customers.” Talk is cheap. This is unacceptable for any vendor, let alone the world’s largest computer maker.
• Novell. The fact that SCO registered its UNIX System V copyright lays to rest an earlier, erroneous contention by Novell president, Jack Messman, claiming that SCO did not own the copyrights. There’s no excuse for the head of a $1.1 billion corporation to make such a public faux pas. It is a simple matter for Messman to exercise due diligence and phone Novell’s lawyers to review the terms and conditions of Novell’s 1995 sale of the UNIX System V contracts to SCO. At worst, it was a deliberate attempt to malign SCO. At best, it was a stupid mistake that indicates Messman was more concerned with speaking out before first being sure of the facts. Ultimately, this embarrassment will cause Novell customers to further question the company’s viability.

• SCO must continue to engage corporate enterprises and be flexible. It should provide a detailed list of licensing fees and offer flexible payment schedules. SCO also should release as much detail as possible (without jeopardizing its case) on how Linux infringes UNIX System V code.
• IBM should share its position on indemnifying customers. Merely saying it will support customers is not acceptable. Telling enterprise accounts not to worry only gives them a sense of false security. IBM must provide specifics of whether—or to what extent—it will protect customers from SCO suit liability and any other future litigation.

• IBM rivals Hewlett-Packard, Inc., Microsoft Corp., Oracle Corp., and Sun Microsystems, Inc. can and should use this opportunity to demonstrate to their own client bases the effective cost savings their products deliver while the cloud of uncertainty hangs over IBM’s Linux offerings.

• Corporations should take nothing for granted. Review the indemnity clauses in all software contracts, particularly IBM’s. Contact IBM, or the reseller directly, to determine whether you are covered and to what extent. Many software vendors have a cap on liability coverage. The Yankee Group strongly urges IBM Linux licensees to contact SCO. It doesn’t cost anything to have the conversation and determine the cost of their binary Linux license offering. Only after a company reviews its existing contracts and then speaks to IBM and SCO will it be in a position to make an informed decision as to whether or not it should negotiate a license deal with SCO or stand firm and do nothing.