Where does SCO go from here?

Where does SCO go from here?

Summary: SCO took a huge gamble and lost! There never was much hope that they could pull together a team of lawyers better than those at IBM but the potential threat to Linux, whether real or imagined, is gone -- along with any asset value SCO had left. There customer list is all that's left!


Anyone who was surprised by this week's court decision (Another nail in SCO's Linux lawsuit coffin) has not been following the history-turned-saga of UNIX all that long. 

AT&T unwittingly spawned what would become the open-source movement by turning to America's colleges and universities for UNIX software development during the 1970's.  In exchange for access to AT&T source code, universities gave AT&T full rights to use the source-code they developed.  AT&T also collected a fee for every license of UNIX installed.  In those days, software was protected through source-code copyrights -- not patents.  This fact, in and of itself, gave the open-source movement the latitude it needed to exist.  Put simply, UNIX intellectual property (source-code) may be protected by copyrights but that does not preclude someone from writing unique source code which accomplishes the same tasks as UNIX source code.  Patents protect the tasks themselves.

The commercialization of UNIX began in the early 1980's with the founding of Sun Microsystems.  Sun was by no means the only vendor selling one variant or another of UNIX but they maintained a close relationship with AT&T -- one which made them a partner in the development of UNIX System V, Release 4.

The open-source software movement was also born in the early 1980's under the moniker of GNU (Gnu's Not UNIX).  The goal was to produce an AT&T-code-free functional equivalent of UNIX.  The movement was started by the very people who spent their college careers developing code for AT&T.  No one knew UNIX better than these folks. The development of the Linux kernel in 1991 by Linus Torvalds would round out the GNU project with a complete implementation of a UNIX "clone", free from AT&T code.  Other AT&T-code-free versions of popular UNIX variants soon appeared as well. 

The fun began when AT&T decided to rid itself of the UNIX Systems Laboratory unit of Bell Laboratories.  In 1992, Novell purchased the USL lock, stock, and barrel and immediately began selling off perpetual licenses to UNIX System V Release 4 code-base.  The first buyer was it's co-developer, Sun Microsystems.  In a short time, IBM, HP and a handful of other first-tier vendors purchased their own licenses.  These licenses permitted buyers to distribute an unlimited number of UNIX licenses without further payment to the USL. 

Here's where SCO comes in ...  Once known as the Santa Cruz Operation, SCO pioneered UNIX-on-Intel throughout the 1980's.  In 1995, SCO acquired what was left of the intellectual property of the USL from Novell.  Or so they thought ... 

(Two years earlier, Novell transferred the UNIX trademark and certification rights to the X/Open consortium -- leaving SCO with nothing except one specific variant of UNIX, the SVR4 code-base.  There is a really nice treatment of UNIX history at Wikipedia).

This most recent ruling seemingly clarifies that Novell never really transferred ownership of UNIX intellectual property but only gave SCO the right to market SVR4.  Under the terms of its agreement with Novell, SCO must pass on a portion of its profits back to Novell for each license sold.

So where does SCO go from here? 

In a word...  NO-WHERE!  Whatever asset value they had is gone.  Aside from a short list of customers, they are no longer attractive for purchase.  Novell owns the SVR4 code-base upon which SCO's customers are dependent, putting Novell in a great position to pick-off those customers one-by-one, (if RedHat doesn't get to them first!)  If someone does buy-out SCO, it will be to acquire their customer list -- not much else. 

As others have reported, since deciding to sue first IBM (attempting to cancel IBM's AIX license) and then its customers, SCO stock prices have plummeted, right along with their revenues. 

I don't know how long it took SCO to realize that they had bought "a pig in a poke" when they acquired whatever it is they actually bought from Novell but that is exactly what they did!  By selling off perpetual licenses, Novell brought on the end of the dominance of UNIX in the market place.  Make no mistake, SVR4 and its variants from Sun, IBM, and HP are still a major force in the enterprise machine room but today, the open-source movement, with the Linux kernel as its flagship, continues to expand its influence.  All the while, UNIX vendors are pressured from the other side by the Microsoft juggernaut, with its fully patent-protected code-base. 

Where does this ruling leave UNIX?

Right where it was.  Nothing has changed for IBM, or Sun, or HP.  As owner of the SVR4 code-base as well as SuSE Linux, Novell is in the best position of all as they can co-mingle any UNIX and Linux code that they wish, as long as they are willing to put that SVR4 code out under the GPL.  Their licensees are not quite so fortunate as they are bounded by their individual SVR4 licenses. 

Where does this ruling leave Linux?

Right where it needs to be.  Novell's commitment to SuSE Linux is clear.  Owning everything SVR4 gives them leeway to make whatever deals it wants, utilizing UNIX and Linux.  And, as long as its relationship with Microsoft holds out, Microsoft benefits as well.  Novell's commitment to SuSE also protects the GPL from any and all challenges related to SVR4.  Most other UNIX variants have long since freed themselves from their original AT&T code-base so it looks like clear sailing for Linux to me.  What do you think?

Topics: AT&T, Linux, Open Source, Software

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.


Log in or register to join the discussion
  • Where does SCO go from here?

    to hell. where else?
  • Where does SCO go from here?

    1. In to the history books
    2. Lawyer fodder
    3. Down the sh***er
    4. All of the above
    • Whither ...

      Well, by 31 August they're going to have to file a statement with Judge Kimball on where this leaves the [i]IBM[/i] case. That should be interesting, since they're caught between their usual shenanigans and Hizzoner's less-than-jovial appreciation of same.

      Then, in just one month from this week they go to a courtroom in SLC to find out how badly they're going to be reamed by Novell.

      The principals of SCOX (Darl and Ralph in particular) are going to be spending a lot of time with their personal lawyers trying to find ways out of paying Novell for "conversion." Corporate veil and bankruptcy alike are little use against the white-collar equivalent of "receiving stolen goods."

      Since there isn't a snowball's chance in Phoenix of their making it to the trial date for [i]IBM[/i], somewhere along the line they're going to have the joy of seeing SCOX taken over by the Chapter 7 trustee. His job is getting the creditors (including Novell and IBM) as much of what they're owed as possible, and considerations such as preserving the law licenses of Hatch, James, and Dodge or Boies, Schiller, and Flexner won't have much weight with him -- so all of that [u]fascinating[/u] correspondence between SCOX and its counsel will very likely be turned over to Novell and IBM.

      Oh, and I'd suggest that the employees not make much in the way of plans for their Christmas bonuses.
      Yagotta B. Kidding
      • Well done, me oul mucker....

        ... a masterly summation. We're in for a fun, fun, fun month.

        :-) :-) :-) :-)
      • I don't see that SCO will owe IBM anything ...

        ... since IBM ignored all of their demands that IBM 'cease and desist' using AIX! Perhaps court costs but ...

        As for what they owe Novell as their cut of the Microsoft SVR4 license, who knows. Since MS and novell are in bed together anyway, perhaps nothing.

        I don't see them going bankrupt but I do see them slowly fading away and Novell and RedHat pick-off their customers. Maybe Novell will jst ask for the customer list in lieu of payment on the MS licensing deal.
        M Wagner
        • A few choice phrases

          [i]I don't see that SCO will owe IBM anything since IBM ignored all of their demands that IBM 'cease and desist' using AIX! Perhaps court costs but ...[/i]

          Look up "Lanham Act."
          Also look up Federal Rule of Civil Procedure #11

          The Kimball Court has ruled that SCOX [u]knew[/u] that they didn't hold the copyrights in question at the time that they were making all of those wild statements about IBM, and also at the time that they filed a copyright infringement claim against IBM in Judge Kimball's court.

          Court costs are pocket lint, but legal fees? Those could buy more than a cup of coffee or two.
          Yagotta B. Kidding
          • Seems that people just don't understand ...

            That companies can't go around making demands and trying to collect protection money based on groundless IP claims. When they send out those legal notices, they better darn well be sure they have the legal standing to back them up. Otherwise they are opening themselves up to charges of negligence and harassment. AND if they do it KNOWINGLY, that can easily be interpreted as fraud and racketeering. I don't think we have even begun to see the end of litigation and criminal investigation with all the damage that has been inflicted in this case. It may just leave the clueless with their mouths open, but a lot of the rest of us who have been saying for years that this was going to happen are not going to be surprised.
            George Mitchell
          • There's one born every minute....

            ... as Phineas T Barnum used to say.

            What was going through SCO's heads? What was going through their LAWYER's heads? Eben Moglen spotted SCO's tactics for the lemon it was right back in 2003.

            Anyone with more than 3 brain cells knew this was a 'no hoper'. Taking on IBM - which is still the largest computer company in the world - what an act of gross stupidity!

            [i]"the rest of us who have been saying for years that this was going to happen are not going to be surprised."[/i]

            Absolutely correct!
          • A HUGE gamble on SCO's part ...

            ... but with potentially HUGE rewards. In truth, the best SCO (or at least their sharewholders) could hope for was a buy-out by IBM. If they had any basis for their claim, IBM would have bought them. Why not? Cheaper than litigation!

            Had SCO prevailed in court, they could have take hundreds of millions from IBM (still chump-change to Big Blue) but more importantly, they could have put Linux on the skids! That's what MS and Sun were hoping for when they "paid protection" to SCO. (Both had to know it was a long-shot though!)
            M Wagner
          • I am sure that Novell and IBM will not ...

            ... turn-down any punitive damages the court may impose but is the court likely to impose something severe enough to put SCO completely out of business? SCO gave its own attorneys stock options in lieu of higher but if they hae to pay IBM's legal fees too, that won't be pocket change!

            From the start I expected IBM to buy-out SCO but the longer they held on, the cheaper any such buy-out became. Now, I don't think anyone cares.
            M Wagner
          • IBM make any attempt to buy out SCO because they knew ...

            that SCO didn't have anything they would want. Why would they want another perpetual license when they already have one? Only MS and Sun were willing to buy IP from SCO that they didn't need and that SCO didn't own BECAUSE, unlike IBM, they were willing to do anything to disrupt Linux. And why would IBM want to get into the business of administering Unix licenses? Over the years SCO Santa Cruz built up an x86 Unix business. SCO Utah could have continued to reap the benefits of that business but instead chose to seek profits from litigation and IP trolling. They are getting what they deserve and so are their attorneys who will continue to work for them for free for who knows how long.
            George Mitchell
          • The only reason IBM would have bought ...

            ... SCO would have been if it would be cheaper to buy them than to pay their lwayers to fight them.
            M Wagner
          • Cheaper to buy them than to fight them? Let's see ...

            Well, they are currently valued at under $9 million.

            Applying conventional wisdom to an unconventional situation may not yield the desired and expected analytical outcome.

            Let's see if IBM presses for a ruling even after tSCOg has slipped below the event horizon into corporate non-existence/receivership. The bankruptcy trustee will simply capitulate since it would cost something to defend against the counterclaims rather than just request that the court enter a judgment favorable to IBM.

            I worried for 5.5 years. Don't expect me to have stopped gloating in under 2 weeks. (^;)<
            Still Lynn
          • $60 million question

            [i]I am sure that Novell and IBM will not turn-down any punitive damages the court may impose but is the court likely to impose something severe enough to put SCO completely out of business?[/i]

            You betcha. In fact, that's already happened -- SCOX is a dead company walking.

            The reason is that part in Friday's ruling where Hizzoner tells us that SCOX is liable to Novell for "conversion." The particular fraction of $25 million is still up for discussion, but it's very, very unlikely to be less than SCOX' total available assets.

            [b]Game over, Dude![/b]

            After that, it's just a case of how high the rubble will bounce.

            [i]SCO gave its own attorneys stock options in lieu of higher but if they hae to pay IBM's legal fees too, that won't be pocket change! [/i]

            Nope, and you have no idea how happy that will make a lot of people -- including, I suspect, Sam Palmisano. You see, Rule 11 sanctions apply to the [u]law firm[/u], not just to the plaintiff. And, interestingly, that "conversion" thing also applies to anyone knowingly receiving the proceeds. In this case, that [b]has[/b] to include Boies, Schiller -- who received over $5 million as their cut of the deals, plus (in effect) the rest as part of their pay for the scam.
            Yagotta B. Kidding
        • tSCOg doesn't control AIX.

          So, what authority did they have to issue any C&D demands to IBM?

          They claimed that IBM's license was being terminated for revealing trade secrets and then after saying there were no trade secrets involved (in court, to the judge) they increased the claimed damages from $3 billion to $5 billion. They never offered any explanation of what new claims they had to demand that IBM stop selling and distributing their own code. How can they be held blameless for attempted extortion and Lanham Act violations and only owe court costs? You may want to do some research into this if you still have an interest in ever understanding what was involved.

          What they owe Novell is easy to figure out. They remit 100% to Novell for all license sales and Novell gives 5% back to them. It's in the contract in case you were curious as to how to find out.

          If they aren't going bankrupt how will they pay Novell $25 million out of the $9 million that they have on hand? Any insights on how that works?
          Still Lynn
          • Their "cash-on-hand" isn't all their assets ...

            ... but determining the value of those assets will not be easy. Since the judge ruled that they do not own SVR4, the only thing left that I can see if their customer list. And that cannot be worth a whole lot.
            M Wagner
          • A contentious sort of way of agreeing, but ..

            Admittedly they do have more assets than their cash on hand and available salable securities. But as you point out, unless their customer list is worth billions of dollars <endless_laughter.ogg> they aren't going to get very far in the settlement/judgment process before they are crushed beyond recovery by the gravity of the counterclaims they are facing.
            Still Lynn
  • Almost

    Since SCO (for now, anyway) still has the exclusive authority to administer System V licensing on Novell's behalf (AFAIK, Novell does not have the authority to license the code on its own) Novell is not in a position to cut out SCO as the middleman, even if they wanted to. I suppose Novell could try to void the contract, but they haven't yet.

    The interesting question is what would happen to the licensing franchise if, as seems likely, SCO is forced into bankruptcy. Seems to me that in that case, Novell might want to take it over in that case to keep it from causing any more mischief, possibly by having SCO give it up in exchange for debt forgiveness.
    John L. Ries
    • That and SCO's customer list ...

      M Wagner
  • Sun's rise on BSD

    Sun's rise was on the back of BSD - one of the first open source versions of UNIX. Only during the early 90's did they license AT&T SVR4 for Solaris 1.
    Sun pushed BSD and that's where a lot of the university crowd learned their UNIX skills.