SCO Starts Suing Customers

For the last year, I have bit my tongue over the SCO suit. This is in large part because there has not been anything new to say. In fact, very little has changed since we first expressed the opinion that the SCO versus IBM gambit was the last desperate act of a failing company (see the AMR Research Alert article “IBM and The SCO Group: A Pariah Is Born,” March 10, 2003).

SCO has found that suing IBM is a long and arduous process, and it has not done well in the early legal maneuvering. SCO has also found the backlash from customers to have taken a toll. Software revenue has cratered (down 18% from the previous quarter), and the SCO source IP licensing campaign has generated only $20K in revenue, while consuming $3.4M in legal fees and other expenses during the last quarter. Worse for SCO, IBM has shown no interest in quickly settling the suit. SCO now also faces challenges from Novell and Red Hat, which are quickly becoming a substantial (and expensive) second front. We continue to hold the strong opinion that IBM will prevail in its suit with SCO; however, we are not attorneys.

Faced with this situation, SCO has decided that it is time for Plan B: suing its own customers. SCO has announced that it is suing AutoZone and DaimlerChrysler. In the AutoZone case, SCO claims that “Defendant uses one or more versions of the Linux operating system that infringe on SCO’s exclusive rights in its propriety UNIX System V operating system technology.” The suit against DaimlerChrysler claims alleged violations of its UNIX software agreement with SCO, but this really seems to be based on DaimlerChrysler’s failure to respond to a licensing audit request by SCO. SCO is seeking injunctive relief and damages in each case.

It seems doubtful that SCO will be able to generate anything more than FUD--fear, uncertainty, and doubt--out of these cases in the near term. It is likely that these users will be able to claim that SCO needs to resolve the copyright and ownership issues with Novell before anyone can be compelled to pay SCO for infringing on those rights. SCO has chosen to limit its user suits to current and former customers, hoping that the End-User License Agreement (EULA) signed by these customers will make it easier to claim a violation. SCO may well hope to catch these companies using a SCO library or committing some other technical breach in violation of the EULA, and get a win while sidestepping the Linux issue altogether. This certainly seems to be the case in the DaimlerChrysler suit.

We can’t help but think that SCO’s latest action just accelerates the end. SCO is now a failing software vendor that is fighting five major legal battles concurrently. I can’t see that this helps anyone but the attorneys. While SCO will generate a lot of press on these issues, at this time we see no reason to revise our guidance to customers. For the vast majority of Linux users, SCO’s case has been diminished over the past year, and it seems unlikely that it will prevail. For current and former SCO customers, it is time to perform an audit to ensure that you are in compliance with your SCO EULA, and to eliminate any legacy SCO libraries that may create licensing issues. For companies moving toward Linux, it may make sense to eliminate the usage of any SCO software to minimize the chance of being drawn into a suit based on SCO’s aggressive license enforcement practices.

AMR Research originally published this article on 4 March 2004.