SCO Faces Hurdles in Linux Claims

SCO Group may have put Linux customers on
notice Wednesday, but it still has legal hurdles to overcome in proving
its legal case, and financing its legal crusade may not be easy
either, experts said.

SCO told Linux users on Wednesday that they may find themselves in the
crosshairs for using the open source operating system, sending letters to
some 1,350 corporations warning that “Linux is an unauthorized derivative
of Unix and that legal liability for the use of Linux may extend to
commercial users.”

SCO contends that portions of its Unix intellectual property have made
their way into Linux illegally, and has backed up that claim with a $1 billion
lawsuit against IBM. SCO’s warning to Linux customers means the
company’s case against IBM is likely to be a closely-watched test bed for
the company’s ability to press its claims.

SCO’s Chris Sontag, senior vice president and general manager of SCOsource,
an arm of the company recently
formed to license Unix System V libraries, announced Thursday that the
company has plenty of evidence that the Linux kernel — including the
official version maintained by kernel.org — contains illegally copied
SCO UnixWare code. He claimed that some of the infringement pre-dates IBM’s
involvement with Linux, while other code is the result of the alleged
infringement that led SCO to launch its suit against IBM.

To back up the company’s claim, Sontag said SCO, within the next few weeks,
will invite an independent panel, under NDA to inspect its Unix source code
and Linux source code side-by-side.

However, the company said it will not show its evidence to other Linux distributors, at least not at first. “That’s akin to saying, “Show me the fingerprints so I can clean
them off.” The Linux community would love for us to point out the lines
of code. We’re willing to show that under non-disclosure to select
individuals, but the first time we show that publicly will not be in the
open,” SCO spokesman Blake Stowell told internetnews.com.

A Moot Point?
But even if SCO can prove that its intellectual property was added to the
Linux kernel, its case is moot, according to Columbia Law School Professor
Eben Moglen, pro bono publico general counsel for the Free Software Foundation. The Free Software
Foundation maintains the GNU
General Public License, under which Linux is distributed.

“There is absolute difficulty with this line of argument which ought to
make everybody in the world aware that the letters that SCO has put out can
be safely put in the wastebasket,” Moglen told internetnews.com,
noting that SCO distributed its own version of Linux with a kernel that
allegedly contains Unix-derived code.

“From the moment that SCO distributed that code under the GNU General
Public License, they would have given everybody in the world the right to
copy, modify and distribute that code freely,” he said. “From the moment
SCO distributed the Linux kernel under GPL, they licensed the use. Always.
That’s what our license says.”

Moglen noted that SCO cannot readily make the claim that it
inadvertently released the code, because the GPL requires that when code is
released under its auspices, the developers must release the binary, the
source code and the license, and the source code must be able to build the
binary. Presumably, then, the binary functions the way the creators want it
to function and has the capabilities they want it to have.

“This isn’t an inadvertent distribution case,” he said. However, he noted
that the Free Software Foundation works with companies to ensure that they
do not release anything under the GPL that they do not intend to release.
In fact, he said, when SCO first filed its suit against IBM, he approached
SCO’s lawyers because it is the Free Software Foundation and not IBM which
holds the copyright to the Linux distribution IBM created, Linux for S/360. IBM created the
Linux distribution but released it under the GPL and signed the
copyright over to the Free Software Foundation.

Moglen said that when he approached SCO’s lawyers he asked them to show him
any problems with the particular Linux distribution and if there were any
he would stop its distribution. “They have never responded to that
invitation,” he said.

He added, “We help people to solve problems with free software. If they
would show us something, we would be happy to help them with it.”

SCO’s decision Wednesday to suspend distribution of its Linux may have been
a recognition of Moglen’s argument. “SCO is taking this important step
because there are intellectual property issues with Linux,” Sontag said.
“When SCO’s own Unix software code is being illegally copied into Linux, we
believe we have an obligation to educate commercial users of
the potential liability that could rest with them for using such software
to run their business. We feel so strongly about this issue that we are
suspending sales and distribution of SCO Linux until these issues are
resolved.”

Misappropriation Not Copyright Infringement
In any case, Moglen noted that nothing in the materials currently filed in
SCO’s case against IBM relates to copyright infringement, despite SCO’s
warning to Linux users.

Lindon, Utah-based SCO originally filed its case against IBM as a state
case in Utah, and it only claimed misappropriation of trade secrets.

“They filed for misappropriation of trade secrets to get them in Utah state
court rather than federal court,” John Ferrell, founding partner and
chairman of the intellectual property practice at Palo Alto-based law firm
Carr & Ferrell LLP, told internetnews.com. “SCO being in Utah would
have had hometown advantage over a large IT corporation.”

He added, “so far, everything that has been filed has been state court
claims relating to the misappropriation of Unix software secrets by IBM.
The misappropriation comes down to the allegation that IBM, having rightful
possession of Unix secrets, breached its duty of secrecy with SCO by
conveying and transmitting those secrets to third parties. Those third
parties were the members of the Linux community that were working on
drivers and various other enhancements to the Linux operating system.”

But IBM requested that the case be removed to federal court in Utah,
thereby mitigating SCO’s hometown advantage. On the other hand, it also
opened the door for SCO, if it chooses, to file copyright infringement charges that it
could not pursue in state court.

Financial Stakes
However, pursuing such a tactic also raises the financial stakes for SCO.

“A misappropriation case is not particularly expensive,” Ferrell said. “To
the extent that they begin to raise copyright infringement issues and
patents are ultimately brought in — which they could well be — this could
be an incredibly difficult litigation for SCO.”

He noted that Lotus fought Borland for the better part of a decade over
copyright infringement and patents. “Both suffered badly by the time it
finished in the Supreme Court,” he said.

But even if SCO can prove its charges, Ferrell said it is unlikely the
company will back up its threats against commercial Linux customers.

“It’s an axiom of law in business that it’s not a great idea to sue your
customers or your potential customers,” Ferrell told
internetnews.com. “In the event that they intend to sue customers,
they may drive away potential customers of both their Linux business as
well as their Unix business. I think they’re going to be very careful
before they sue customers. It’s also easier to sue a few distributors or
publishers or developers.”

SCO has made it repeatedly clear that it intends to see its lawsuit against
IBM through to the end. “Our full intent is to see this through all the
way,” Sontag told internetnews.com at the beginning of May. “We’re
well resourced to be able to do that.”

But Ferrell questioned that assertion. He noted that Rambus is currently
pursuing a similar suit against Infineon in Virginia. “They’ve announced
that their litigation fees were in the order of about $2 million per month
for intellectual property litigation,” he said. “This is a big
undertaking.”

He also noted that the company was quick to show off its first net income
on Wednesday, in the order of $4 million on revenue of $21 million, and
that it may be financing its litigation fees with that income. “It will be
interesting to see what their profit looks like next quarter,” he said.

Buyout Ploy?
Given the hurdles that SCO will have to overcome in its legal battle, and
the ill-will it is generating in the Linux community, why is SCO pursuing
this case? Ferrell and Gartner Group’s George Weiss, believe the company
may be positioning itself as a takeover target.

“SCO’s lawsuit can be construed as an attempt to raise shareholder value
through claims of intellectual-property infringement or to pressure IBM
into an acquisition,” Weiss said in an April research note.

He added, “If IBM is found to be in violation according to the complaint,
its options will be to settle on a compromise in damages or to buy out SCO.
It is unlikely IBM will acquire SCO and add to an already complex portfolio
with SCO’s aging OSs, especially with Linux as IBM’s mainstream direction.
However, IBM is committed to protect its users and maintain Unix license
rights.”