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3/4/2003
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More Details On SCO's Linux Suit

SCO's letter Monday to corporate Linux users wasn't a threat, CEO Darl McBride says--it was just a disclosure advised by its lawyers.

Outside and in-house legal counsel advised the SCO Group to send a warning letter about Linux use to the CEOs of 1,350 companies Monday, SCO CEO Darl McBride says.

In a letter dated May 12, SCO Group, which holds the license to the original AT&T Unix operating system, warned commercial users of the open-source Linux operating system that "Linux infringes on our Unix intellectual property and other rights." McBride also said in the letter that "legal liability that may arise from the Linux development process may also rest with the end user." In an interview Thursday, McBride said the company, formed when the former Caldera Systems bought the rights to Unix software products from the old Santa Cruz Operation in 2001, had in recent months hired consulting software engineers who found that the Linux kernel contains "lines and blocks" of Unix source code. "Linux is an unauthorized derivative of our Unix source code," he says.

According to McBride, in-house counsel and lawyers from the firm Boies Schiller & Flexner LLP, which is representing SCO in a Linux-related lawsuit against IBM filed in March, advised the company to tell Linux users that they could be violating SCO's intellectual-property rights. Boies Schiller & Flexner employs David Boies, a prominent attorney who represented the U.S. Department of Justice in its antitrust lawsuit against Microsoft.

McBride says SCO has "no desire" to file suit against Linux users and wants to help companies comply with SCO's rights. "We're the messenger in this case," he says. SCO also said it will immediately stop selling its SCO Linux and OpenLinux products, which contribute just 2% of revenue, projected at $21 million for the quarter which ended April 30. Shares of SCO Group (Nasdaq-SCOX) closed Thursday up $1, at $4.55.

SCO Group has a long and intertwined history with the Unix and Linux operating systems. In 1995, Novell sold UnixWare, a Unix-on-Intel variant developed at AT&T's Bell Labs, to Santa Cruz Operation, a software-development house which had supplied the operating system for Apple Computer's failed Lisa desktop computer in the 1980s, and realized moderate success in the '90s selling versions of Unix that run on Intel chips. Caldera Systems, founded by a group of Novell alumni in the mid-'90s to sell tools and support for the Linux operating system, in 2001 bought most of the products, staff, and intellectual property from SCO. Caldera changed its name to SCO Group last year.

In March, SCO Group filed a lawsuit against IBM charging unfair competition and breach of contract. IBM's promotion of Linux, SCO said, could destroy the value of Unix on Intel-based computers. It was during technical research for this lawsuit, McBride says, that SCO discovered its Unix code within the Linux kernel. Now, SCO is threatening to revoke IBM's Unix license, which it uses to sell its AIX operating system, June 13 if no resolution is reached. A spokeswoman for IBM says the company intends to defend itself vigorously and believes its Unix license is "perpetual and irrevocable."

Meanwhile, SCO's actions have created a backlash among Linux programmers. May 2, SCO's Web site was disabled for several hours by a distributed denial-of-service attack, which flooded the site with bogus traffic.

In any case, SCO's tactics look to some like an act of desperation. "SCO seems willing to play as hardball and as dirty as they can," says Gordon Haff, an analyst with IT research firm Illuminata. "My view is, they want to be bought. I don't see how they can continue in this business long term after this."

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