The Lindon, Utah, company, which has a $3 billion lawsuit pending against IBM, told reporters and analysts in a teleconference that it would begin suing companies that use Linux, but refuse to pay licensing fees to SCO.
"One of things that we will be looking to do is to identify a defendant that we believe will illustrate the nature of the problem," David Boies, managing partner of SCO's law firm Boies, Schiller & Flexner LLP, said. "I don't want to try and identify that defendant on this call, for obvious reasons . . . but you will be seeing the identification of a significant user that has not paid license fees and is in fact using proprietary and copyrighted material. I think you'll certainly be seeing that within the next 90 days."
SCO also announced an agreement to pay the law firm $1 million cash and 400,000 in stock, which will result in a $8.96 million charge against the company's earnings in the fourth quarter. In addition, the firm would receive a cut of the proceeds that could arise from a number of situations. Those could include a fee of 20 percent of proceeds from a settlement in the IBM suit, 20 percent of any SCO equity financing during the lawsuit, or 20 percent of the sale of the company.
"As we succeed, then the Boies firm will succeed," Darl McBride, president and chief executive of SCO, said. "We have success in the courtroom, Boies's law firm will also share in that success."
SCO also was looking at the 1,500 companies it sent letters to earlier this year as potential targets for litigation. Those companies were warned that their use of Linux violated SCO's copyright on a significant portion of code used in the operating system.
"We will start there, but that's not going to be the ending point," McBride said. "Clearly, large customers that are using a lot of Linux inside of their [computing] environment would be the starting point for us."
In its suit against IBM, SCO claims Big Blue violated its contract by moving SCO's Unix technology to Linux, and thus making the copyrighted code available to anyone for free. McBride said the civil trial is scheduled to being in federal court in April 2005.
Red Hat Inc., the largest independent Linux distributor, has filed a formal complaint against SCO, claiming the company's actions to collect royalties from users of the open source operating system are "unfair and deceptive."
Red Hat has asked a Delaware federal court for an order stopping SCO from making "unsubstantiated and untrue public statements" attacking Red Hat's version of Linux and the "integrity of the open source software development process," Mark Webbink, general counsel at Red Hat, has said. That case is pending.