Is SCO Bluffing?

One hundred days after filing its lawsuit against IBM, the SCO Group Inc. says it's prepared Friday to take action against IBM for allegedly violating its Unix licensing contract by allegedly feeding Unix source code to the Linux community. If SCO Group can enforce its case against IBM—SCO says it has the right to revoke all AIX licenses—it may then turn its attention to other areas of the Linux market, including leading Linux distributor Red Hat Inc.

SCO Group's claims are potentially a huge threat to the IT industry, says Michael Collins, a technology lawyer with firm Beirne Maynard & Parson LLP. And Brian Ferguson, a partner with McDermott, Will & Emery, says SCO Group wants "to be able to wave around a new license from IBM."

When SCO Group on March 7 filed its $1 billion lawsuit against IBM, alleging that IBM improperly shared SCO Group's proprietary Unix technology with Linux developers, SCO Group also sent a letter to IBM giving the company 100 days to resolve the matter. June 13 is the end of that period. SCO Group says it has the right to cancel IBM's rights to Unix System V if an arrangement isn't reached.

It would be within SCO Group's rights to order every copy of AIX "destroyed," says Darl McBride, SCO Group's president and CEO. McBride acknowledges the situation isn't likely to come to that. In fact, he says, he'll leave different scenarios open to IBM. The most likely outcome, he says, is license payments.

AIX of course couldn't be somehow whisked off computers because of the conflict. "If you get your driver's license revoked, that doesn't mean you can't drive, but you're skating on thin ice. The morning of June 14, you'll have all of these companies driving without a license," McBride says.

IBM execs say SCO Group is blowing smoke about revoking the company's Unix license, and they're unlikely to take any action before Friday's deadline. IBM's rights to Unix are "irrevocable and perpetual," a spokeswoman says. The company isn't saying much more about the case. In a written response to the Utah district court where the suit was filed, IBM claims it's "fully paid up" regarding its license and hasn't "misappropriated or misused" the Unix source code.

It's a David-and-Goliath battle, Collins says. "David's got some pretty good weapons, a pretty accurate slingshot, but there's a lot of other work that David also has to do."

David, in this case, thinks it's done enough work to bring down IBM. It has identified the lines of code it says were copied from Unix to the Linux kernel. Although this code has been shown to a handful of analysts, SCO hasn't gone public, it says, in order to protect its intellectual property.

McBride says the existence of Unix source code in the Linux kernel puts Red Hat and other Linux distributors in the "hot seat." SCO Group is "focused on vendors that we have contracts with, because those are the easiest" to hold accountable, he says. A Red Hat spokeswoman says her company can't comment on the situation because Red Hat hasn't been contacted by SCO Group, nor has it been shown the code in question.

SCO Group's goal isn't to "chase every company that's selling Linux," McBride says. The goal is to get its fair share of revenue from its intellectual property.

It nonetheless would "behoove" Red Hat and companies that sell Linux-based products to sign SCO Group's nondisclosure agreement and "do the comparison," Collins says. "Red Hat, for example, doesn't want to be charged with willful copyright infringement. Now that SCO Group has put them on notice, it would be prudent for [Red Hat] to have their IP lawyers and programmers take a look at this."

Perhaps surprisingly, Linux player Sun Microsystems is golden in SCO's eyes. "The company that has the best standing with us is a company that's paid a lot of money to us over the years, and that's Sun Microsystems," McBride says.

In the mid-1990s, Sun paid more than $100 million to Novell for a Unix royalty buyout and the ability to redistribute the Unix source code in derivative works, he says. Novell owned the rights to Unix at the time. "Sun wanted to control their destiny related to derivative works," McBride says, while IBM paid $10 million to buy the rights to an older Unix. It allegedly didn't pay for the rights to bypass the owner of Unix on derivative works.

"Think of [Unix] System V as the trunk of a tree, with flavors such as AIX, Solaris, and HP-UX as branches," McBride says. Based on this model, there are two types of violations SCO Group is seeing today. The first is line-by-line code copying right into Linux, right down to the comment code. SCO Group has found the same comments in both Unix and Linux in some cases, he claims. The second violation relates to the Unix flavors. "We're finding code showing up in Linux that is coming from these branches," he says. "That is a straight-out violation of our contracts."

The whole controversy began in December, when the company found that some of its Dynamic Link Libraries were being copied into Linux, McBride says. SCO Group's response was to put together a licensing program to protect its intellectual property. This new license would extend a company's rights to the Unix code base, which has developed over time. Essentially, the new licensing program gives customers rights to versions through System V.

SCO Group distributed a proposal for this Unix licensing program to a number of vendors, including IBM, McBride says. For the most part, feedback was positive or neutral, he says. "The only company that had a violent reaction was IBM." According to McBride, IBM said that if the license plan wasn't dropped, IBM wouldn't do business with SCO and would encourage others to do the same. He says that after LinuxWorld in January, IBM followed through on its threats and stopped doing business with SCO Group.

This made SCO suspicious, so it began looking into IBM's use of Unix, McBride says. "It was disconcerting as to why IBM was so concerned about this," he says. So SCO started to do some digging into how IBM was using the intellectual property that they were licensing from SCO Group. McBride says it was like "pulling on a piece of string. This whole thing keeps unraveling, right down to the source code. We found significant problems with IBM, which led to the March lawsuit."

McBride says he and his company have become targets of both physical and virtual aggression. A man allegedly called his office to challenge him to a fistfight, he says. When McBride's secretary called back to get time and place, and the guy said he was just kidding. Someone also reportedly accessed an SCO Group conference call claiming to be Gartner analyst George Weiss, then said disparaging things about SCO Group. Soon after, the real George Weiss checked in to say it wasn't him. SCO has also been the target of denial-of-service attacks, McBride says.

The Linux business model was bound to change, and some people are having a hard time accepting this, he says. "The whole concept of getting something for nothing just doesn't hold up," he says. "The notion that you're going to run a Fortune 1,000 company on something that in the end could be more like Napster than an enterprise software system, it's a big question mark."