SCO, IBM suit just heating up

The SCO Group Inc. (SCO) and IBM Corp. are bracing for what is likely to be a long, drawn-out, intellectual property (IP) dispute involving Unix, according to legal experts.

SCO claims IBM illegally contributed some code from its AIX and Dynix Unix distributions to the Linux operating system, violating IBM’s 1995 contract with SCO. IBM acquired Dynix in 1999 when it bought Sequent Computer Systems. SCO filed the initial suit in March 2003 and is requesting US$3 billion in compensation.

If SCO wins this suit it could have serious ramifications for Linux users, who would likely have to pay SCO a license to use the operating system. SCO has already made available to users of Linux, the SCO IP License. This way if SCO does win the suit the licensees would be protected from charges of copyright infringement..

One problem — for months SCO refused to show IBM the code that was allegedly stolen. In December, a judge ordered SCO to hand over the disputed code and IBM received the material on Jan. 12, it reported.

The companies are set to meet again in court in Salt Lake City on Feb. 6, when IBM must report its findings. But whatever the company has discovered, there will be further requests for code-swapping. Blake Stowell, spokesperson for SCO in Lindon, Utah said the company believes it might discover more alleged IP infringements. SCO is particularly interested in the latest versions of IBM’s AIX and the Dynix, which IBM acquired in 1999 when it purchased Sequent Computer Systems.

When copyright infringements are in question, it would seem logical to outsiders that the company simply release the code for comparison. However, Chris Grasset and Fraser Mann, both partners in the technology business solutions group at Goodman and Carr LLP in Toronto, said it’s not that simple by a long shot.

“The reluctance to release code is common, not in just these kinds of disputes but in just about anything,” Grasset said. “It’s extremely difficult once you let your code out to contain it in any fashion, because it’s something that you don’t necessarily have to duplicate line-by-line to take a lot of the substance and value away. Just looking at the architecture of those sorts of things can give you very significant value.”

“In addition the various technical people looking at the code and making comparisons often move around a fair amount,” he added. “In fact tracking where that intellectual property asset has gone to and the dilution of it is extremely difficult to follow and enforce.”

It can also be time consuming to do comparisons of source code — Grasset said he’s seen these kinds of analyses take as long as six months. It gets tricky because there can be disputes about who examines the code — whether it’s done by a court-appointed third-party or one of the parties directly involved — and because comparing code goes beyond a simple line-by-line comparison, he said. Code may also be moved around from areas where it was originally used and employed for other purposes, plus derivative works need to inspected.

“Occasionally you will trip over something that is blatantly obvious,” Mann said. “For example, we had one case recently in which there was an offshore company we thought was infringing [on one of our client’s IP]. It had done a fair amount of disguising of the code, but left right in the code, it was found embedded some proprietary statements, of our client’s that people had simply missed. That was a lucky hit, but in most cases there’s a fair amount of difficulty establishing the comparison.”

Regardless of the specifics of the claim, the case has the potential to be downed by one simple factor — money. Grasset and Mann said the legal fees in these cases often go up into the multi-million dollar range. Even if SCO wins the case, IBM would most certainly appeal, said C. Ian Kyer, national director for the technology and intellectual property group for Fasken Martineau DuMoulin LLP, based out of Toronto.

“Time is on IBM’s side in this one,” he added. “Dragging it out is a common practice when you’re on the defense.” Especially when the company is as wealthy as IBM, dragging it out could push SCO into bankruptcy, Kyer said.

SCO’s Stowell said that’s not going to happen. He said the company is poised to be able to pay for the lawsuit after receiving a US$50 million investment from BayStar Capital in Larkspur, Calif. and the Royal Bank of Canada in October 2003. The company is also paying its attorneys with cash and issuing 400,000 of common stock.

This means the law firms representing SCO are taking a partial contingency fee, Kyer said, because if SCO loses then the stock will not be worth much money. A contingency fee occurs when the law firm invests in the case by lowering legal fees, and receives a cut of the settlement, usually about one-third, he said.

Stowell said the contingency SCO’s lawyers would receive is less than 30 per cent.

Regardless, this case is just warming up, according to Kyer, Grasset and Mann, and it will be a long while before anything is decided.

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