UPDATE: SCO sues IBM over Linux, seeks US$1 billion

Unix developer The SCO Group has filed a lawsuit against IBM Corp. charging it with misappropriation of trade secrets, unfair competition and other illegal actions related to IBM’s Linux business. The suit seeks at least US$1 billion in damages.

IBM obtained its Unix license in 1985 from AT&T Corp., which developed the operating system, SCO said in a statement. In 1995 SCO purchased the rights and ownership of Unix and thus became the “successor in interest” to the Unix licenses doled out by AT&T to IBM, Hewlett-Packard Co. and others, SCO said.

In its suit filed Thursday in the State Court of Utah, SCO alleges that IBM tried to destroy the economic value of Unix, particularly Unix on Intel Corp.-based servers, in order to benefit its Linux services business. It charges IBM with misappropriation of trade secrets, tortious interference, unfair competition and breach of contract, said SCO, in Lindon, Utah.

IBM said in a statement Friday that although it had not had time yet to sufficiently study the complaint, “based on a quick read the compliant is full of bare allegations with no supporting facts.”

The company added that it has been “openly supporting Linux and open standards for several years and neither SCO nor any of its predecessors ever expressed these concerns to us.”

All commercial Unix flavours in use today are based on the Unix System V Technology, whose software code and licensing rights are owned by SCO, SCO said in its complaint.

SCO also said it sent a letter to IBM demanding that it cease its allegedly anti-competitive practices. If IBM doesn’t meet its demands within 100 days of receiving the letter, SCO said it has a right to revoke IBM’s license for the AIX Unix operating system.

However, IBM said Friday that SCO never approached it to raise this complaint and did not inform the company in advance that it was filing a lawsuit.

SCO claims in its suit to have been injured in the marketplace by IBM’s actions and has asked the court for damages of at least US$1 billion, with the amount to be proven at a trial.

SCO announced in January that it had hired the law firm of Boies, Schiller and Flexner to investigate possible violations of its intellectual property. Partner David Boies is famous in the IT world for the work he did as special trial counsel for the U.S. Department of Justice in its antitrust suit against Microsoft Corp. The hiring of such a high-profile firm led to speculation that SCO was gearing up for litigation, and prompted concerns among Linux advocates.

“This case is not about the debate about the relative merits of the proprietary versus open- source software models. This case is also not about IBM’s right to develop and promote open-source software, so long as they do that without SCO’s proprietary information,” said Darl McBride, SCO’s president and chief executive officer, during a conference call late Friday morning.

“This case is about SCO’s right to not have its proprietary software misappropriated and misused,” he added.

IBM broke the terms of its Unix contract with SCO “by engaging in practices to use this Unix source code to benefit their Linux business and to destroy Unix,” McBride said.

IBM is taking SCO’s proprietary code and without permission putting it into the open source community. “That’s where we have a major-league problem,” he said.

But when asked whether SCO has direct, concrete evidence of AIX code being donated to the open-source community and showing up on open-source projects, McBride deflected the question. “The details of this case will be played out by the attorneys in a legal setting, so I’m not at liberty to go into the evidences we have at this point in time,” he said.

McBride stated several times during the call that SCO’s action is solely aimed at IBM, and not at the Linux community, to which it belongs as a maker of Linux-based software.

He said SCO approached IBM with its concerns back in December but that the companies have been unable to resolve their differences amicably, which in turn led to this lawsuit.

SCO has posted a copy of its complaint at http://www.sco.com/scosource.

Chris Sontag, senior vice-president and general manager of the company’s SCOsource intellectual property division, declined to say whether SCO is planning to sue anyone else in the near future.

“Our focus right now is on IBM,” he said Friday morning before the conference call. “We have a very strong case and we’re very confidently moving forward. We’re fully committed to taking this all the way.”

That SCO chose IBM to launch its legal offensive has upsides and downsides, said Brian Kelly, a Fenwick & West LLP partner in Washington, D.C., who specializes in IT intellectual property.

The upsides are that IBM has deep pockets, so seeking large amounts of money is feasible, and that suing IBM has a high public-relations value in terms of attracting media attention, Kelly said.

The main downside is that by now IBM has so much money invested in its Linux efforts that it will have little incentive to capitulate and seek a settlement, and will probably be very willing to devote a significant amount of money and legal resources to fight the lawsuit, Kelly said.

Had SCO chosen to go after a smaller company, like a small Linux distributor, SCO would be facing much better chances of getting the upper hand in a settlement, Kelly said.

Regarding SCO’s claims, Kelly said it’s too early to determine how valid they are, especially without hearing IBM’s reaction. “The facts still need to get fleshed out significantly,” which will begin to happen once IBM comments on the lawsuit and the discovery phase of the case, and the case itself, get under way, Kelly said.

If the case draws out for years and becomes messy, it could plant seeds of uncertainty and doubt that could harm the Linux movement and hamper its momentum, as customers, developers and vendors adopt a wait-and-see attitude until the case gets resolved, Kelly said.

Moreover, if SCO succeeds, that would also have an effect on the versions of Linux out in the market, because developers and clients would be forced to obtain an additional license for the right to use whatever SCO technology the court decides has been used without the proper permission, Kelly said, adding that this would not apply to users of SCO’s Linux software.

SCO has an uphill road to climb because misappropriation of trade secrets and tortious interference are difficult legal claims to prove, said Brian Ferguson, a partner in McDermott, Will & Emery’s intellectual property department.

However, if SCO succeeds in its biggest claim, which is misappropriation of trade secrets, the implications for the industry as a whole could be significant, Ferguson said.

“If the court determines SCO has trade-secret rights over the concept of Unix in general, which again is going to be very difficult to prove…any company that has used a Unix-based system and had access to the Unix source code, could very well be found in violation of those trade secrets,” Ferguson said.

But for SCO to prove theft of trade secrets, it will have to prove that the IBM engineers working on AIX have either also been working on Linux, or passing on trade secrets to the Linux team. “For the complaint to have merit, that’s what SCO is going to have to prove…and it’s not clear from the complaint that that indeed has happened,” Ferguson said. It’s likely SCO is hoping to find proof of this during the case’s discovery process.

The case, which could very well drag on for years, especially if IBM files a counterclaim, definitely casts a shadow over the industry, as it’s very likely that most IT companies will at least do due diligence internally in response to this lawsuit to assess their level of exposure to a possible SCO lawsuit, Ferguson said. “It’s not going to cause developers, vendors and clients to freeze, but it has certainly made things more complicated,” Ferguson said.

Eric S. Raymond, president of the Open Source Initiative, a nonprofit corporation that promotes the concept of open-source software, said SCO’s chances of succeeding against the much bigger IBM are “vanishingly small.”

“SCO’s motivation is desperation, because it doesn’t have a business left,” Raymond said, referring to the financial problems the company has faced.

In the unlikely case SCO wins this lawsuit, the implications for Linux will be small because the open-source community will abandon whatever piece of SCO technology is deemed wronged by the court and “reengineer (Linux) around it,” he said.

“If I were an AIX customer, I might see a small downside risk, but Linux customers certainly shouldn’t worry,” he said.

Asked if he’s concerned this legal action might make open-source developers afraid and affect Linux innovation, Raymond laughed and said: “Linux hackers aren’t really good at being afraid of things.”

He called for the open-source community to rally around IBM, not just because it’s a major ally, but because SCO’s actions set a bad ethical and moral precedent. “The history is that much of the commercial value SCO is alleging IBM destroyed was actually created by open-source hackers back in the 1970s and 1980s,” Raymond said.

– With files from Scarlet Pruitt, IDG News Service

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