Open Source

SCO plays a nasty game with Linux market

In March, SCO filed suit against IBM, claiming that its Linux code contained elements of UNIX. In a rare show of agreement, analyst firms are offering scathing opinions of the lawsuit and SCO's arguments.

While most companies attempt to win in the marketplace by providing superior products at attractive prices, some companies try to win through litigation. SCO is trying to make up for past failures by suing IBM and threatening to sue large organizations that use Linux. Most analysts believe that SCO is suing and threatening to sue in hopes that IBM will either purchase it or license the purportedly infringed intellectual property.

SCO is serious about pursuing this to its conclusion. It went as far as hiring David Boies, the U.S. attorney who prosecuted the Microsoft antitrust case and defended Napster in its high-profile case. Butler Group also revealed that SCO's CEO "announced that Boies would be investigating whether a whole range of software has infringed on UNIX intellectual property, including Windows, Mac OS C, Linux, and versions of BSD." That seems like a pretty wide target.

How did this mess come about, and what exactly are SCO’s claims against IBM and Linux users? SCO claims that IBM violated the terms of a number of agreements with SCO and then incorporated proprietary code from UNIX and placed it in Linux. By using Linux that contains SCO’s proprietary code, SCO claims that companies are also subverting its intellectual property rights.

In a rare show of solidarity, virtually every IT analyst report I’ve seen is against SCO and its claims; several analysts have written scathing attacks of SCO.

Do SCO’s claims have merit?
According to Robert Frances Group, “SCO’s strategy is so full of holes that there is only room to discuss a few.” Its main point against SCO is that SCO has been selling a Linux distribution itself for some time, “which critics say provides a measure of implicit approval for the operating system’s legitimacy.” (It’s interesting to note that SCO announced its intentions to stop selling Linux shortly after it launched the lawsuit against IBM.)

The451 provided a little background on SCO and an equally negative view of SCO's lawsuit gamble: "Given that Caldera acquired the Santa Cruz Operation in 2001 with the express purpose of merging UNIX features into Linux, it's hard to take seriously its objections against IBM doing the same." The451 also reported that Caldera has a litigious past: Caldera was the beneficiary of a $275 million award from an antitrust suit brought against Microsoft over “alleged MS-DOS infringements of the ancient DR-DOS.”

Forrester states that "SCO's legitimate goal—to make money from its intellectual property—has been overshadowed by its publicity-laden plot to raise its visibility, hence acquisition value.” Has its attempt to raise its acquisition value worked? At least for now it has.

On the day of the announcement of its lawsuit against IBM, SCO's stock went up 40 percent, and Forrester reports that “at close of business on May 20, 2003, SCO was valued at $84.5 million, almost five times higher than before they filed their suit against IBM, and three times higher before it sent a letter to 1,500 companies (who use Linux)."

Also note that SCO hasn't revealed exactly which pieces of UNIX it claims have been illegally incorporated into Linux. According to Ovum, "If there is an ‘offending’ code within the Linux kernel, it will be fixed very quickly. The Linux community is more than capable of reengineering the kernel to remove the offending code. The speed with which amendments can be made to the kernel suggests that it will take the Linux community days rather than months to replace any proprietary code that is identified. Indeed, the Linux community is already calling on SCO to identify the code that it claims to own so that it can get to work on replacing it."

Based on this observation, it seems that it would be difficult for SCO to defend the position that it has been irreparably harmed by IBM's supposed actions. If it would take only a few days for someone to replace the offending code, how much value could the code have had in the first place?

To make matters worse for SCO, Novell recently announced that it “retains the underlying copyrights and patents to UNIX technology that SCO claims” (“Novell Blasts SCO’s UNIX Position, Claims UNIX Ownership,” ChannelWeb, May 28, 2003). The Novell Web site even features an open letter from Novell’s CEO to SCO’s CEO with the following accusations: “We believe it unlikely that SCO can demonstrate that it has any ownership interest whatsoever in those copyrights. Apparently you share this view, since over the last few months you have repeatedly asked Novell to transfer the copyrights to SCO—requests that Novell has rejected."

What happens now?
Will IBM buy SCO or settle the suit? Analysts are split on this scenario. Butler Group states that “If…SCO Group’s motivation is that IBM will buy it to avoid litigation costs, it may have misjudged the ‘Big Blue.’ IBM has been very clear that it does not want to be a distributor of Linux.” Forrester has a different opinion: “Forrester expects that IBM will build a consortium to pay off SCO or buy it outright.” Its logic is that “IBM and HP each booked more than $2 billion in Linux-driven products and services last year, and Dell reports that 20 percent of its server sales don’t run Windows [Hint: Those servers run Linux]. That gives these vendors a powerful incentive to remove any licensing annoyance.”

Gartner is taking a much more cautious attitude. In an uncharacteristic move, it doesn’t seem to be making any predictions either way.

Will Linux suffer irreparable harm? Once again, there are a range of opinions on this subject. Although no one is recommending outright abandonment of Linux, some are recommending a cautious approach. Gartner recommends that its clients “minimize Linux in complex, mission-critical systems until the merits of SCO’s claims or resulting judgments become clear.” Robert Francis Group states that “IT executives should not scrap Linux deployment strategies out of hand…SCO’s attacks on enterprise users hinge on successfully proving its case against IBM, and the best estimates currently give it at least two years before the case will be finally decided. In the meantime, IT executives should evaluate alternatives such as BSD as an escape route….”

Following up on its belief that IBM will make the SCO annoyance go away, Robert Francis Group firmly states that “enterprises should not stop their Linux rollouts.” In addition to its IBM buyout belief, it also argues for the continued use of Linux because “the risk that tiny SCO can muster the resources to effectively litigate against even one of two of the 1,500 companies it has threatened is low.”

What should you do?
Although I don’t believe that SCO will prevail in either its IBM or end-user gambits, I’ve been surprised before. (Whenever you get lawyers, courts, and juries involved, anything can happen.) I recommend continued deployment of Linux based on the belief that the Linux community will, as Ovum predicted, quickly remove and/or rewrite any pieces of code that SCO, or any other vendor, claims ownership of.

Should you have a Plan B? Always, and I’ll go with the prevailing opinion that BSD may prove to be a viable, unlitigated alternative. To read the complete views of many analyst firms on the SCO situation, visit the Analyst Views SCO/Linux Focus Section.

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