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Indemnification and SCO’s Demands

In May 2003, in the midst of its lawsuit with IBM, SCO sent letters to 1,500 Linux users, warning them that Linux contained unlicensed intellectual property. Each of those users received a follow-up letter last December, and SCO recently filed lawsuits against DaimlerChrysler and Auto Zone.

In May 2003, in the midst of its lawsuit with IBM, SCO sent letters to 1,500 Linux users, warning them that Linux contained unlicensed intellectual property. Each of those users received a follow-up letter last December, and SCO recently filed lawsuits against DaimlerChrysler and Auto Zone.

The solution proposed by SCO to prevent Linux users from potentially costly lawsuits is to purchase a license to the SCO intellectual property contained in Linux. You can visit http://www.thescogroup.com and buy today, starting at $699 per CPU. (But don’t buy just yet.)

The irony of SCO demanding a large license fee for a product they previously touted and sold for much less than $699 has been noted by many others. Eben Moglen, a scholar and lawyer at the Free Software Foundation and Columbia Law School, has also opined that he can’t figure out how SCO can make a valid legal claim against a Linux user. (His speech at Harvard Law School is a must-read for anyone following this subject. It’s available at http://www.groklaw.net/article.php?story=20040226003735733). But let’s set aside Professor Moglen’s and others’ reasoned responses for a moment. Filing a lawsuit doesn’t require a strong legal argument — all it requires is a typewriter.

As Linux enters more large organizations, the last thing a corporate user wants is a federal summons to defend their use of Linux. It’s certainly true that lawyers aren’t supposed to file frivolous suits — Federal Rule of Civil Procedure 11 and state bar rules of professional conduct can be used to punish offenders — but having the court decide what is frivolous may cost $200 or more per hour. In the end, many companies might prefer paying a few hundred dollars to “license” away the problem.

Fortunately, pressure on corporations eased significantly earlier this year when vendors started providing customer indemnification programs. An indemnification is basically a contract that says, “If you get sued, we’ll take the hit.” Programs to protect Linux users have been announced by Hewlett Packard, Red Hat, and Novell. Each program is different, but the fact that they exist shows that the vendors don’t think SCO has much of a case. Here’s a quick reference to the three programs as of March 1, 2004.

HP’s Linux indemnity program appears to cover lawsuits by SCO or anyone else for any intellectual property-related suit, and is good for any Linux product sold by HP or its resellers when running unmodified on HP hardware and only if the customer both registers with HP and has an active HP support contract.

HP sells many versions of Linux and has a variety of support packages available. The exact terms of their indemnification contract are not posted online, but you can learn more at http://www.hp.com/wwsolutions/linux/linuxprotection.html.

Novell’s Linux Indemnification program covers lawsuits by any third party for copyright infringement only on SuSE Linux purchased from Novell, and only if the customer both registers with Novell and has an active Novell support contract. Novell only sells SuSE Linux, and their indemnity only covers copyright suits (not patent infringement or trade secrets, among others). To learn more, visit http://www.novell.com/licensing/indemnity.

Red Hat’s program is not an indemnification, but a warranty provided to all registered purchasers of Red Hat Enterprise Linux. The warranty provides that the company will replace any software that the customer is not able to use because it’s found to infringe someone’s intellectual property.

In effect, Red Hat’s warranty protects against all types of suits, including copyright, patent, trade secret, and trademark claims. But it doesn’t pay for a lawsuit. Instead, it lets Red Hat’s customers buy Linux with confidence that their IT infrastructure won’t need to be re-tooled if some lawsuit against free software appears to render Linux inoperable because of violations of intellectual property law. Red Hat promises to engineer around the problem to keep their customers up and running. This is especially important for potential patent infringement, which can’t be fixed as easily as copyright infringement. And, of course, one can assume that any re-engineered solution should then be available under the GPL for all Linux users.

Where does all this leave most customers? Small customers may actually be in the worst position. They may not buy Linux from big vendors like HP, and they can’t afford (or don’t need) support contracts. A lawsuit would present a real financial challenge for such businesses, so SCO’s FUD campaign is likely to weigh heavily on small businesses.

Fortunately, the $10 million legal defense fund announced by the Open Source Development Labs should help even small businesses sleep better. And at any rate, SCO is probably less likely to file suit against a customer whose name won’t make good copy in the Wall Street Journal.

We’re still in the early stages of heated legal and policy battles over the roles of intellectual property and free software. Indemnification is one valuable way that deep-pocketed supporters of Linux can free individual users from the burdens of carrying on legal battles unaided.



Nicholas Wells is finishing his law degree at George Washington University and intends to practice intellectual property law. Previously, Nick was a principal technical writer at Novell and then Director of Technical Marketing at Caldera. He also holds an MBA and a degree in linguistics. Reach Nick at nwells@law.gwu.edu.

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