SCO v. IBM: Hurry Up and Wait

In case you don't have your map of Linux-related litigation handy, the docket for the SCO Group looks something like this:

In case you don’t have your map of Linux-related litigation handy, the docket for the SCO Group looks something like this:

* SCO has sued IBM. SCO started with a number of claims, but the suit’s coming down to a dispute over an alleged violation by IBM of a UNIX licensing contract that SCO got from Novell in September 1995.

* SCO has also sued Novell, claiming that Novell has slandered SCO’s title to the UNIX copyrights. Refuting SCO’s claim, Novell says that their (impenetrably written) licensing contract doesn’t assign UNIX copyrights to SCO, but simply gives SCO the use of the source code. [See the interview with Novell CEO Jack Messman on page 44 for details. --Ed.] Novell has filed with the U.S. Copyright office to make their point clear.

* More recently, SCO sued AutoZone and DaimlerChrysler. AutoZone was sued for copyright infringement as an end-user of Linux. DaimlerChrysler was sued as a UNIX licensee, much like IBM.

* Red Hat has sued SCO, seeking a declaratory judgment that Red Hat hasn’t violated any of SCO’s copyrights.

If you’re itching for more details, visit Groklaw (http://www.groklaw.com), where Pamela Jones and her cast of thousands manage to keep up with all of these cases.

The SCO Group is a relatively small company with just 300 employees, according to the company’s last annual report. SCO received a $50 million investment from BayStar last October, but the company’s revenues are falling, down to $11.3 million in the latest quarter (from $13.5 million in the same quarter the previous year), with operating losses increasing from $738,000 to $5.1 million. Given all of this, SCO’s management appears to be betting the company on their ability to hold on until their “IP enforcement” business strategy yields a big payoff.

Ultimately though, I think SCO is going to lose their bet, for two reasons.

First, SCO’s case load will chew through millions of dollars in legal fees, but add nothing to their shrinking revenue stream. Thomas Carey, a partner at Boston law firm Bromberg & Sunstein, thinks it will take “many, many years” for these cases to play out. He estimates it’ll be five years before anything goes to trial. Indeed, the flurry of documents posted on Groklaw — which we should be grateful to have — can be deceiving. I count 30 legal documents in the SCO v. Novell suit alone during the first four months of 2004. That gives the impression of rapid progress, but before long, the filing of motions will subside and the lawyers will begin the lengthy processes of discovery and awaiting a turn in court.

IBM has stated that it has no interest in buying out SCO or settling the case out of court. The AutoZone and DaimlerChrysler cases will likely need to wait for a resolution to the SCO v. IBM case, while the SCO v. IBM case must wait for a resolution to the SCO v. Novell case, since the latter suit will determine SCO’s status as the UNIX copyright owner.

I don’t think SCO can last financially, unless someone ponies up millions of dollars in additional cash. The second reason I think SCO will lose their bet is that the merits of their case seem weaker all the time.

I realize others hold differing views. In a recent cover story, Fortune magazine discusses the business aspects of the SCO v. IBM case, mentioning that fear of “even meritless” lawsuits has the power to drive people away from Linux, and that calling SCO’s bluff will be “exceedingly expensive,” suggesting the potential for out of court settlements.

Many in the popular press describe the SCO v. IBM suit as alleging that IBM copied UNIX code into Linux and then distributed it. To suppose that IBM would not have processes in place to avoid such an occurrence seems improbable.

If IBM did copy code verbatim as SCO alleges, that’s bad news for IBM. The courts will then have to decide what was copied and how to apply copyright protections. More than verbatim copying, however, much of the lawsuit alleges that IBM has inappropriately used UNIX technology as a model to help improve Linux, that IBM was contractually obligated not to develop any “UNIX-like” code, and that they did so by having their employees work on Linux. (See paragraph 6 of SCO’s second amended complaint.)

However, Mr. Carey has pointed out that Exhibits C (paragraph 9) and D (paragraph 6, last sentence) remove any such restrictions on IBM, so that, “Nothing in [IBM's UNIX license agreement] shall prevent [IBM] from developing or marketing products or services employing ideas… or techniques… embodied in [UNIX]“. These exhibits are referred to in paragraphs 63 and 64 of SCO’s second amended complaint.

The complaint and exhibits are all available at http://www.sco.com/ibmlawsuit.

The items I mention here are small parts of a complex case, but how do the odds on this bet look to you?

Nicholas Wells has written numerous books on Linux and related topics. You can reach Nick at nwells@law.gwu.edu.

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