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SCO sues IBM over Linux, seeks $1 billion

Lawsuit charges IBM with misappropriation of trade secrets

(IDG News Service) — 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.

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.

IBM could not immediately be reached for comment late Thursday or Friday morning.

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 $1 billion, with the amount to be proven at a trial.

SCO announced in January that it had hired a law firm to investigate possible violations of its intellectual property.

"SCO is in the enviable position of owning the Unix operating system," Darl McBride, SCO's president and chief executive officer, said in the company's statement. SCO believes it has "a compelling case against IBM," he said.

SCO said a copy of its complaint would be posted on the Web at http://www.sco.com/scosource. It is holding a conference call with press and analysts at 11 a.m. Eastern Time to discuss the matter.

Chris Sontag, senior vice president of SCO's operating systems 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.

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.

More Stories By James Niccolai

James Niccolai is a San Francisco correspondent for the IDG News Service, a Linux.SYS-CON.com affiliate.

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