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SCO Escalates Letter-Writing War on Linux

SCO Escalates Letter-Writing War on Linux

Having failed to persuade the end-user establishment of the necessity of paying its so-called Linux tax, the SCO Group has upped the ante and last Thursday quietly started sending letters to maybe 3,000 end users, including 41 of the Fortune 100, that have source code licenses to SVR5 Unix, which SCO inherited from AT&T, basically telling them they can't run Linux binaries.

SCO also started sending another letter to what it calls "select" Fortune 1000 Linux users last Friday telling them that Linux violates the US Copyright Act, including the widely loathed Digital Millennium Copyright Act (DMCA) that the music business has been using to try to fight wholesale piracy, and cites 65 Unix header files in Linux that allegedly infringe SCO IP.

According to SCO, Linux-using end users have been hiding behind SCO's $3 billion suit against IBM, which won't come to trial for another 16 months, waiting to see how that plays out before opening their checkbooks. Now SCO is making it crystal clear, if it wasn't before, that the two issues are separate. It's brought IBM up on contract violations, while it contends it's got end users on copyright violations.

The so-called DMCA letter is the first time SCO has presented any evidence of its copyright case, even to the dozen or so companies it has reportedly been trying to negotiate Linux licenses with for the last few months, according to SCO spokesman Blake Stowell. SCO claims its copyright notices were removed from the files when Linux pinched them and that's what gets Linux in Dutch with the DMCA.

SCO says that either the allegedly DMCA-infringing Fortune 1000s can pay SCO the royalties of $699 per CPU SCO is currently demanding for the privilege of running Linux, or pull the illegal header files out on Linux and cripple almost all the applications Linux can currently run, or go to court.

Under the DMCA, violations are accessed at $30,000 per instance for accidental infringement and $150,000 per instance for willful infringement, SCO CEO Darl McBride said this morning in a conference call. He said he assumes willful infringement at this point.

SCO has yet to double its per-CPU royalties as it has said it would so if end users move quickly on the one-time fees they'd potentially be getting them on the cheap.

Meanwhile, putting the screws to its own SVR5 source code licensees, which include universities and non-profits as well as for-profit companies of all stripes, SCO is demanding that they certify in writing by the end of January that they are not running Linux binaries compiled from any Unix ABI-carrying version of Linux - which is basically everything - and that their employees and contractors haven't thrown Unix code over the wall to Linux or put it out under the GPL.

If the SVR5 licensees don't oblige, McBride said their licenses would be forfeit.

The DMCA letter claims that certain copyrighted Unix ABIs showed up verbatim in Linux and were distributed illegally under the Linux General Public License (GPL). SCO acknowledges that some Unix APIs were made freely available over the years through Posix and other open standards, but that the Unix ABIs have always been copyright-restricted.

SCO also claims that Linux and the 65 header files can't hide - like Linux supporters like to do - behind the shadowy settlement that AT&T and University of California at Berkeley came to after AT&T sued the school and its spin-off Berkeley Systems Development Inc (BSDi) way back when. According to SCO general counsel Ryan Tibbitts who signed the DMCA letter, the settlement left the ABIs protected IP.

Tibbitts also claims that neither SCO nor any "predecessor in interest" in Unix ever sanctioned the distribution of Unix ABIs under the GPL, the cornerstone of Linux and open source. "As a result," he says, "any distribution of Linux by a software vendor or a redistribution of Linux by an end user that contains any of the identified Unix code violates SCO's rights under the DMCA insofar as the distributor knows of these violations."

Thirty-four days ago SCO's fancy lawyer David Boies, victor of the Microsoft antitrust suit, threatened to sue one or more Linux users for trifling with SCO IP in 90 days. The company has another 56 days to make good on its threat. Although it has previously changed its stance on other threats - like sending out invoices to Linux users - there are now hints it will act as soon as the holidays are over. It remains to be seen whether it goes for the jugular and sues high-profile Linux darling Google, whose entire infrastructure of thousands of machines is run by Linux.

According to Yankee Group analyst Laura DiDio, who has seen validity in SCO's position and has been subpoenaed by IBM in the SCO case, "The onus is now squarely upon SCO's customers and the 'select Fortune 1000 Linux end users' to determine whether or not there is any illegal code in their products which violates the terms of their SCO agreements. This is no trivial task. And undoubtedly many customers will be upset by what they perceive as further evidence of SCO's heavy-handedness or villainy! At this point, in the absence of a court judgment, the non-SCO customers are under no legal obligation to comply. However, if SCO does prevail in the courts at a later date, the Fortune 1000 Linux end users who received these letters and ignored them, may very well have to pay SCO back licensing fees plus penalties. If SCO loses the case, then nothing will happen. The Fortune 1000 Linux end users will each have to assess their specific risk factors and determine whether or not to respond. SCO's customers are a different matter and they will have to respond. Overall, this is a case of SCO attempting to show the industry that it believes it has a strong, supportable position and is willing to press the issue - no matter how unpopular its position and actions are."

SCO leaked the story of its two letters to the New York Times this morning and then posted the results of its fourth fiscal quarter ended October 31, which had been delayed two weeks, it said, while an outside expert figured out how to account for the $47.7 million equity investment the company cleared in October.

The company lost $1.6 million, or 12 cents a share, on $24.3 million in the quarter, up 57% year-over-year, including $10.3 million in license revenues that it got from Microsoft and Sun Microsystems - and noticeably not from anybody else.

SCO would have earned $7.4 million, or 44 cents a share, if it didn't have to pay its lawyers $9 million of the October investment as part of their convoluted compensation deal, which gives them 20% of practically every dollar SCO sees. SCO said legal costs have run it $16 million so far, roughly $2.5 million-$3 million a quarter, a number it expects to jump by another million or two a quarter going forward.

It is unclear whether SCO's projection of its legal bills includes a potential legal tussle with Novell, which is buying SUSE and getting help for it from IBM. See, Novell has apparently just registered copyrights covering a swat of SVR4 dot releases with the Copyright Office and presumably the only reason it's got for doing that is a showdown over who owns what with SCO in court.

Back in May, Novell flatly claimed SCO didn't own Unix copyrights and had to recant when SCO turned up with the famous Amendment 2 to the purchase agreement between Novell and the old Santa Cruz Operation from which the SCO Group got its interests.

According to a terse statement Novell issued today, it "believes it owns the copyrights in Unix and has applied for and received copyright registrations pertaining to Unix consistent with the position… Contrary to SCO's public statements… SCO has been aware that Novell continues to assert ownership of the Unix copyrights."

Anyway, despite the way the quarter turned out, SCO still managed its first profitable year ever, earning $5.3 million on $79.3 million, up from $64.2 million last year, the difference attributable to its hated licenses.

SCO, which now has $64.2 million in bank, enough, it says, to see it through its legal battles, is projecting no licensing revenues to speak of this quarter, hoping things will change - now that it's sent its letters out - in fiscal Q2 and thereafter when it thinks IP licenses and vendor licenses will start kicking in. It estimates it'll do $10 million-$15 million this quarter, flat with a year ago.

SCO said it had only delegated two people so far - one a marketing type, the other a legal type - to exploit its IP hopes - which, given the 2.5 million Linux servers supposedly out there, is like trying to empty the ocean with a teaspoon. So, to heighten its chances, it said it would be putting more "resources" on the case, which Stowell indicated would mean the company finally cuts its sales force in on the scheme.

SCO's stock, which has been a veritable gold mine for those who got in at a dollar, closed today at $17.73, off $1.07 having gotten as high as $19.31. It's been at a high of $22.29 in the last few months and the Street is expecting it to see $25.50 in the next 52 weeks.

To see SCO's letter, with its list of "offending code," see www.linuxworld.com/story/38303.htm

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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