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By James Maguire
www.NewsFactor.com,
Part of the NewsFactor Network
May 16, 2003

IBM is up to its eyeballs in Linux, according to Gartner analyst George Weiss. "There's no turning back, as far as IBM is concerned," he said. "It would be catastrophic if SCO got its way." In This Story: SCO's Claim Challenging Linux Copyright Protection Trading Revenue Streams Possible Outcomes  Related Stories

By sending a letter to some 1,500 corporations warning them of potential legal liabilities arising from Linux use, SCO Group has cast a cloud on the future of Linux itself, industry observers say. Yet SCO contends that its actions are necessary to protect its intellectual-property rights.

"It's what I consider a very gray period, because nobody really understands the depth and validity of their claim," Gartner analyst George Weiss told NewsFactor. "And, therefore, until it winds up in court, there is only speculation. Nobody can really know for sure."

The SCO letter, sent earlier this week, takes SCO's lawsuit against IBM (NYSE: IBM) to its "ultimate conclusion," says Weiss. "We believe that Linux infringes on our Unix intellectual property and other rights," it states. "We intend to aggressively protect and enforce these rights. Legal liability that may arise from the Linux development process may also rest with the end user."

SCO filed suit against IBM in March for "not less than US$1 billion," alleging that IBM misappropriated Unix code -- to which SCO owns the intellectual property rights -- and incorporated it in the Linux OS.

SCO's Claim

"SCO, over the last several weeks, has had three different teams of people from outside of SCO going through various distributions of Linux and comparing the code to our Unix system 5 code," Blake Stowell, SCO corporate communications director, told NewsFactor.

"What they've been finding is, there are several chunks of code from our Unix system 5 source code in Linux."

So, Stowell said, "Our legal counsel was to inform the business leaders of the world that we're finding our code in Linux and that some legal liability could rest with them if they're using it."

As for the response to the letter, Stowell said that "we've had several companies call and ask what we'd like them to do, and as it states in the letter, we're urging them to receive opinion of legal counsel as to whether or not they should continue to use Linux in their organization."

Challenging Linux

"It's a nuisance letter, and as such, the companies out there using Linux should ignore it," Forrester analyst Ted Schadler said. "[It's] a little bit like getting a letter from a collection agency because you failed to pay your phone bill on time, saying, 'Please your phone bill, or we're going to take you to court.'"

However, he told NewsFactor, "At the end of day, SCO has inserted some sand in the works -- in the gears of Linux adoption -- and it's annoying. So we're advising our customers who use Linux to worry a little bit."

But the burden of responding should fall to the major players, Schadler suggests. Rather than putting the brakes on Linux adoption, he says users should "pick up the phone and talk to IBM and Dell (Nasdaq: DELL) and HP (NYSE: HPQ) , and ask them what they're doing about this nuisance suit. Make this IBM's, Dell's and HP's problem."

The solution is obvious, in his view: "What I think these companies should do is buy this silly company and shut them down. Their market cap is pretty low."

Copyright Protection

SCO's recent legal actions are similar to those of record companies attempting to protect their intellectual property against file swapping, according to Stowell.

"People thought Napster was really cool because you could download music for free and you didn't have to pay for it," he said. "I think the same example could apply to our Unix source code and Linux. Linux has gained a tremendous amount of momentum ... and everybody loves it because it's free."

But the problem, Stowell said -- noting that Linux is based on Unix, which SCO owns the copyright to -- "is that it's free Unix."

Trading Revenue Streams

It is unclear whether SCO would need to win its lawsuit against IBM to make its claims against other vendors legitimate. "Apparently they feel that this is independent of the IBM lawsuit," Gartner's Weiss said.

"They're going after the user community in the same way they would go after anybody else, whether it's vendors or Linux distributors or anyone else. Obviously, they've already incurred the ill will of the Linux community, and they're effectively out of the Linux marketplace," he pointed out.

"So what's happened is that they've traded one revenue opportunity for another. They've given up the Linux mantle and they're assuming the SCO Source intellectual-property mantle," he explained -- referring to the division of SCO that is designed to generate royalty revenue.

"Personally, I think the Linux opportunity was a far larger one -- if it were executed well -- then going this route," he said.

Possible Outcomes

"Depending on the legitimacy of this claim," the analyst continued, "IBM will either see the daylight and know that SCO will never be able to win in court, or it will see that there are some very substantive issues to deal with -- and they might not want to bring it to court and will have to work out some kind of settlement."

Unquestionably, Big Blue is deeply invested in Linux. "They are so into Linux," Weiss remarked, "they're up to their eyeballs. There's no turning back, as far as IBM is concerned," he said. "It would be catastrophic if SCO got its way."

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