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Red Hat Attacks, SCO Counter Attacks

Aug 05, 2003, 19:30 (34 Talkback[s])
(Other stories by Steven J. Vaughan-Nichols)

On August 5th, Red Hat finally told The SCO Group and the world that they weren't going to take SCO's anti-Linux FUD anymore in a law suit filed in Delaware federal court against SCO. Reading from a prepared statement, Mark Webbink, Red Hat's general counsel said, "We filed this complaint to stop SCO from making unsubstantiated and untrue public statements attacking Red Hat Linux and the integrity of the open-source software development process." SCO isn't taking this lying down.

SCO vehemently denies that they're spreading FUD. Instead, CEO and president Darl McBride claims that "We have been educating end users on the risks of running an operating system that is an unauthorized derivative of Unix." McBride adds that "We have been showing a portion of this code (which SCO claims has been stolen from Unix System V and placed in Linux) since early June." He does not mention, however, that these code samples are only available after signing a non-disclosure agreement (NDA).

That may be SCO's take on it, but Red Hat's second compliant in their suit comes right out and says, "SCO's (IP) claims are not true, and are solely designed to create an atmosphere of fear, uncertainty and doubt about Linux."

Red Hat is taking SCO to court on seven counts. The heart of the suit though, Red Hat CEO Matthew Szulik said at LinuxWorld was: "We have asked the courts to declare that no violations of intellectual property and trade secrets have occurred. We've been patient, we've listened. But when our customers and the whole open-source community are threatened with innuendo and rumor, it's time to act."

SCO's first response to Red Hat came in an August 4th note to investors that tries to show, via a letter on July 31st from Bob Bench, SCO CFO, to Webbink, which was never actually sent, that SCO had been trying for a peaceful resolution with Linux distributors. "We had expected the possibility of a global resolution of SCO's intellectual property claims against all Linux-related companies that would have likely included Red Hat. This effort has apparently stalled, through no fault of SCO." At today SCO's press conference, McBride added that such talks had been going on with several Linux companies, but these had come to nothing and that no current discussions are now on-going.

In a letter sent on August 4th to Matthew Szulik, after Red Hat sued SCO, McBride wrote that he was surprised by Red Hat's legal action, "I am also disappointed that you have chosen litigation rather than good faith discussions with SCO about the problems inherent in Linux." And, "Of course, we will prepare our legal response as required by your complaint. Be advised that our response will likely include counterclaims for copyright infringement and conspiracy."

McBride ends his note with, "I must say that your decision to file legal action does not seem conductive to the long-term survivability of Linux."

SCO seemed surprised by this move, but it's hard to see how they could be. SCO had been telling Red Hat's, and other Linux vendors, customers for months that they were running Linux illegally. And, further, SCO had directly threatened business Linux end-users with legal action on July 21st.

As Dan Kusnetzky, IDC vice president for system software research, says, "I was expecting someone to make this move. By SCO going to the media rather than a court, it was only a matter of time that someone would take the move of trying to legally force SCO to show the Linux community what they've been complaining about." He adds, "After Eben Moglen's paper (Questioning SCO) appeared, it was only a matter of time before someone took SCO to court."

During the press conference, McBride also said, "Red Hat claims that SCO is at fault for Red Hat's loss of business. We believe it's not our fault. We believe Red Hat is losing business because Red Hat has a faulty business model and that the business model's real problem is that it based around distributing Linux under the General Public License (GPL)."

Thomas C. Carey, a partner at of the Boston IP and business law firm Bromberg & Sunstein and chairman of the firm's Business Practice Group, thinks Red Hat has a very good case. "Assuming for the moment that SCO is off-base in its allegations, this complaint is enough to rock SCO to its foundations." Still, "A lot will depend upon the vigor with which the matter is pursued. My presumption is that the suit is serious and will be pursued with full force."

But Carey warns, "SCO is in some danger even if its allegations are correct, simply because SCO has put everyone in an impossible position. What can they (a Linux distributor or end-user) do if they don't know which code is infringing? If, to that unfairness, you add a conclusion that SCO has its facts wrong, then SCO's liability to Red Hat and others could be very substantial. And if SCO knows (or should know) that its facts are wrong, then you can kiss the company good-bye."

Last, but far from least, Carey thinks that there's "a potential securities fraud action is buried within the pleadings. Red Hat speaks of Canopy Group (SCO's primary owner) having raked in millions in cash since the start of this affair. Red Hat notes that its own stock price has declined 20% in a month. This is the stuff of securities lawsuits. Red Hat could amend its claims to include a securities law claim, or another law firm could bring a class action lawsuit against SCO on behalf of selling Red Hat shareholders who have been harmed by the low price they get. Finally, it is conceivable that the SEC or the Justice Department could take an interest in this, viewing it as market manipulation."

Be that as it may, it's still full speed ahead for SCO. SCO also announced today the availability of the SCO Intellectual Property License for Linux. Contrary to earlier comments from SCO, SCO is not requiring business Linux 2.4 and 2.5 users to buy UnixWare or a license to use UnixWare. Instead, this run-time license permits the use of SCO's intellectual property (IP), in binary form only, as contained in Linux distributions. SCO also claims that because the SCO license authorizes run-time use only, customers will also comply with the Linux's GPL.

This seems to disagree with Eben Moglen, professor of law at Columbia University and counsel to the Free Software Foundation, position who states: "Those who have received Linux under one license are not required to take another license simply because SCO wishes the license it has already been using had different terms." In short, "I don't see how SCO can get around the fact that they gave people GPL Linux."

The new license's cost is also likely to stop many customers from buying SCO's arguments unless a company is especially worried about SCO's legal claims. SCO introductory IP license price for a single CPU system will be $699 through October 15th 2003, after which it will climb to $1,399.

By comparison, the list price of Microsoft's Server 2003 is $1,299 for a single processor system with ten users. SCO's pricing for multiple CPU systems, single CPU add-ons, desktop systems and embedded systems, according to Chris Sontag, senior vice president and general manager of SCO Source, will be along these same lines. The SCO IP License for Linux is a one time license with no need for annual renewal.

It's also not clear why SCO is also asking for license payment for single processor, desktop and embedded systems. You see, SCO has been claiming that its IP rights have been violated in the areas of advanced enterprise level capabilities such as Symmetric Multi-Processing (SMP), Remote Copy Update (RCU) and Non-Uniform Memory Access (NUMA) not in basic end-user Linux code or functionality.

Regardless, McBride finished his press conference with saying that Red Hat and others have been playing "shell game going on with Linux legal liability." Further, trying to take the moral high ground, McBride said that "the real issue is whether intellectual property rights have any value in the age of the Internet" and that Linux companies are making 'don't ask, don't tell' software. And, finally, that while SCO doesn't want to after end-users, in the end, if they have to, "we will go after end-users."

The SCO vs. the Linux world cold war has just gotten several degrees hotter.

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