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SCO signs pact with Microsoft, warns users on Linux use

• By Jack Vaughan, John K. Waters
• May 19, 2003

The SCO Group today said it has licensed its Unix technology, including patent and source code licenses, to Microsoft Corp. SCO claimed in a statement that "the licensing deal ensures Microsoft's intellectual property compliance across all Microsoft solutions and will better enable Microsoft to ensure compatibility with Unix and Unix services."

The announcement follows Friday's SCO warning to about 1,500 corporate users that unauthorized use of its Unix source code, which the company claims has been illegally incorporated into Linux, could make them liable for violating intellectual property rights.

SCO, which now bills itself as "the owner of the Unix operating system," has pursued Unix licensing deals before. In fact, it is a long-standing licensing deal with IBM that is at the heart of SCO's recent contentions that its Unix intellectual property has been inappropriately usurped in Linux. The company recently said that "until the attendant risks with Linux are better understood and properly resolved, the company will suspend all of its future sales of the Linux operating system."

In the letter to corporate Unix users, SCO president and CEO Darl McBride charged that "Linux is an unauthorized derivative of the Unix operating system ..." and that "... legal liability for the use of Linux may extend to commercial users."

Chris Sontag, senior vice president and general manager of SCOSource, said the letter was prompted by his company's recent discovery of Unix System 5 code in Linux. SCOSource is a new business division that manages and licenses SCO's Unix products.

"The discovery was very disconcerting to us," Sontag told e-ADT. "This is code that has always been carefully and confidentially provided to all of the licensees. We felt that we had to let end users of Linux know that there is a problem, and there is potentially a liability issue that rests with them."

SCO found the code, Sontag said, while "digging into our case with IBM." In March, SCO filed a civil lawsuit against Big Blue, alleging that it improperly included SCO's Unix intellectual property in Linux. SCO is suing IBM for misappropriation of trade secrets, tortious interference, unfair competition and breach of contract. The company is seeking damages of no less than $1 billion, according to court documents.

At a recent press briefing, SCO's McBride insisted that his company's legal actions against IBM have nothing to do with Linux or the open-source community. "This case is not about the Linux community or us going after them," McBride told reporters. "This is not about the open-source community or about UnitedLinux, of whom we are members and partners. A small part of our business is Linux-based," he said. "This case is and is only about IBM and the contractual violations that we are alleging IBM has made and that we are going to enforce."

Last week -- just days after that press conference -- SCO announced that it has suspended all future sales of Linux "until the attendant risks with Linux are better understood and properly resolved." The company also announced that it has severed its ties to UnitedLinux.

Industry watchers saw the letter as a legal maneuver designed to intimidate corporate customers with big Linux investments into out-of-court settlements, and as an attempt to increase pressure on companies to acquire the struggling Unix vendor.

"I guess suing IBM wasn't enough to get them acquired," Illuminata analyst Gordon Haff said in an interview, "so this is the next stage."

Gartner analyst George Weiss saw the letter as an attempt to disrupt Linux, which has been gaining ground over Unix in enterprise implementations in recent years. And it has seriously alienated the Linux community, he added. "They [SCO] are not well-loved," Weiss said.

"That is definitely an understatement," Sontag said in response to Weiss's comment. "But we have a have a fiduciary responsibility to our shareholders to vigorously enforce our intellectual property [rights]. It's a business issue. That may not be the most popular thing in the world, but we actually think that Linux will be stronger for it in the end. If we are able to come to a resolution and sort this all out, you will no longer have this question about Linux."

Sontag said that SCO's recent investigations have uncovered its source code in other Linux distributions "Certainly we were looking for things related to IBM," he said, "but we found areas that go beyond IBM -- much more than we were expecting. With respect to Linux distributions, we're finding our source code in those distributions."

Sontag said SCO plans to reveal the source code in question within a month's time, but because of the confidential nature of the code, it will not make them available to the public. "We're already lining up independent credible third parties, analysts and others to come in and see what we've got," he said.

The Unix operating system was originally developed in 1969 by Bell Laboratories, then owned by AT&T. IBM entered into a licensing agreement with AT&T in 1985 to develop AIX, a Unix-based operating system for its servers. In 1995, The Santa Cruz Operation purchased the rights and ownership of Unix. In 2001, Caldera Systems acquired the assets of the Server Software Division and Professional Services Division of SCO, forming a new company, Caldera International. In 2002, Caldera changed its name to The SCO Group.

SCO maintains that it owns all source code, source documentation, software development contracts, licenses and other intellectual property that pertain to Unix-related business originally licensed by AT&T Bell Labs to all Unix distributors, including HP, IBM, Silicon Graphics, Sun Microsystems and many others.

In its formal answer to SCO's allegations, filed in U.S. District Court for the District of Utah on April 30, 2003, IBM, through its attorneys, charged that SCO was seeking to "hold up the open source community (and development of Linux in particular) by improperly seeking to assert proprietary rights over important, widely used technology and impeding the use of that technology by the open source community."

IBM had not responded to requests for comments on this issue at press time.

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