Legal View: What SCO's Linux suits mean for users

The copyright infringement suit filed by The SCO Group against IBM in March 2003 received the attention of the Linux community because of its potential impact on every user and developer of Linux.

SCO is a licensor of the Unix operating system and purports to own a copyright in the Unix source code. In its suit SCO alleges that IBM infringed SCO's copyright by copying Unix source code into the open-source Linux operating system. IBM denies this. If SCO prevails and successfully enjoins IBM from using Linux, then there is little to stop SCO from proceeding in a similar fashion, and getting the same result against other Linux users, who, according to SCO's theory, are also improperly using the code IBM copied from Unix to Linux without authorization. Indeed, even though its litigation against IBM is in a very early stage, last month SCO filed similar lawsuits against DaimlerChrysler and AutoZone.

The DaimlerChrysler suit involves the automaker's alleged violation of its SCO Unix operating system license. In December 2003, SCO sent a letter to its Unix licensees, including DaimlerChrysler, requesting that they provide SCO with written certification that they are in compliance with the terms of their Unix licenses. SCO's letter was seen by many as an attempt to gain a strategic advantage in its dispute with IBM. The letter said, among other things, that Unix licensees "must include" a statement indicating that the licensee "is not running any binary code that was compiled from any version of Linux that contains any copyrighted application binary interface code..." This, of course, goes to the dispute between SCO and IBM. DaimlerChrysler did not respond to the letter, and SCO's complaint concludes that "it would be irrational and contrary to [DaimlerChrysler's] self-interest" not to provide the certification unless it was also violating its Unix license.

SCO's suit against AutoZone, an auto parts chain with over $350 million in annual revenue, alleges copyright infringement based on AutoZone's use of Linux, which SCO contends contains "code, structure, sequence and/or organization" from Unix. In its responses to IBM's discovery requests, SCO asserted that IBM induced AutoZone to switch from using Unix to Linux. SCO went on to accuse AutoZone, with the assistance of IBM, of embedding SCO's shared libraries in its Linux implementation in order to provide for the continued operation of AutoZone's legacy applications that were designed to be used with Unix shared libraries, not Linux shared libraries. (These allegations have been denied and rebutted by Jim Greer, who was the senior technical adviser at AutoZone at the time of the conversion.)

The filing of these two lawsuits last month suggests a targeted enforcement strategy by SCO. With SCO's limited resources (SCO recently reported a net loss of $2.25 million in its first quarter, compared with a loss of $724,000 a year ago), SCO must be selective in choosing its targets. DaimlerChrysler and AutoZone, both large, well-known companies, were likely sued to set an example for other Unix licensees and Linux users. The DaimlerChrysler lawsuit is likely an attempt to induce other Unix licensees to submit the certification of compliance requested by SCO in its December 2003 letter. In contrast, the AutoZone suit is most likely an attempt to increase SCO's licensing revenue from Linux users, which to date has been significantly less than the amount spent by SCO in legal fees.

Many current and potential Linux and Unix users and developers wonder how they should proceed in light of SCO's recent actions. So far, SCO appears to be targeting only those who have used both Unix and Linux, even though, in theory, it would be possible for SCO to bring an action against users who use only Linux. However, it isn't clear that SCO currently has the resources, or the desire, to initiate new lawsuits.

Recently, a SCO investor, BayStar Capital, demanded return of its $20 million investment in SCO (see story). It has been reported that this demand is a ploy by BayStar to affect changes at how SCO has been handling its Linux disputes. Reportedly, BayStar was unhappy with the filing of the suits against DaimlerChrysler and AutoZone and wants changes in SCO's management team to include more people with intellectual property and legal experience. Others are interpreting the move by an insider like BayStar as a general vote of no confidence in SCO's ability to prevail or gain significant advantage in its legal disputes. In any event, recent actions by BayStar will probably put the brakes on SCO initiating new litigation, at least for the moment.

In addition, recently a start-up company called the Open Source Risk Management LLC (OSRM) announced that it is offering insurance to protect Linux users being sued for copyright infringement (see story). The cost of the insurance is reportedly 3 per cent per year so that, for example, US$1 million in coverage would cost US$30,000 per year. OSRM purports to have performed a six-month study in which it found no evidence of copyright infringement after comparing the kernel of Linux Versions 2.4 and 2.6 with several versions of Unix. Note that Novell and Hewlett-Packard already provide, at no charge, indemnifications to their customers, and Red Hat promises to replace any infringing version of Linux with a noninfringing version.

Many in the legal community believe that the likelihood that SCO will get a favorable outcome in any of its suits against IBM, DaimlerChrysler and AutoZone is very small and that therefore the risk that SCO's actions will have an adverse impact on Linux users and developers is also very small. The recent developments involving BayStar and OSRM only reaffirm these beliefs. Of course, every Linux user and developer needs to evaluate the situation to compare the risks of using Linux in the face of the SCO lawsuits with the benefits of using Linux.

Donald W. Muirhead is a partner in Choate, Hall & Stewart's Intellectual Property Practice Group in the US. His practice revolves around patent-related matters, including building and maintaining intellectual property portfolios for large technology companies, helping new companies develop and implement strategic patent plans, and providing support for patent litigation and corporate transactions.

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