Linux after SCO

Another landmark Linux case seems to be nearing its end.

The history of the case goes something like this: In 1993 Novell acquired the Unix intellectual property from AT&T, two years later it licensed Unix source code to Santa Cruz Operation, which later became The SCO Group Inc. (SCO is a business software developer that earns money licensing Unix software for corporate servers.) In 2003 SCO stated that, “SCO owns much of the core Unix intellectual property, and has full rights to license this technology and enforce the associated patents and copyrights.” Asserting that the Linux in use by IBM included Unix source code, SCO pursued legal action against IBM. At this point Novell re-entered the fray, stating that it had never sold the intellectual property rights to Unix, and that before SCO could pursue its case against IBM it had to sue Novell to establish its ownership of the Unix copyrights. Last Friday the court found in favor of Novell.

As Forbes puts it, “SCO has spent four and a half years arguing that it owns the copyrights to Unix, and that the free Linux operating system includes code stolen from Unix. Its claims suffered what is likely a death blow Friday when a judge in Utah ruled that SCO does not, in fact, own the copyrights to Unix.” According to Bloomberg, “The ruling means SCO probably can’t successfully sue IBM or other Linux users for copyright violations.” The loss in court will cost much more than some lost face; it will also cost SCO financially. Many are speculating that the company’s days are numbered. On Monday SCO stock dropped to 44 cents per share, a 72 percent decline in value. This is a drastic change from the $19.41 at which the stock traded in 2003 shortly after the lawsuit against IBM was filed. It is also in contrast to the price of Novell shares which rose 3.1 percent to $6.62, on Monday. While SCO has not raised the white flag of surrender, further financial challenges may make that inevitable.

The initial ruling may be over, but there is more to come. PC World referring to comments made by Novell spokesman Bruce Lowry points out that, “There are still several claims before the court that will go to trial next month, and one of them involves payments SCO received from Microsoft Corp. and Sun Microsystems Inc. for Unix licenses. If the judge rules that those companies paid SCO for Unix copyrights owned by Novell, SCO will have to pay Novell whatever it earned from those licenses.” The payment due could be tens of millions of dollars. As stock prices from the early days of the suit indicate, SCO’s legal action was not originally viewed by all as the farce many have now come to see it as. However, over time evidence has come to light which indicates SCO was aware from the beginning that their claims may have been tenuous at best. Documents presented show that it is likely SCO knew that they did not own the rights before they even took action. To some, it seems almost fitting to see the company kicked, legally speaking, while they are down.

Now that the case seems pretty much settled it is time for conjecture as to the implications. Many predict an upsurge in Linux adoption, now that the threat of litigation against any user of Linux has been removed. Suggestions by analysts, going back as far as 2003, that enterprises go slow or hold off on adoption has arguably slowed enterprise adoption. This perspective is noted in the New York Times, “The ruling could remove the cloud over open-source software like Linux . . . The unresolved ownership has been seen as a limiting factor in the willingness of computing managers for businesses large and small to adopt open-source software, which can be adapted freely by software developers and can be legally shared or modified by end users.” Forbes says, “Brent Williams, an analyst at the Benchmark brokerage, explained that many businesses interested in switching to Linux had been sitting on the sidelines while the SCO suit played out. They worried using Linux could obligate them to pay royalties to SCO or make them lawsuit targets.”

Though an upswing for Linux is expected by many, not all are seeing roses or happy trails for Linux. Blogging for InformationWeek, Paul McDougall says, “Novell has not threatened to sue Linux users, but what happens if the company, or its Unix rights, are at some point sold to a more, uh, territorial organization. You know, like Microsoft—which says other parts of Linux infringe on Windows. Indeed, Judge Kimball’s affirmation of Novell’s ownership of Unix makes the company a more attractive takeover target starting Monday.” The allusion to deeper involvement in Linux by Microsoft (and even with Novell) is not McDougall’s opinion alone, nor are such thoughts unfounded. Last November Microsoft and Novell announced a deal which, in the words of the Wall Street Journal, “effectively makes Microsoft a reseller of Suse Linux, Novell’s version of the operating system, and kicks off a broad technology collaboration between the two companies. At the heart of the deal is a ‘patent covenant’ under which Microsoft agreed not to file patent-infringement charges against users of Suse Linux, and Novell agreed not to sue users of Windows.”

Many are in fact pointing now in the direction of Redmond. Writing for Groklaw, a Web site that follows open-source software legal issues, Pamela Jones says, “Microsoft is the next SCO. They positioned themselves that way with their patent saber-rattling.” The rattling referred to is the assertion made back in May that Linux violates more than 235 patents held by Microsoft. There is also the fact, noted above, that Microsoft paid SCO for Unix licensing. More than a few industry observers see this as Microsoft funding the war on Linux. Blogging for the Seattle Post Intelligencer Ted Bishop writes, “Microsoft’s $16.75 million licensing payment to the SCO Group has always been an interesting subplot in SCO’s disputes with IBM and Novell over rights to Unix and Linux. Along with reports of discussions between Microsoft and SCO investor BayStar Capital, it sparked allegations (denied by Microsoft) that the company was assisting SCO, to undermine Linux.”

A statement from Novell notes that, ” The court’s ruling has cut out the core of SCO’s case and, as a result, eliminates SCO’s threat to the Linux community based upon allegations of copyright infringement of UNIX.” The battle may be over but the war will continue. In the meantime, Novell is, “extremely pleased with the outcome.”

A more complete version of this posting, with journal articles, and research reports can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Linux & Open Source section of Northern Light’s Software, Computers, & Services Market Intelligence Center.

And in the following articles:

Novell Won’t Pursue Unix Copyrights PC World, August 15, 2007
Now that it has scored a major win for Linux in its legal battle with The SCO Group Inc., Novell Inc. has no interest in becoming like the company it’s just defeated and won’t mount any copyright-infringement claims over Unix, a spokesman said Tuesday. “We’re not interested in suing people over Unix,” Novell spokesman Bruce Lowry said. “We’re not even in the Unix business anymore.”

New Chapter for Novell Forbes, August 13, 2007
Long-suffering Novell’s future is now a little brighter after a court ruling that, if upheld, will change the landscape for computer operating systems. U.S. District Judge Dale Kimball ruled late Friday that Novell owns copyrights covering Unix, a computer operating system. In 1995, Novell licensed Unix source code to Santa Cruz Operation, which later became SCO. SCO argued it had also picked up Unix copyrights from the transaction.

Novell’s Victory over SCO Could Have Downside for Linux Users InformationWeek, August 13, 2007
The free software world spent the weekend celebrating after a judge nixed SCO’s ownership claims over Unix and, by extension, Linux. But the ruling did not specifically address SCO’s charge that Linux is a Unix knock off–and a case that could have settled that question for good may now fade away as a result of Friday’s decision.

Judge Says Unix Copyrights Rightfully Belong to Novell New York Times, August 11, 2007
In a decision that may finally settle one of the most bitter legal battles surrounding software widely used in corporate data centers, a federal district court judge in Utah ruled Friday afternoon that Novell, not the SCO Group, is the rightful owner of the copyrights covering the Unix operating system.


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