Section 9.2. What You Need to Know About SCO

9.2. What You Need to Know About SCO

The story of this dispute begins at Novell, which initially turned its nose up at open source as a business model. This decision triggered a series of events that led to the current situation.

9.2.1. A Brief History of SCO

SCO's origins lie in a secret project developed at Novell in the early 1990sone that could have been a pioneering commercialized form of Linux. However, Novell scrapped the project, and the core members left to start Caldera, which rode the Linux wave of the late '90s to an IPO and crashed, along with the rest of the sector, shortly thereafter.

Meanwhile, Novell bought the original Unix patents and all accompanying rights from AT&T in 1993. After a management shake-up, it decided to flip those assets to the Santa Cruz Operation, signing a contract in 1995 that handed some, and then allegedly all, of the patents to that company. Caldera bought them, along with the company's name, in 2001, and became the SCO Group a year later.

The renamed company had a management change of its own in 2002. Darl McBride, a Novell veteran and serial entrepreneur, took over as CEO and began revamping the business plan. According to press reports, McBride had developed and honed a business model at one of his prior companies that was built on constant patenting and licensing. Instead of making software products, his company focused on accumulating patents through research, which it then used to hit up companies with competing technologies for a licensing fee. In exchange for the fee, McBride and company promised not to make any legal trouble for the licensee. In Silicon Valley, such exchanges are written off as an occasional cost of doing business.

Whatever the idea's origins, McBride decided to take this path with SCO. In January 2003, he set up a new division, SCOsource, in charge of administering and enforcing licenses of SCO's Unix patents. The company hired David Boies (a lawyer who had successfully led the government's antitrust case against Microsoft) to be its brand-name enforcer. He did his job: in May 2003, SCO sued IBM, claiming patent infringement, for $1 billion.

9.2.2. 2003: SCO Versus IBM

SCO claimed IBM engineers had willfully copied swaths of code from AIX (IBM's in-house Unix flavor) into Linux as part of the company's initiative to upgrade Linux for use in its various enterprise software projects. SCO claimed that IBM had violated the licensing agreement for AIX that it had originally signed with AT&T and that SCO now owned. SCO also refused to make the majority of the allegedly copycat code public, sparking a war of words with open source advocates already disinclined to believe SCO's claims. But Microsoft and Sun were quick to comply, signing licensing agreements and purchasing stock warrants in SCO for more than $25 million, causing many in that community to wonder if the two companies were willing to use SCO as a stalking horse against open source.

Two months later, SCO claimed to have found more Unix code floating inside of Linux, and sent a letter to every Fortune 1000 and Fortune Global 500 company, effectively stating that it owned Linux and asking for a $699 licensing fee for every processor in every product running Linux inside each company. Few companies complied: the SCO division reported just $11,000 in revenues during the second quarter of 2004, a clear sign that everyone other than Microsoft and Sun was willing to wait and see if SCO was bluffing.

At the end of May 2004, Novell spoke up, claiming that SCO had no legal foundation on which to sue IBM, as it still owned the copyrights and patents SCO needed to make its case. It had sold some patents to the Santa Cruz Operation in 1995, but perhaps not the relevant ones. SCO sued Novell while legal scholars pored over the original contract and pronounced it impenetrable, with no clear-cut terms about ownership. Before SCO versus IBM could be properly resolved, this point had to be litigated first.

Meanwhile, open source activists, such as the members of the OSI and its president, the evangelist Eric Raymond, tore into SCO's claims. A paper that Raymond and the OSI published in June 2003 (see http://www.opensource.org/sco-vs-ibm.html) neatly dissected many of SCO's claims, including the following:

SCO's assertion that Linux was not a scalable, robust operating system able to compete with Unix until IBM (allegedly) dumped AIX code into it

Not true, Raymond said. None of the five core abilities Linux needs for enterprise-strength computing (symmetric multiprocessing, journaling filesystems, logical volume management, nonuniform memory access, and hot swapping) can be traced to historical Unix code through IBM.

SCO's protests that IBM had infringed on proprietary code

SCO, in its previous life as the Linux vendor Caldera, Raymond claimed, had actually released large portions of the code in question under the GPL!

While many Linux contributors have volunteered to rip the supposedly infringing code from the Linux kernel and replace it with clean code, SCO has steadfastly refused to release the bulk of the source code in dispute.

In August 2003, SCO produced a very small sample of this code in court. It was quickly leaked to open source web sites, where Raymond, among many others, dissected SCO's arguments again.

In Raymond's analysis (http://www.catb.org/~esr/writings/smoking-fizzle.html), the majority of the code reproduced was released as open source by SCO in 2002; didn't come through IBM; is not present in 90% of all Linux distributions in use; and was actually removed from the Linux kernel in July 2003 as an example of inefficient code.

He did concede that SCO could plausibly claim that its code had been copied, and that the terms of the GPL had been violated by whoever had done it. But the actual risk to IBM, and especially the open source community at large, seemed minute.

9.2.3. The Microsoft Connection

SCO was not about to back down. With its licensing efforts failing to gain traction, SCO sued two Linux end usersDaimlerChrylser and AutoZonein March 2004, thus serving notice that it could be coming for your business next. Its legal bills had continued to mount, however.

But SCO had no trouble raising a war chest. The company had more than $25 million from Microsoft and Sun in the bank, and its stock rose from $1.09 in mid-February 2003 to $20.50 by October, when the venture firm BayStar Capital invested $50 million in the company.

Six months later, evidence became known that Microsoft had played matchmaker, and a BayStar principal openly admitted as much. A SCO internal memo, which fell into open source advocates' hands (http://www.opensource.org/halloween/halloween10.html), suggested that Microsoft had helped line up between $66 million and $106 million in financing for the company. Not everyone Microsoft matched up with SCO was happy with the end result (BayStar has since demanded its money back), but there appeared to be clear evidence that Microsoft was ready and willing to keep the company's lawsuitand its ability to sow FUDaloft for the foreseeable future.