Overview of SCO Litigation

For the benefit of those having difficulty following the activities of The SCO Group in its campaign against Linux, I have compiled the following overview. SCO is engaged in activities on three fronts: litigation, public relations, and in the financial markets, and these three areas interact with each other.

SCO has been viewed as a stock scam, an ideologically-driven smear campaign against Linux and copyleft, a front for Microsoft, and a Get Rich Quick scheme to tax Linux or freeload off its successes. Which, if any of these, is the true story? Have SCO’s objectives changed? Did it have several objectives? Of these four aspects of SCO’s behaviour, are some merely instruments for achieving others? Having followed SCO’s antics in some detail for over a year, I have concluded the following: SCO’s campaign started as a contractual grievance against IBM, onto which a Get Rich Quick by IP Licensing scheme was bolted opportunistically. Also opportunistic are the elements relating to SCO’s stock price. The PR campaign and SCO’s financial deals, however, strike me as instruments for prosecuting the Get Rich Quick scheme and the stock scam.

Litigation Background:

SCO is involved in seven actual or potential lawsuits. In reality, SCO is being sued by IBM and Red Hat, in addition to SCO’s claims against those two companies. SCO is also suing Novell, Autozone and DaimlerChrysler. SCO has been threatened with litigation by a group of financiers known as Baystar. In addition, SCO has threatened litigation against, and is vulnerable to litigation from, Linux users and developers.

SCO’s litigation activities are followed in detail on the Groklaw website at www.groklaw.net.

Financial Background:

SCO’s stock price rose from about $3 to $20 but has now declined back to its original value. SCO insiders, SCO’s main shareholder Canopy and various financial institutions stand accused of manipulating the stock. There are a lot of financial background issues I don’t understand, so I shan’t touch on these.

The Get Rich Quick Scheme:

SCO wants to be able to collect licensing fees or damages from two classes of people: those who supposedly infringed its IP by sticking it in their products (IBM, Redhat, SGI, etc), and the potentially much larger class of those who use these products (AutoZone?, Daimler Chrysler, EV1, Lehman Brothers, Joe Linux user at large, etc). The way US copyright law works is that if you’re knowingly using software without a licence, you’re liable for damages. So if there’s some SCO IP inside Linux, users of Linux, even those who aren’t the developers who introduced that IP in the first place, are liable (for the using unlicensed SCO portion of the software) once they have been informed of it.

But here’s the logical crux of the matter: if there was no-one put any SCO code into Linux, then no-one is knowingly running an infringing a copy of Linux, because nonesuch exists. If the there are no members of the set of “developers who put SCO IP into Linux”, for whatever reason, then the users are in the clear. That is to say, if the first set (IBM, etc) is empty of infringers, then the second set (of all Linux users) must be empty of infringers too.

SCO is trying to extract money from people in the second set without first proving in court that the first set is non-empty. If a couple of people from the second set would just pay up, or even better settle a lawsuit out of court, that would scare enough others into paying up too, without ever needing to prove any copyright infringement anywhere. SCO’s second set targets were well-chosen: well-known companies with existing contractual ties to SCO. Any contractual breach found by the court could be misrepresented as some sort of copyright infringement, and encourage other users to pay up.

It didn’t work that way: suing not a representative Linux user, but instead a company already tightly embroiled in the SCO saga, was the last nail in SCO’s credibility for me. If they were confident in their copyright claims, they could have sued someone totally unconnected with themselves, but they mustn’t have had that confidence. If they had any evidence of copyright infringement, they’d have deployed it defending themselves against IBM’s counterallegations. Instead, they chose to initiate lawsuits which could be misrepresented as implying there existed infringing IP in Linux; if Autozone or Daimler had settled to make the lawsuit go away, SCO’s bandwagon would have been back on the road. What SCO needs is the appearance of copyright infringement.

SCO has finally been forced by the court to provide IBM with a certification that it has declared to IBM all the instances of copyright infringement it has found. IBM’s documents suggest that SCO has barely come up with anything at all.

SCO’s was a clever gamble, but they weren’t able to pull it off. They might well have been able to scare a substantial number of corporations into paying up and generating a bandwagon effect, but they weren’t. PJ, the decent folk of Groklaw, and the Yahoo Finance SCOX board can give themselves a collective virtual pat on the back for their part in wrecking SCO’s credibility.

Where did the Get Rich Quick Scheme come from?

All this started because SCO felt it had a reasonable case against IBM for breach of the contract to develop Monterey (a version of UNIX for Intel’s new 64-bit chip). This breach of contract, if proven, could be parlayed into a case for breach of copyright, so long as that case could be made anywhere but a courtroom. SCO’s CEO Darl McBride, and SCO’s financial broker Mike Anderer, were experienced in using IP litigation threats to extract money from vulnerable corporations. With SCO’s product line being commoditised out of the market, there was one throw of the dice left; they would bet the company on the outcome of the litigation. Without the Monterey grievance, there could be no copyright claim, so the contract case came first. It was never invented just to allow a general assault on Linux.

Maximal revenue (for whatever SCO IP may or may not have been in Linux) would be obtained by getting as much coverage for SCO’s claims into the media as possible. McBride therefore picked fights with the Open Source community, engaging in all manner of provocative behaviour, even claiming the GNU General Public Licence was “unconstitutional” at one point. His media campaign features prominently in IBM and Redhat’s legal complaints against his company. I believe that all along McBride was merely using the controversy to give SCO’s claims the widest possible coverage, and the community fell for it hook, line and sinker. By concentrating his attack on copyleft, McBride made his position attractive to the two companies most threatened by it: Sun and Microsoft, who both paid for SCO IP licences they had strangely never needed before. In one case, the investment bankers Morgan Keegan were given a cut of the licensing revenue (normally the bank doesn’t get a cut when software is sold, but, coincidentally, such payments are common when one company invests in another …).

Running out of cash, SCO turned to a group of financiers called Baystar, who were put in contact with SCO through someone at Microsoft. Baystar offered SCO a huge tranche of cash to keep it going, and forced SCO to gag McBride. SCO also needed to sue Novell over that company’s claims to hold the copyright in UNIX, which SCO had sworn to Baystar that it owned itself.

SCO has missed every deadline to provide evidence of its claims, so we must assume it can find none and that the copyright gamble has failed. Depositions of AT&T managers from the time of the contract with IBM are beginning to reveal that even that claim is unlikely to prevail.

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