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SCO & IBM Sharpen Their Claws for the Mother of All Cat Fights

SCO & IBM Sharpen Their Claws for the Mother of All Cat Fights

Folks wading through the inflammatory 36-page billion-dollar SCO v IBM trade secret suit filed last week will search in vain for a smoking gun.

There is none.

No fiery accusation charging IBM with lifting a specific piece of code out of Unix and inserting it in Linux, only broad allegations that such a thing has been going on wholesale.

SCO CEO Darl McBride said in an interview that the evidence will "come out in the legal process."

Unfortunately he couldn't say what the next step in that process is so it's unclear whether he and his famous lawyer David Boies expect to go on an evidentiary fishing trip during discovery or have the goods on IBM already and are waiting for a Perry Mason moment to drop it in court.

SCOsource chief Chris Sontag, the guy charged with monetizing SCO's IP, claimed that IBM's alleged misappropriation has "nothing to do with a single line of code" necessarily but "methods, concepts and derivative works."

Hmmm.

If proving code has been filched is hard, proving a concept has been snatched is a nightmare.

We also asked McBride about collateral liabilities.

For instance, if Linux is tainted, then what is Red Hat's exposure?

And what is Sun's exposure considering it's turned a free version of Red Hat into Sun Linux?

And what is the exposure of users like Papa John's Pizza and Sherwin Williams and OEMs like HP, Fujitsu, NEC and Toshiba that - SCO says in its suit - "IBM directly and through its Linux distribution partners...induced to breach their corporate licensing agreements...to reverse engineer, decompile, translate, create derivative works, modify or otherwise use the Unix software in ways in violation of the license agreements"?

McBride says he "doesn't know where all this is going."

Guess he realizes that that answer is a scare tactic.

And it worked - at least for a moment. We know for a fact that the SCO complaint has made other large companies hesitate - and call in their own fancy IP lawyers - about contributing their widgetry to open source out of liability concerns. The lawyers reportedly soothed them by telling them the SCO case didn't have legs.

Yeah, well, like they say, "See you in court."

Reportedly SCO is considering what kind of snares it can lay using several types of IP. Supposedly it has also visited any number of companies, including Microsoft, to say it has IP and there's a suggestion running around that Microsoft came to a license agreement with SCO, raising speculation as to whether Microsoft has anything to do with that $10 million that McBride promised to derive from IP this quarter.

Let us recall in passing that the SCO Group, when it was still called Caldera, managed to settle a claim inherited from Digital Research against Microsoft for something close to a reported $300 million.

Predictably, IBM, which hasn't failed to trumpet the absence of supporting facts in the SCO suit, dismisses it publicly as a nuisance. A source says IBM's going to try to get the thing thrown out of court. Reportedly it will ask for a declaratory judgment, claiming no substantive proof and/or prior art. Apparently IBM has taken a blood oath not to settle.

Reportedly IBM and SCO haven't spoken since a blowup over the issue, supposedly first broached in December, at LinuxWorld in January. McBride admitted as much and said things between them have "gone cold" and that there haven't been any conversations in weeks.

A little bird said SCO wanted something around $25 million, which would let it stay in business a while longer. Too bad. The number that gets IBM to automatically sit down and write a check to resolve a patent claim is reportedly $10 million.

Meanwhile, IBM's spokesmen, reciting from what the legal department has given them, say, "We were never previously approached by the SCO Group about these allegations."

Sontag claims in retort that there were a number of ongoing discussions - though he admits one "can't lay everything out" - and that because of the discussions SCO bowed to IBM's wishes and delayed a December announcement that it had formed SCOsource.

Sources say SCO was hoping to have HP and IBM stand up with it like bridesmaids at a wedding in support of the so-called SCOx, supposedly its own hybrid Linux-Unix operating system. It reportedly hoped IBM would sell it on its xSeries, IBM's Intel servers, and its pSeries Unix-RISC machines.

Anyway, if they're not talking anymore, it's going to be awfully hard for them to resolve the first key hurdle, SCO's threat to terminate IBM's AIX license on June 13 if IBM doesn't cure its alleged disclosure violations.

Like the airy demand that Saddam Hussein disarm, SCO's three-page letter of March 6 to IBM CEO Sam Palmisano, SCO's formal notice of material breach, merely recites the confidentiality agreements between them and doesn't specify exactly what IBM must do to avoid having its Unix license confiscated. See www.sco.com/scosource/ExhibitE.qxd.pdf.

One suspects that like the Bush administration's determination to go to war at this point no matter what, SCO intends to pull the IBM AIX license no matter what. Heck, the lawsuit says it already has. Paragraph 135 says, "SCO, therefore, has terminated IBM's license to use Unix-based software products" and refers the court to the March 6 letter.

One ex-IBM Software VP colorfully remarked that "IBM will blacken the skies with lawyers" if its AIX license is imperiled.

IBM public response so far has been to claim that its "Unix license is irrevocable and perpetual."

SCO, in turn, points to wording in a so-called Amendment X to its licensing agreement that IBM signed with Novell and the Santa Cruz Operation from which the SCO Group inherited its alleged IP rights that reads:

"Upon payment to SCO of the consideration in the section entitled 'Consideration,' IBM will have the irrevocable, fully paid-up, perpetual right to exercise all of its rights under the Related Agreements beginning January 1, 1996 at no addition royalty fee....Notwithstanding the above, the irrevocable nature of the above rights will in no way be construed to limit Novell's or SCO's rights to enjoin or otherwise prohibit IBM from violating any and all of Novell's or SCO's rights under this Amendment No. X, the Related Agreements or under general patent, copyright or trademark law." (See www.sco.com/scosource/Exhibit D.qxd.pdf)

Sontag says that if IBM doesn't blink and correct the error of its ways, SCO expects to waltz into court on June 13 and get a court order enjoining IBM from distributing AIX and that if IBM doesn't abide by the order getting it cited for contempt.

It's up to IBM to figure out a "mechanism" for compliance, Sontag said.

A source, by the way, claims to know "for a fact" that Boies is on a "percentage retainer," not contingency, and further claims that this suggests that he's less scrupulous about the facts of the case and more of a white man's Johnnie Cochrane.

Of course a retainer arrangement doesn't seem feasible given that SCO has all of $5 million left in the bank and 340 people on the payroll. Boies, after all, charges $750 an hour, not that he's doing the work himself, but that's the buzz. A percentage retainer is supposed to mean Boies, a chap who's at least sensitive about his visibility, and his firm gets a piece of the action on top of their fees if they win. SCO, meanwhile, continues to decline to clarify the terms of their relationship.

There is, by the way, little about IBM and its legal department that Boies doesn't know considering that he spent the bulk of his career at IBM's chi-chi outside law firm Cravath, Swaine & Moore, the guys who handled the IBM antitrust suit. If Boies has to go up against Cravath, Swaine, well, he knows their tricks even better.

The Fallout. The best reaction SCO was hoping for was neutral press coverage of the suit.

So far what it's gotten is:

- A rumble of calls from Linux and open source supporters to boycott it coupled with revenge threats against other Canopy Group companies, Canopy being SCO's largest stockholder, the VC operation fronting the Ray Noorda Family Trust set up by Novell's former CEO. This idea has been complicated by discovery that Trolltech, an open source company, is one of Canopy's investments;

- A mess of predictions that SCO has slit its own throat;

- A lot of allegations that it's trying to shake down IBM and wants to get bought or bought off. Sontag allows that a buy-out scenario is conceivable, but maintains that SCO fully expects "to take this case through the entire court system" despite the fact IBM and its resources are "10,000 times" bigger than SCO.

- A lot of claims, as unsubstantiated as SCO's, that it doesn't have rights to the Unix IP, for which SCO figures it paid $145 million, and ergo has no case. People seem to be focusing on the USB code in Aix and calling it prior art;

- A "ho humm" comment from Linux demigod and namesake Linus Torvalds, who opined that the suit would have no impact and for good measure threw in the observation that "The people I work with couldn't care less" - as though their opinion mattered - that he doesn't think that "IBM involvement has been that significant" and that SCO may want to "force IBM back into license discussions over Unix itself." In response, one of the irreverent boys on SlashDot wondered if "He was carrying his comments on two stone tablets."

- An open letter from open source philosopher Eric Raymond saying that "What SCO is doing is ethically wrong and legally dubious...but even if you don't care about the ethics, make no mistake: this is a strike at the heart of our community. Conceivably we could live without IBM, but we can't live with the fear that any possible ally we might have in the future would get sued by whatever gang of desperate schlemiels holds the old paperwork from AT&T this week. Please support IBM in fighting off this lawsuit. It's important for the future."

- A waffley statement out of SuSE, the source of the United Linux distribution SCO is currently selling, saying that it is "re-evaluating its relationship" with SCO, suggesting that what it really means - although it won't say so out loud at this point - is that it's looking for a way to drum SCO out of the United Linux corps. In a canned quote, SUSE CEO Richard Seibt, an ex-IBMer, by the way, said "We at SuSE were greatly disappointed to learn of the SCO Group's recent actions...While we strongly believe that this does not impact Linux, we are concerned that these actions are not in the best interest of customers, partners and the Linux community." IBM is a minority investor in SuSE. Reportedly the United Linux contract consists of a couple of dozen paragraphs about membership, but contemplates no ejection mechanism. SuSE is apparently hanging tight, waiting to see what happens;

- A reassuring, presumably market-calming, potentially situation-exploiting statement out of Sun saying that it has "complete IP rights" to the Unix code that Solaris, Trusted Solaris and Solaris x86 is based on and that it "has absolutely no licensing issues with SCO today." Naturally, the operative word in that statement may be "today." Under the circumstances, it remains to seen whether Sun's statement that its Unix licensing agreements - it bought out its royalty stream years ago - actually cover Sun Linux. As a point of passing interest, Sun's lawyers have said in the past that Sun couldn't open source Solaris because they don't know where some of the third-party IP in it came from and wouldn't want to expose the company to any liabilities.

SCO stock went from $2.21 to $3.10 on word of the suit and is now sitting at $2.70.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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